Saturday, February 29, 2020

Options Update: February 2020

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

I did not get assigned any options this month.



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 #50: Sold 1 RCL put option strike 75 exp 6/19/20 for $908.88 net premium on 2/26/20, when the stock fell below $80. If the stock plunges below 75 by expiration, I will effectively be buying at 66, which is pretty cheap entry price. The option has become more valuable despite the stock rising above 80 by end of February, likely due to the high volatility during the past week.

New Call Options Bought

Buying calls is a bet that the underlying security will go up significantly before option expiration. It is high risk, as most options expire worthless, but potentially high return, especially when the price of the security has dropped significantly.

I bought one call option this month:
Trade #51: Bought 1 RCL call option strike 80 exp 6/19/20 for $1042.09 on 2/26/20, when the stock fell below $80. I'm betting the stock, which has already fallen 40% from a high of $135, will bounce right back when the coronavirus scare is over, hopefully before 6/19/20. I need the stock to go above 90.42 to break even. 

Options Expiring Next Month

Two options will expire next month:
Trade #48: Sold 1 BIDU put option strike 105 exp 3/20/20 for $899.37 net premium on 9/20/19. It is 14% out of the money. It is more likely than not to expire worthless, though a continued selloff in the market could push this option into the money.



Trade #49: Sold 1 SCHW put option strike 35 exp 3/20/20 for $248.90 net premium on 10/3/19. It is 16% out of the money. Again, it is more likely than not to expire worthless, though a continued selloff in the market could push this option into the money.

Cumulative Options Income Summary

As of February 2020:

                             Cumulative      Cumulative Secured
                          Options Income    Options Income
           
This Month:           $ 15,940.84            $   8,699.74
Last Month:           $ 16,074.05            $   8,699.74
Difference:             $   (133.21)            $               0

The late coronavirus market selloff makes it more attractive to sell some puts and buy some calls in oversold stocks, as well as to sell some long duration calls on leveraged inverse ETFs like SQQQ. If the sell-off continues, expect to see more options trades along these lines.

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