Weekly Newsletter   Challenge account


Trades & Income

OPEN OPTIONS & STOCKS POSITIONS 2021
 

 
Click here to see the table in full in a new window.

 


 

‣ TRADING PLAN
 

We are investors, not traders. We buy assets – dividend-paying companies. We buy dividend growth companies. Our plan is to hold those companies forever. We treat those businesses we are buying as our businesses. It is like real estate. People do not buy homes just to sell them the next day, or next month. People buy to hold their home for the next 30 years or more. We buy dividend growth companies for the same reason.

We buy dividend growth companies to generate income receiving dividends. We want our businesses to reward us for holding their shares and paying us for it. We reinvest the dividends to accumulate more shares. Our goal in accumulating shares of a selected company is to reach 100 shares of that business. All dividends and account deposits are used to accumulate shares.

Once we accumulate 100 shares of a company, we start selling covered calls. When selling covered calls, we sell to avoid our shares being called away. We deploy all hedging strategies to avoid the exercise of the calls. If, however, our shares are called away, we immediately start selling naked or cash-secured puts. We sell puts as a means of investment to buy shares, not to speculate or sell put just to bring premiums. We sell puts against companies we want to buy. Once the shares are assigned to us, we implement the Wheel of Fortune strategy by immediately start selling covered calls again.

All premiums generated from selling covered calls or puts are used to buy more shares of the companies we want to hold.

We only sell our companies when they no longer meet our requirements – reduce or suspend the dividend.

From time to time, we use other options strategies to generate income: poor man’s covered calls, butterflies, covered strangles, or collars.
 

Poor man’s covered call
 

We use this strategy against expensive stocks where we do not have enough capital to trade a standard covered call right away or in the near future and when saving money would take many months or years; usually indexes such as SPY, RUT, IWM, etc. We also use it against ETFs or individual stocks while accumulating shares of that stock.
 

Butterflies
 

We use this strategy as a directional trade. When we identify a strong trend in any direction, we may apply this strategy to limit our risk but reap a decent profit. For example, buying a call against SPY to participate in a strong trend would cost us $800 while the same butterfly would cost us $200. This limits our risk in case we are wrong.
 

Covered strangle
 

This strategy is selling an OTM put and a call against a stock which we want to add shares to our holdings and we already own shares. For example, we own 100 shares of a stock XYZ, and we are OK to buy another 100 shares. We sell covered strangle and our calls are covered by the existing position we already own and our put is covered by cash we have in our account in case we get assigned.
 

Collars
 

We may use this strategy (selling covered calls and use the premium to buy protective puts) if we see a need to protect our holdings and buy insurance. The covered calls will generate income for us to buy the puts.
 

Cost basis offset
 

Selling covered calls and puts, as well as other strategies, will be used to offset our cost basis. This is more of a psychological or mental offset. However, it helps to see it as having less risk in our stock and see it that we have purchased our shares for “free” (we used premiums collected when selling the calls and puts, although on many occasions we started collecting these premiums after we purchased the stock).
 

What about other options strategies?
 

From time to time we may use a different options strategy, for example, naked call, if we see it fit and we are prepared for any consequences from such trades. But, these trades will be very rare.
 

‣ REDUCING TRADING COST
 

Our other trading goal is to reduce trading costs. Therefore we picked a broker that charges low or no fees to trade. We think Tasty Works is the right broker for us. Tasty Works charges no fees to purchase or sell stocks and approx. 1.15 per contract of options trading. This allows us to accumulate our stock holdings buying a single share of the desired stock for no fee.
 

‣ DISCLAIMER
 

Note that all trades presented here are our trades and we post them for educational purposes. We have not licensed investment advisors and we do not know your objectives and goals, so we cannot provide you with any specific investment advice. If you seek advice, contact a licensed advisor. Note, that trading or investing in stocks, options, or futures involves risk and that you may lose all your money. If you decide to mirror our trades, do it at your own risk and do your own homework.
 



Pages: 1 2 3 4 5 6 7 8



28 responses to “Trades & Income”

  1. Luis Iglesias says:

    Interesting, are you rolling every time price touches one of the wings? Is that to rebalance, keeping it as much Beta neutral as possible? and to reduce buying power? Do you have any limitation on how far DTE should be? looking for specific deltas or the best credit amount you could get? Do you care how long the trade could last or it doesn’t matter to you as long as you are getting credit?

    thank you

    • Martin says:

      See my responses in bold:

      Interesting, are you rolling every time price touches one of the wings?

      Pretty much yes, sometimes earlier. I watch how much the position is losing when one side is challenged and then check how much buying power could be released if I roll it. If a BP release is substantial I usually roll it.

      Is that to rebalance?

      not necessarily rebalance but keep the price in the middle of the strangle,

      keeping it as much Beta neutral as possible?

      yes

      and to reduce buying power?

      definitely yes.

      Do you have any limitations on how far DTE should be?

      No, I am willing to roll it as far as possible. I usually go into the next monthly expiration but if credit cannot be achieved I go farther. Also if one side is already in the money, I usually go 90 DTE to avoid early assignment

      looking for specific deltas when rolling?

      deltas do not play a role in my decision, it is credit and how far I am. I try to go as low deltas as possible but if credit is an issue I go closer to the money and skew the strangle to the endangered side, for example, if the stock rallied up, I roll puts closer to the money and calls far, far away

      or the best credit amount you could get? Do you care how long the trade could last or it doesn’t matter to you as long as you are getting credit?

      No, I do not care. I am willing to roll indefinitely as long as rolls bring in money

  2. Luis Simon says:

    Hi, Are our doing Covered short strangles?

    • Martin says:

      Yes, I do. I either have 100 shares of stock thus covering the call side, or both, 100 shares and cash to cover the calls and puts. For example, my trades against AFL are fully covered.

      • blsimon says:

        Thank you, It is what you are planing to do with the 100 to 75k challenge?, I’m there, following with a little more amount monthly from my other wheel account account.

        • Martin says:

          Yes, it will be the same strategy. But at the beginning, we will be doing naked trades and work on covering them. At first, it will be a slow process but it will speed up significantly.

          • blsimon says:

            Thank you, I Have a question in relation to your current trading record, for example in Apple I see you have many rolled trades with at least 30 DTE since you opened it, but it is the same traded rolled when met certain limits or price movement or you have more for example 200 o more shares and have trades CC and CSP for every 100 shares?.

            thank you again

            • Martin says:

              Only a few of the strangles are fully covered. AAPL is not so I keep rolling it to prevent assignment and build a position in AAPL to be covered. But as of now, it is naked. What you see is the same trade rolled to keep it safe. It is still the same trade but rolled higher or lower to keep the price in between the strikes. When I see AAPL rallying and getting closer to the call side I also look at buying requirements. If I see that rolling the strangle up would release $2,000 in buying power, I roll it. If it is only $80 (for example) I leave it and do nothing, and wait.

              • Luis SImon says:

                great, are you building your position with this credits you obtain with naked strangles from this underlying or coming from other underlying credits and you prioritize apple over others?

                • Martin says:

                  I prioritize. I use all dividends and all credits received to buy stock I want to accumulate and do it as long as I finish accumulation. Once accumulated I move into another stock. Soo all goes to one stock.

  3. Travis says:

    Your income consistency is impressive and I love your 401K comments :) Sadly, most aren’t aware of the fess nor do that pay attention to the tax trap nature of them. I wish you much more success and I look forward to reading more from you.

  4. Vivianne says:

    I see you didn’t max out your 401K, are you the invest up to the matching % camp, then invest the rest in the taxable account or Roth IRA camp? My husband is like that, he doesn’t trust the government will keep the taxing the same by the time he’s retired.

    I see that your montly option income can be a living wage with so little money involved, compare to me having to pour everything in real estate to generate a little more. Do you have posts on how to do option? I still don’t fully understand it, I just know people can lose everything if the wind blow the wrong way, but optionhunting.com, you and a lot of other blogger seem to make tons of money on option.

    • Martin says:

      Vivianne, that is the same reason here and why I do not invest in 401k. Not only you will get taxed heavily when you start withdrawing money (because in 20 years taxes will go up for sure, your deductions down for sure, so you end up in a higher tax bracket) but the hidden fees is what drives me crazy. Out of every 100,000 dollars in your 401k you only see approx. $35,000!!! The rest is swallowed by fees! and that is not a number I sucked out of my finger. Jon Boggle (a founder of Vanguard funds) is the one who was exposing 401k robbery (which he never intended to participate)…

  5. […] How do you track your trades and P&L? Where can we follow your results? I post the results in “My trades &Income” section.  I also post monthly results in “My goal…” category at my blog. 2016 trading results and […]

  6. Hailey says:

    Hi Martin, I am a beginner and I have an account on TD Ameritrade , I have been reading and browsing the web until my friend recommended me this site. I read the articles that you have posted and the strategies that you have recommended. But, since I’m a beginner I would love if you could give me some advice and strategies for what to do to continue to reproduce my money. I recently bought a stock (RAI) and it has been doing well. Can you help me?

    • Martin says:

      Hello Hailey, thank you for stopping by and commenting. Of course I can help you your investing/trading. RAI is a fairly good dividend stock and it is definitely a good addition to your portfolio. That brings one very important thing you need to do before you commit any money – define your strategy and stick to it. If you are investing for a long haul and your target horizon is next 25 – 30 years, then you choose around 20 high quality dividend growth stocks (create a watch list of those stocks) and then invest in each one by one and use DRIP program to reinvest those dividends. If you stick to this simple strategy, accumulate into 20 high quality dividend stocks, reinvest dividends, you will experience a compounding return on those stock and you will be surprised how quickly and fast your portfolio will grow over time. It will not be visible at first, but 10 years from now you will see a huge progress. The goal is to save and invest regularly and stick to the plan. Ignore any noise in the market, any panic, sell offs or euphoria and stick to the plan. It will pay off.
      Thanks for stopping by. M

  7. Mac Jt says:

    We must be twins :)

    I am using the very same strategy cash secured Naked Puts to (touchwood) very profitable end since the implosion earlier this year.
    In addition I am playing large defensive Covered calls as well CC ITM for 2 weeks expiry and getting assigned every expiry, this is also profitable but completely safe.
    (BTW you can call TDA and have them change your commission structure. I pay 75c an option contract thats it and 7.95 for a stock trade)

    • Martin says:

      Hi Mac, Yes I guess so, LOL

      I am not trading those puts cash secured but naked. Well, sort of. I use margin but make sure I have capital for assignment, but margin capital, so I do not have to hold the entire cash.

      Thanks for stopping by.

  8. Mike JT says:

    Interesting blog.

    I am looking for optimal entry and exits, I have to disagree with your spread analysis.

    Though I do agree that breakevens are deeper with wider spreads, you have to take time value into account.
    So say a +1950/-1960 Put is in play on Monday , expiring Friday , SPX is at 1958, intrinsic is 2$ whereas extrinsic can easily be another 2$. This most likely will be more than credit received.
    Your analysis of breakeven is at the time of expiry, and no one knows what the spread performance is at expiry especially since the short 1960 has already been breached on Monday itself. Only closer to expiration will delta equal 1.
    Rather you go farther and play shorter widths, return on Margin is much better. A 5$ wide spread means 500$ of margin hold whereas 10$ is 1000$. If you decide to exit consistently on 50% profit then 5$ spreads will win with the additional advantage of risk mitigation.

    Another point is with your 7 step ladder, after looking at the performance you lost 96% during the Aug/Sept market implosion. Your trades are 77% successful but the losses easily outweighed the gains.
    I have to say this is the biggest disadvantage of farther DTE trades.
    What I’ve noticed is that macro factors are just too dangerous to ignore, like this week. You would never have known it 7 weeks ago.
    I think 2 week intervals are better – though premiums are lower the ability to quickly exit a trade or place a trade is better.
    Here is an e.g. you place the 7 wk ladder trade, wk 5 6 and 7 are now approaching and a breach occurs during wk 5 , there is now a higher probability that weeks 6 and 7 are also under threat, compounding your Buy back premiums. So should you decide to exit, your loss is compounded for 3 weeks.

    To be honest I dont even think 2 week rotation is a better strategy but I find that it can be better controlled especially if consistent winners is the key.

    • Martin says:

      One more thing, my losses recently are not related to the spread width but my attempts to save losing trades by rolling them or converting into a different trade. Instead of taking a small loss I rolled the trade, increased the risk, and it worked at some trades but some didn’t and instead of taking a small loss I was forced to take a large one.

    • Martin says:

      Mike, thank you for your comment. Some things you mentioned I learned myself the last August, so as of now I am not applying the ladder trades until I sort it out. I realized I was trapped with 6 trades with losses and had to decide whether to close them roll them or wait them out. Basically none worked. So as of now I am limiting myself to only one trade at a time. As the width goes, I am also comparing it with number of contracts = what is better? (2) $500 contracts or (1) $1000 contract? At both occasions you risk $1000, your commission is higher when selling (2) contracts and the break even point is better for larger spread. True, I was comparing it with at expiration situation, but still, it seems working well to me and allows me to get farther away from the current market than if I do only 5 dollars spread.
      Thanks for commenting.

  9. DivHut says:

    I appreciate the tips about options. I know writing contracts can really juice a portfolio but just not educated enough to jump into it yet.

    • Martin says:

      That’s something you must do at all cost – educate yourself. If you fail to educate yourself, you will lose money. I recommend opening a paper money account and try to trade options there. It helped me a lot before I committed a real cash.

  10. DivHut says:

    I have always wanted to get into options trading and wondered what sites/books you have read to learn more about it. The idea of covered call writing sounds appealing but I wonder about being exercised and having to give up my shares for the premiun collected. Have you ever had to sell your stock because an option contract was exercised?

    • Martin says:

      Hi DH,
      that was the reason why I never or very rarely used covered calls against my core stocks, but always was looking for stocks which I didn’t mind to be called away. I was doing the total return or buy-write covered calls – I bought the stock and wrote a call against it. In My Trades & Income the previous year and use links for covered call trades where I explain them.
      As far as put selling, which I consider far better than covered call strategy, you can read Selling put options my way by Jerry Lee and read that one. It is very nice and simply explained way of selling puts. I think it will help you the best.

      Thanks for stopping by

Leave a Reply

Your email address will not be published. Required fields are marked *