Tuesday, January 1, 2019

Options Update: December 2018

Welcome to my monthly options update!

Here, I shall write monthly options update articles to keep track of options trades in my portfolio. Each options update serves as a status report on the open options and the obligations I have. A running tally of all my options trades and income to date are found on the Options page.

Assigned Options

Unexpectedly, I got assigned early the following two options on 12/21/18:


Trade #32: TZA call option strike 10 exp 1/18/19 when the ETF traded at 17.67 I got assigned. I had sold this option for a net income of $108.91. The assignment gave me an implied loss of $767. Thus, secured "income" from this trade was -$658.09. Not good.

Trade #33: SRCL put option strike 10 exp 2/15/19 when the stock traded at 36.80 I got assigned. I had sold this option for a net income of $198.91. The assignment gave me an implied loss of $1324.90. Thus, secured "income" from this trade was -$1125.99. Ouch!

TZA had shot up due to the sharp correction in small cap stocks this past month. SRCL continued to fall heavily amid the market downturn. Both options looked like good bets when I opened them couple months ago, but they did not pan out well. I suppose the early assignments were to lock in the gains, as 12/21/18 was a low day for the stock market.

I was tempted to double down on these bets, but decided against it to avoid excessive leverage during a market downturn.

Expired Options

No options expired worthless this month.

Closed Options

When an out of the money option goes further out of the money, one may close the option early and secure most of the options income.

I did not close any options this month.

Rolled Options

An option can be rolled forward by buying back an option and selling another option with a later expiration date. Rolling is done to avoid options assignment for in the money options.

I did not roll any options this month.

New Call Options Sold

Selling calls is a way to earn premiums from time decay on securities that are unlikely to reach a certain strike price within a certain time frame. This is best done on stocks you already own so as to limit liabilities should the underlying security shoot to the moon.

I did not sell any call options this month.

New Put Options Sold

Selling put options is a way to earn premium for agreeing to buy a stock at a given price for a period of time. This is best done with high quality, buy and hold stocks that have limited downside.

I sold one put option this month:
Trade #39: Sold 1 CELG put option strike 60 exp 6/19/20 for $768.90 income after fees.

I feel CELG is undervalued right now and it is strong enough to be a long term hold. I wouldn't mind buying it at $60 and holding indefinitely. If it gets assigned, I would be essentially buying it at $52.31, after accounting for the option income. It would not be exactly as good as buying it at $52.31 today, though, because the option income is taxable as short term gain. 

Options Expiring Next Month

I have 6 options expiring in January:
Trade #14: Sold 1 CVS put option strike 55 exp 1/18/19 for $222.21 income: current price 65.52 out of the money 19% from strike. Assignment is very unlikely.
Trade #19: Sold 1 CVS put option strike 55 exp 1/18/19 for $338.90 income: same as above.
Trade #24: Sold 1 CELG put option strike 75 exp 1/18/19 for $609.20 income: current price 64.09 in the money 15% from strike. Assignment is very likely.
Trade #25: Sold 1 CAH put option strike 47.5 exp 1/18/19 for $398.90 income: current price 44.60 in the money 6% from strike. Assignment is more likely than not. I don't like CAH for its high dividend, so I'm really hoping this option would expire worthless, but if it looks probable to be assigned, I might just close the option at a loss a day before it expires.
Trade #27: Sold 1 KO call option strike 48 exp 1/18/19 for $77.91 income: current price 47.35 out of the money just 1.35% from strike. Flip a coin to see whether it gets assigned. I don't mind either way. Either I secure the income, or I get rid of a high dividend tax liability.
Trade #36: Sold 2 BEN call option strike 30 exp 1/18/19 for $548.42 income: current price 29.66 out of the money just 1.13% from strike. Flip a coin to see whether it gets assigned. I don't mind either way. Either I secure the income, or I get rid of a high dividend tax liability.

Cumulative Options Income Summary

As of December 2018:

                             Cumulative      Cumulative Secured
                          Options Income   Options Income
                                     
This Month:           $ 11,436.73             $   (244.16)
Last Month:           $ 10,667.83            $   1,539.92
Difference:             $     768.90            $  (1,784.08)

Below is a monthly tracker showing my cumulative total and secured options income. Due to the stock market correction and my bullish positioning, a disastrous $1,784.08 loss in secured income from the two early assignments this month wiped out all my cumulative secured options income, and then some.


Thanks for reading! Happy New Year!

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