December options trading review
I received $1,586 in premiums selling options in December.
This brings my total premiums earned to $10,732 for the entire year. 🙂
I made one bad trade in October, selling a TD covered call. That move cost me $358 this month as I rolled my TD call option from $88 strike to $92, and extended the expiration by a month. This roll resulted in a net debit of $358 because I paid $721 to close my short position, and sold another call for $363.
Transaction details below:
Light teal = Roll
Light purple = Short Strangle
Despite the negative cashflow from the TD roll, I made a lot of premiums during this period.
And overall my net income from options reached a new high for the month of December. 🙂
I traded short strangles on 2 Canadian companies
Aecon Group (TSE:ARE). This is a construction company. I initially sold a put option with a strike price of $18. And it got assigned. So I decided to sell a covered call at $20, and sell another naked put at $16. This allows me to collect premiums from 2 options essentially. 🙂 ARE is currently trading at $16.99/share. Hopefully the stock stays within the $16 to $20 range.
Stella-Jones (TSE:SJ) is a lumber company. I initially sold a put option on this as well with a $40 strike price. That was in November. It expired in-the-money in December. So I wrote another put option at $38, and sold a call option at $43. Hopefully it stays within this range so both options expire worthless. 🙂 SJ is currently trading at $40/share. I made a video yesterday demonstrating how to place a short strangle trade order inside my brokerage account.
What is the point of using short strangles? It’s so I can do my “wheel strategy,” but at the same time continue to buy stocks when they dip lower and become cheaper.
The wheel is when you sell puts to buy stocks if they fall in price. And then you sell a covered call on those assigned shares to sell stocks at a higher price.
A short strangle is basically the part of the wheel strategy where you sell calls, with the addition of writing another put option at the same time.
As mentioned I hope ARE and SJ continue to trade within defined ranges. This strategy is neutral, and should be used when I believe the underlying stocks will not move up or down significantly. 🙂
2021 options summary
I’ve made a total of 133 option trades in 2021. That’s a lot of transactions. lol.
24 of those were call options, but the majority at 109 were put options.
My initial positions are always short. I look for options I can sell to earn a premium that’s worth the risk.
I only “buy” an option for the purpose of closing or rolling it out.
Out of 133 options, only 5 expired ITM and got assigned. 🙂
The growth has been pretty steady throughout last year.
But it appears I am reaching a plateau and will probably stay around $1,600 a month moving forward.
The income is limited by how much risk I’m willing to take with my portfolio.
I made just over $10K in net premiums trading options for 2021.
This year in 2022 I want to double my options income and reach $20K in net premiums. 🙂
This is after any losses and commission costs.
Will I be able to hit my goal? Only time will tell. 😀
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Random Useless Fact:
They don’t music like they used to.
Wow, impressive returns for the year!
Thanks. 🙂 I’m still waiting for a market crash to see how resilient my options strategy is, but so far so good.
Very impressive – great work!
Out of interest – how many hours do you think you spent in December on options trading?
If aiming for $20k net in 2022…do you think your hours spent will increase relative to the net or stay the same as you gain efficiency?
Probably around 8 hours in December. This includes time researching and putting on the trades. When it comes to options I find most of the time is just waiting for my orders to fill, lol. I could stay with my current strategy, and make $20k net. Doing this would increase my hourly rate and make my trades more efficient. If you look closely at my 100+ transactions over the past 6 months you’ll find there’s a lot of the same stocks I recycle. So when one of my options expire I tend to make another trade on the same underlying. I don’t have to conduct initial due diligence again because I’m already familiar with the business. This saves a lot of time 🙂 That being said, to answer your question I do think the time I spend on options will increase this year in 2022 as I learn and try out different strategies. The extra time I want to dedicate to options trading will primarily be in the form of education and testing different kinds of credit spreads to determine if they are better than just selling naked puts. This could mean I will make less money per hour of… Read more »
Agreed – focus on learning first and you can always optimize the time spent later! Thanks for providing the regular updates.
Great progress. Cool to see you adapting and learning what to do when things take a turn. Have you consdered buying some puts outright to help protect yourself in the event of a broad market downturn? I understand one can “buy insurance” which will reduce their profits but allow them to avoid getting wiped out if everything fell 15% or something like that.
That’s a good point. I have thought about buying puts, which essentially means using a credit spread strategy in my particular situation.
For lower priced stocks that I don’t mind owning, buying insurance may not be necessary. But for higher priced stocks like Amazon that’s currently $3,400/share, then having that downside protection will certainly help me from losing my shirt. I certainly do not have the buying power to purchase 100 shares of AMZN. Lol. I’m sure there were option traders in March of 2020 that got wiped out because they weren’t careful. 😅 Thanks for the suggestion.
I noticed you sold a call for ARE for $20, but only got a dollar in option premium, while spending 2.50 on the transaction cost. (I could be mis-reading the chart). What was the rational behind this? Was it so you could keep on doing the short strangle on paper?
You read the chart correctly, Paul. I paid more in trading commission than what I received in premiums, haha. No logical reason behind this other than I wanted to go through the motions of doing a short strangle as a learning exercise, and to see if there are any unexpected outcomes.
Obviously one lesson that I’ve learned is IB will allow a trade to fill (without warning) even if the trade has a 100% chance of losing money, lol. So clients must take responsibility and know what they’re doing.
Maybe a related lesson is that although short strangles will simplify the bid/ask spreads so you only have 1 premium to consider. At the same time, you also don’t get to control the price of each individual option you trade.
Hello Liquid – I am interested in getting into options but not sure where to start. How did you learn to trade options and do you have any recommendations such as books etc to get going?
Hi Jay. If you are brand new to options trading, you can find lots of free information online. Investopedia is a great source. I have read many of their articles on how options work. Here are some great examples of how selling options work: https://www.investopedia.com/ask/answers/06/sellingoptions.asp https://www.investopedia.com/articles/optioninvestor/09/selling-options.asp I have also made video guides on trading options. For example this video shows step by step how I earn monthly income from selling put options. https://youtu.be/D1MIi5uu2AI If you have 3 hours to spare and want to go super in depth, you can check out this other YouTuber who explains the basics of options to beginners. https://www.youtube.com/watch?v=7PM4rNDr4oI I would start with those resources and become more familiar with the topic, and learn as you go. The only caveat to all of this is I assume you have a solid understanding of how stocks work. Options is a derivative of the underlying stock they represent. So if you don’t understand how to properly value a stock, or you don’t know what a discounted cash flow model looks like, then I do not recommend you go near options because the risk would simply be too high. It would be like trying to learn calculus without understanding… Read more »
Thank you for the information – this should keep me busy for a little while!
Curious what you intend to do if you get assigned the put on the strangle, would you still do another strangle? Seems like you could end up with a lot of stock.
Depends on the circumstances but in most cases I would say yes I will do another strangle with a put option at an even lower strike. These are well established businesses and if they become undervalued then it’s only a matter of time before their price matches their intrinsic value again.
As long as the cost to borrow remains relatively low the dividends from holding the stocks will cover the interest charges on margin borrowed. 🙂
What brokerage company do you use that offer such low commission on option trading?
I use Interactive Brokers (IBKR)
They have really cheap stock trading commissions as well. 🙂
That paypal put may not be looking so hot eh? I also own some with a $200 cost basis 🙁
That Paypal put actually expired worthless in January. But I did sell another put at $150 strike and I’m currently in the money on that, lol. The stock is down quite a lot, but not to worry. It’s currently underpriced and will recover. 🙂