May options trading update
I lost $893 trading options in May. I was kind of dreading this post, but here we are. 😅
What a big change one month can make. Last time I was up over $8K. And this month I’m down $893. The primary reason for losing money was I took some realized losses from my options positions instead of just holding onto paper losses, lol.
The party had to end eventually, and this month was it.
Because I was being assigned a lot of my put options, I decided to not open too many new positions this month and simply maintain what I already had.
Due to the uncertain market situation I have decided to not be as aggressive in May compared to previous months. I realized if the market were to fall another 10% or 15% from here, I would be at risk of getting a margin call. 😕
Several option positions expired in the money and were assigned.
- TFI International (TFII.TO) 100 shares at $105/share.
- Chromadex (CDXC) 200 shares at $5/share.
- Etsy (ETSY) 100 shares at $130/share.
- Ford (F) 300 shares at $18/share.
- Paypal (PYPL) 100 shares at 145/share.
All the assigned positions were on stocks that I wanted to own anyway. I may sell covered calls against these over time.
This month’s result was unexpected. But at least most of my open positions now are out of the money, so I’m in a pretty good place to continue selling new put options going forward.
New Learnings
- Options can go against you very quickly.
One thing I’ve learned this past month is to close my short put positions even if I’m going to take a loss. Betting wrong on the market and realizing a smaller short term loss is way better than risking a larger loss later down the road if the stock continues to move against you. For example, I now short 2 Etsy put options that are very much in the money. If I were to buy them back today I would realize a $7,000 loss. But had I closed my positions when they initially expired the first time I would have only lost $1,000 or so. - You can lose money writing put options if you buy high and sell low.
I purchased a Shopify put option for $1985. As the owner of this option I make money when the price of Shopify stock falls. This was meant to be my hedge in the event of weakening market sentiment. But as of right now the option is worth $1195 because the stock has gone up. If I were to sell this option today to close my position I would take a loss of $790. - Quality over high premiums.
There are a lot of high beta stocks. While these give very juicy premiums they also carry with them a lot of risk. I’ve noticed that even though lower implied volatility stocks such as BlackRock, Visa, or even Alphabet (Google) pay lower option premiums, they are certainly a lot more predictable. As someone who’s trying to earn consistent and reliable income I now believe it is better for me to prioritize selling options on these high quality companies, rather than on meme stocks and other high beta stocks. - Don’t chase income.
Luckily there are some very smart readers who understand market movements more than me. And they’ve warned me to be careful not to take on too much risk with options. I should have listened to them earlier and paid more attention to my downside. But I’m thankful this month wasn’t as bad as it could have been. Hopefully I learned my lesson not too late, and this one month of loss doesn’t become a trend.
At the end of last month I estimated I would make $1k to $2k in May. It appears I was off by quite a lot. I do expect to be at least positive in June though. Even if I don’t open any new option positions, and just close my Shopify put option I would be up more than $1k from that single trade. 🙂
I plan to continue selling put options on high quality stocks going forward.
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Random Useless Fact:
People are often willing to trade privacy for convenience.
how did you account for the options that were exercised against you? didn’t see PayPal options in your list but the shares are trading way below the strike.
The $145 PayPal option was sold in March. So you would have to look at the list from that monthly update to see it. 🙂 What’s odd is even though it exercised at $145, IBKR currently shows $111 as my average purchase cost. I’m not sure why it’s doing that. Maybe it’s using my option premiums earned to offset my cost. I have never bought PYPL before so this is a completely new stock position for me.
In terms of how I’m accounting for options exercised. I’m not, lol. At least, not in these options update blog posts. Part of the reason is because I don’t know which number I should use as my cost basis, $145 or $111.
But the outcome of all portfolio transactions, including stock assignment via options, will be reflected in my liquid net worth updates (quarterly) where I share my IBKR portfolio value along with other investments I have.
When these options are exercised against you, realizing a loss, you should be recording that in the total. Otherwise, you are not being correct about how successful your option strategy is being.
You’re right. I’ll find a way to include these realized losses in upcoming option updates. I’m just not sure if I should use the cost basis from IB or the strike price to calculate my assignment loss.
Yeah the cost basis from IB uses the premiums in the cost. Because in taxation that’s how it works see: https://www.taxtips.ca/personaltax/investing/taxtreatment/call-and-put-options.htm
The question with options exercised is that is it really a realized loss? Cause you haven’t really sold the stocks at a loss, you just bought them at much higher price hence your cost is high. And until you haven’t sold it at a loss then you haven’t really realized the loss. So technically you have a lot of ‘unrealized loss’ at the moment. So your apple to apple comparison would be (Cost – premium vs current price) to measure if the strategy is working well. The only thing to note that current price fluctuates so today’s return will be different than next year’s return
At the end of the day the portfolio return will capture both your cost, premium and current price.
If you are tracking the returns of your option trading then yes you have a loss that you need to track. Imagine if all his puts were exercised in the money, the way he is currently doing things he would show 0 as the return for his option trades when he would have large losses on each of those put positions. Yes he would still be holding the stock but he isn’t telling us about the returns on his stocks.
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