Selling Options for Income Part Deux

I don't know if anyone even looks at this board anymore. Since I originally posted my updates here, I decided to do so again. As a refresher, I originally started an experiment after reading some posts on selling covered calls by the Captain. It was fairly successful... after 12 months(9/20 - 8/21) I was up 65% and it peaked at 79% after 14 months. Then came the FED!!! After dealing with falling knives for 2-3 months, I closed up shop before I lost all of my profits. I stayed out of options for the remainder of 2022. However, I didn't stop thinking about them and decided to start up again once the Fed was finished tightening. Well, I jumped the start a bit and started up at the first of the year. I did so with a significant change to my strategy.

Instead of buying a stock the selling calls on it, I sold cash covered puts. I'm able to bring in the same amount of income and I don't have to buy the stock. Of course my cash is "frozen" while the put is active. If I end up buying the stock I do so at a lower price than I would have if I just purchased the stock at the beginning. 

Once I own the stock, I then sell calls until it is assigned and at that point my trade ends.
I only deal with stocks that trade their options weekly and I try to sell the options weekly also. 

I usually sell a put to start a trade on Monday with the expiration date being that Friday.

I make sure that the drop from the current price to the strike price is greater than the premium.

The premium should be 1.5% - 2.0% of the current price. This is the net profit after buying the insurance puts. I just started with buying the puts. I've been spending 0.2%-0.3% so far.
Date: 6/30/2023
Open Trades Closed Trades Total Trades
Winning 0 6 6
Losing 0 3 3
Totals 0 9 9
Trade Stock # of weeks % Put Income % Call income % Total income Stock Sales % net gain Average % Income/week # Puts % / week # Calls % / week
1 Chewy 4 5.51% 2.10% 7.61% 0.00% 7.61% 1.90% 3 1.84% 1 2.10%
2 Upstart 11 7.86% 12.78% 20.63% -18.92% 1.71% 1.88% 4 1.97% 7 1.83%
3 Chewy 14 3.84% 7.41% 11.25% -29.79% -18.54% 0.80% 2 1.92% 12 0.62%
4 Datadog 10 11.07% 5.00% 16.07% 0.00% 16.07% 1.61% 7 1.58% 3 1.67%
5 Cloudflare 7 4.11% 6.83% 10.94% 0.00% 10.94% 1.56% 2 2.06% 5 1.37%
6 Cloudflare 2 2.01% 1.59% 3.59% 0.00% 3.59% 1.80% 1 2.01% 1 1.59%
7 Chewy 4 1.78% 2.66% 4.44% -5.71% -1.28% 1.11% 1 1.78% 3 0.89%
8 Cloudflare 4 1.91% 2.94% 4.85% -24.22% -19.37% 1.21% 1 1.91% 3 0.98%
9 Upstart 7 12.53% 1.24% 13.76% 0.00% 13.76% 1.97% 7 1.79% 1 1.24%
Averages 7.0 21.45% 16.31% 37.76% -28.67% 9.09% 1.54% 3.11 1.87% 4.00 1.36%
Profitablitly 9.09%
Profit / week 0.34%
Annual Profit 19.01%




I decided to do the update since I have a bit of time this morning, It's been exactly 6 months since I started, and at the end of last week all of my trades closed. Seemed like a perfect time to post something.

Summary:  This is all on the summary sheet, but here we go. I had 9  trades... 6 were winning trades and 3 losers. On average each trade lasted 7 weeks. Overall, I'm up 9.09% which is 0.34% per week. I had 2 large loss trades which really impacted my results. They occurred during the banking crisis in April/May. 

In response to the losses, I've enacted a new strategy when selling the puts. When I sell a put, I'm also purchasing a put at a lower strike price to act as a stop loss. For example, this week I sold puts on NET at 65. At the same time I bought puts at 61. Same for UPST. I sold puts at 35.5 and bought puts at 30.5. Hopefully, they will act as a circuit breaker if the stock price really drops in either one.

I've actually thought of selling puts on stocks that I want to own as an investment. I can collect premiums if the price does not drop. If it does drop, I just purchased it for a lower price than I would have just buying it. I haven't actually done this... just a thought.

Thanks for reading. 

Darryl

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A lot of your writing didn’t show up. Be sure to check before you leave a post.

Rob
He is no fool who gives what he cannot keep to gain what he cannot lose.

Unfortunately your formatting got screwed up.

I no longer post at NPI because the board died of the political disease.

Initially I also sold puts but they turned out to be riskier than covered calls. Your strategy sound fine but one has to realize that bear markets do screw it up. I now only sell covered calls but check to avoid falling stocks and earning season that can bring nasty surprises. Since i last posted at NPI I have further refined my Covered Call Selector app and i’m getting good results but beware bear markets.

I’ve been posting at Macro Economic Trends and Risks (METaR). Have a look…

The Captain

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What analysis did you use to choose your stocks for this?

Hi Denny,

I see that the formatting is hosed. It must have happened when I dropped the table in. Sorry about that.

I don’t know if this came through, but the main thing I’ve started doing is when I sell a put, I also buy a put further down the chain to limit the damage on any large price drops.

I have the earnings dates for all of the stocks listed in my spreadsheet. I’ve been burnt more than once. You are correct… stay away.

thanks for the feed back.

Darryl

Yes, it came through. I’m liking trading options better than investing.

The Captain

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Hi TJP2,

Not really much of an analysis. Originally I used to look up the greek ratings on stock options and used them to select stocks. I got into some real dogs doing that.

Now I just use a list of stocks that I own and my watch list of stocks I’m considering buying. Then as long as the company sells options weekly and I the premiums are decent I keep them on my options list.

As you hopefully can see from the table above, I’ve only had 9 trades since the start of the year. Each one has averaged 7 weeks long. I can sell puts and calls several times within a trade, so what I’m considering a trade is actually several trades. Anyway, my point is that I don’t look at the overall list very often. I just plug along with the open trades until one gets closed.

Denny has a much more sophisticated way of picking stocks for options.

Darryl

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This is what is commonly called a “bear put spread”.

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I am new here. If you are using bear put spreads for income you may want to consider the following

1 High volatility for higher premium ( Yield)
2 A reasonable strike value for the sold put for the the amount at risk . Normally delta around -0.25 is a good place
3 I would be uncomfortable for more then 90 days or past a ER unless knew the company well.
4 Aim for 3-5% yield on at risk amount

Trust not too basic points ? :innocent:

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Just wanted to give an end of year update on my trading system.

I finished the year at +52%.

I was up 20.9% for the 4th quarter. No real changes in my process.

I’m still selling cash covered puts until I end up purchasing the stock. Then I sell covered calls on the stock until it gets purchased from me.

I had 19 trades that were started and closed during the year. 15 of them generated a profit. I only had 1 losing trade the last 6 months.

Just wanted to button up the year. This definitely works in a normal market. I’m starting 2024 with twice the amount of cash as last year.

Thanks for reading,

Darryl

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