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Posted by Martin October 07, 2020
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Why do so many people selling puts fail?


Maybe, you are one of the people who got excited and started selling put contracts against stocks or even dividend stocks and failed.

I was there too. I was selling as a hell. I was selling puts a lot. And I failed too. Many times. I lost tons of money selling puts. Then the puts got in the money, I couldn’t roll them, got assigned, and I didn’t have money in my account to handle the assignment. I had to close the position at a loss.

Why do so many people fail?

The problem is in overdoing this type of trading. Many people sell too many puts beyond the ability of their accounts to handle it. If, for example, your account is a $5,000 net liquidation value and you sell put options worth $30,000 of net liquidation value (yes, it is possible with a margin account), then you are in trouble. And you are irresponsible and have no place in the stocks market.

Solution?

Sell only so many puts that if you get assigned, you can hold the position.

But, if you are impatient as I am, what can you do to ensure that you do not over-trade your account? Also, believe me, it is very easy to get overboard when in a margin account. I set aside the money I need for the assignment. In the past, I found this rule horrible and ridiculous. Why would I let free money sitting in an account doing nothing? I can invest them and make more money! Yes, you can. But then you are doomed over-trading your account.

In a margin account, I found it easier to set aside money in a margin account than in a cash account. In a cash account, the broker actually does it for you and if you have a small account, it will take years of savings for you to be able to start trading options due to extensive capital requirements. In a margin account, you only need 50% to set aside (of course, it fluctuates but we can discuss this in another post).

So, let’s say, you want to start selling put options against Coca-cola (KO) which trades for $49.56 a share. To buy (or be assigned) in a cash account, you would need $4,956.00 to cover the assignment. In a margin account, you would only need $2,478 cash to cover the assignment. Save that money aside and you can trade puts against KO without fear of being assigned and not having enough cash to cover that assignment. And, I found a way of saving that cash in my account and be comfortable with it.




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Posted by Martin October 06, 2020
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Where Do You Keep Your Money In The Current Low Interest Environment?


I mentioned this topic in my previous post. But since then I developed this “cash storing” a bit beyond the original post.

In the older post, I mentioned that I was buying a short-term bond ETF which was able to keep the value consistently over time. Even during the 2020 stock market slump, it dropped only 4% while the entire market dropped almost 40%. And, it recovered fast.

On top of this feature of preserving value, it pays a nice dividend, yielding about 2% (or slightly more). Definitely, a lot better than the current high yield interest savings accounts pay. Why saving money in a savings account that pays you barely 0.80% annual interest, when you can use this ETF and get 2.20%?

However, I did a bit more search to find what other similar ETFs are there available. I found an article on Seeking Alpha providing me with a better insight into this type of savings.

And that led me to create a savings plan and abandoning savings accounts:
 

SPY LEAPS trade
 

Is saving in this type of investment safe compared to a savings account?

If you believe that the stock market is flawed and everything, even bonds, and Treasuries, are doomed to an irreversible crash, then stay with a bank and their products when they borrow money from you, pay you 0.80% annual interest rate, and then charge you 16% annual rate on credit cards or other types of loans (if you qualify in the first place). Just make sure, these same banks survive that irreversible market crash.

I personally believe that these types of ETFs are relatively safe. Just look at the long term chart of those ETFs. The price fluctuations over time are minimal and well offset by the dividend.




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Posted by Martin October 05, 2020
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#004 Trades opened today


We have added a few more trades today to our accounts:
 

Bought 1 SPY Jan20 2023 (LEAPS) 335 call for -44.30 debit
Sold 1 SPY Oct 9 (weekly) 348 call for +0.42 credit
 

We completed our goal in our account and saved enough buying power to buy LEAPS against the SPY index (3 years expiration). The premise of this trade is that in three years, I expect this market to be higher, a lot higher, even with corrections and bumps on the road (possibly we get at $400 or higher in the next three years). If that happens, our LEAPS call will be worth $90.9 per share, which means we would more than double our money. Our investment would go from $4,430 to $9,090.

But, we will not sit tight on this trade, we will also start selling covered calls against this trade. We sold our first weekly covered call and collected $42 credit. At current prices, we can collect around $40 per week or $120 per month. If we happen to collect that amount, during the lifespan of our LEAPS, we should collect an additional $7,900 in premiums in the next three years. Our total profit would then be $12,560 in three years or 283%.
 

SPY LEAPS trade
 

Roll 1 IWM Oct 30 (weekly) 153 call to Nov 6 (weekly) 154 call for +0.63 credit
 

Markets continue higher in a strong rally which made our IWM covered call in the money. We decided to roll the trade higher and away in time. However, we rolled an in the money call to in the money call. We will be slowly rolling higher and tracing the market until the call gets out of the money.
 

IWM roll
 

Bought 4 T shares @ 28.66
 

Roll 1 PPL Nov 20 (monthly) 28 call to Jan 15 (monthly) 28 call for +0.42 credit

Our poor man’s covered call is not working as wanted, so we rolled our short call to January expiration, making our PMCC trade a regular vertical call spread. In January, we plan on converting this trade to short put trade.

 

PPL roll
 

Roll 1 BAC Oct 9 (weekly) 24.5 call to Oct 16 (monthly) 25 call for +0.11 credit

Our covered call with 24.50 strike got in the money and we only had 4 days to expiration. We do not want to give up our shares so we decided to roll the trade higher and one week away. We collected a small credit.

 

BAC roll
 

 

You can see all our trades on Trades & Income page.




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Posted by Martin October 05, 2020
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Stocks to accumulate in October 2020


Our September accumulation was a great success. We have reached 100 shares accumulating a few of the positions such as PPL, PBCT, and now we will be accumulating more shares of other companies such as AT&T (T), Altria (MO), or Tyson Foods (TSN).

There are still good companies which are undervalued even in this overvalued market. It takes time to find them but once you know which companies to look for, it will pay off, in the long run, to be buying them.

Most of the stocks are dividend aristocrats. Some lost the status many years ago yet I decided to keep them, others lost the status this year due to COVID, and I decided to keep them too as I still think they are good companies, e.g. Disney (DIS) and the dividend cut or suspension is temporary.
 

S&P 500 heat map
 




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Posted by Martin October 01, 2020
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#003 Trades opened today


We have added a few more trades today to our accounts:
 

Sold 1 PPL Nov20 30 call for +0.22 credit
Bought 1 T shares @ 28.50
Bought 1 ICSH shares @ 50.55
Sold 1 TSN Oct16 63.5 call for +0.25 credit
Bought 1 T shares @ 28.52
 

Since we have reached 100 shares, we can start selling covered calls to generate income. We sold November 20 (monthly) covered call with 30 strike price.

We are now accumulating shares of AT&T (T) in account #1. We used credit (+ some cash) from PPL covered call and reinvested that credit to one share of T. After we reach 100 shares, we will start selling covered calls too.

We sold 1 naked call against TSN converting our existing put trade into a strangle. This trade is uncovered so it poses a high risk and thus needs to be monitored. We expect, however, that both legs (put and call) of this trade expire worthless at expiration day.

We used the credit received and bought another share of AT&T (T).

Today's trades
 

You can see all our trades on Trades & Income page.




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Posted by Martin September 30, 2020
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#002 Trades opened today


We have added a few more trades today to our accounts:
 

Bought 10 PPL shares @ 27.08
Roll 1 IWM Oct9 150 call to Oct23 152.50 call for 0.21 credit
 

We bought 10 more shares of PPL reaching our goal of 100 shares in our account #1. Now we will start accumulating AT&T (T) shares in this account and selling covered strangles against PPL.

We rolled our IWM trade higher as the market had large swings – the futures were almost 0.90% down, then we swung up to +1.70% and collapsed back to +0.22%… big intraday swings. It ultimately helped our IWM and we could stay in the trade without rolling but no one could know what the market would do next. So we rolled to be safe.

IWM trade
 

Bought 10 PBCT shares @ 10.34
Sold 1 PPL Nov20 30 call for 0.15 credit

We also added 10 more shares of PBCT stock to our holdings in our account #4 reaching 100 shares too. We can start selling covered strangles in this account too. We will now continue accumulating a PPL stock.

We also added a call to our PPL holding in account #4.

IWM trade

 




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Posted by Martin September 28, 2020
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#001 More trades opened today


We have added a few more trades today to our accounts:
 

Roll 1 IWM Sep30 148 call to Oct9 150 call for 0.53 credit
With the market renewed rally, we had to roll our IWM trade once again. We rolled it into the next week’s expiration and 150 strike. With the rally, we may need to roll this trade again tomorrow.
IWM trade
 

Bought 10 PBCT shares @ 10.17
We added new shares to our account #2 and now hold 31 shares total in this account. Our goal is to reach 100 shares so we can monetize the position by selling options around it.
 

Bought 30 PBCT shares @ 10.20
Sold 1 BAC Oct9 (weekly) 24.50 call for +0.33 credit
We added few more shares of PBCT stock in our account #4, we now hold 80 shares of this stock and our goal is to reach 100 shares so we can start selling covered calls, or covered strangles.

We also had our BAC covered call expired last Friday and therefore we sold a new covered call today for additional 0.33 credit (or $33 total credit).
 




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Posted by Martin September 28, 2020
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Sold 1 TSN Oct16 (monthly) 56 put for 0.34 credit

Sold 1 TSN Oct16 (monthly) 56 put for 0.34 credit

We sold a put against TSN stock (Tyson Foods) and collected $34 credit. We plan on holding the put until expiration and generate income. If the put expires worthless, we will sell a new one next month, if the put gets in the money, we will attempt rolling it for credit. If it gets assigned, we will buy 100 shares and start selling covered calls.
 

TSN @ 60.22
 


 




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Posted by Martin September 28, 2020
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Bought 5 PPL shares @ 26.64


We added a few more shares raising our holdings to 85. Once again, our goal is to reach 100 shares so we can start selling covered calls or covered strangles, or what have you to further monetize our position and receive more income than just the dividends.




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Posted by Martin September 27, 2020
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Updating our stocks and options holdings review


For some time I was neglecting updating our stock and options holdings on this blog. Most of the time, I was updating these positions on Facebook but since I decided to leave Facebook for good, I returned back here and will be updating our positions in this blog again.

I manage four (4) accounts of various size and the strategy is simple – accumulate dividend growth stocks by:

  • small deposits every month
  • reinvesting the dividends
  • reinvesting options premiums

The goal is to pick undervalued dividend growth companies and keep buying them until we reach 100 shares.

Once we reach 100 shares, we move to another stock and start accumulating that stock too while selling covered calls on the already accumulated stock. As soon as we accumulate the new stock pick to 100 shares, we again move to another stock and start selling covered calls.

Reinvest all proceeds until the income from dividends and options premiums exceeds our expenses.

If you want to see what stocks we currently hold, which stock we are accumulating, and what options positions we trade, go to Trades & Income page.
 




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