July options trading update

I earned $5,940 trading options in July.

This was the highest number of transaction ever. I paid $96 in trading commissions.

Several option positions expired in the money and were assigned.

• TD Bank (TSE:TD) 100 shares at $86.
  My TD shares got called away at $92. Now I got assigned the same 100 shares for $86. Looks like the wheel strategy is working as intended. Make money from calls, puts, and capital gains. TD shares are currently $83/share as of writing this post.
• Bed Bath & Beyond (BBBY) 300 shares at $5.
  This meme stock offers high implied volatility and a low price per share, the perfect combination for writing options. Its current IV is above 100% even though there is no upcoming earnings report. BBBY is trading at $5.39 / share today.
• Alphabet (GOOGL) 100 shares at $108.
  GOOGL closed at $107.95 on the day of expiration, lol.
  Current stock price is $116 / share.
• Snap (SNAP) 200 shares at $12.
  Another high IV stock I plan to run the wheel on. Currently selling covered calls on it.
  SNAP is trading at $9.68 today.

Comparing July to previous months

Detailed transactions here.

I don’t think I’ll reach the highs of March and April any time soon. I was taking on too much risk at that time and it ultimately resulted in some losses in May. At the end of April I had a lot of options that were in the red, meaning they were losing money mark-to-market.

But because I had not written them off, the losses were not realized yet so their impact was invisible in my monthly updates. My options report was negative in May because I closed out some of those losing positions and crystalized those losses.

But July was different. I took a more balanced approach. Most of my held options currently have unrealized gains, not losses. 🙂 Part of the reason is because the stock market has been going lately and I sell mostly put options. But it’s also because I’m taking less risks with my trades, choosing more out of the money strike prices and shorter durations.

New Learnings

• Sell a combination of puts and calls to reduce Delta risk
  Before I would sell about 90% put options, and 10% calls. But this produces huge losses when the stock market drops very quickly like we’ve seen in the first half of this year. Now my split is more like 70% puts, and 30% calls, which is more balanced. This diversifies my risk so fewer options will expire in the money if stocks go down. Most calls I sell are covered by owning the underlying.
• Keeping the expiration date short
  Last month I mentioned I wanted to reduce risk by keeping my duration shorter, to 1 or 2 weeks. So far this has been working well. There’s more certainty in the stock price 1 week from now than 1 month from now. This allows me to choose strike prices with more confidence.
• Focus on a few names instead of many
  Trading just a handful of options on companies I have experience with is better than spreading out my options selling among dozens of stocks. It’s better to sell options when you have a bias towards a stock. And it’s easier to do that if you understand the businesses.

Looking ahead

In August I plan to write more spreads. This will reduce the risk of my portfolio blowing up if the stock market decides to move abruptly in one direction or the other. One delta neutral strategy I plan to use more of is the iron condor, which takes advantage of time decay from puts and calls simultaneously.

Last week I wrote about the important economic data and earnings reports to watch for. After the dust settled I believe there’s a good chance the bottom of the stock market was reached in June. We may re-test that low in the weeks or months ahead.

But I have recently decided to deposit $100,000 into my IB account.

I recently made a video description my plan for deploying this new capital, which can be watched here.

The basic idea is to generate an extra $750 to $1,000 of option premiums per month using the new $100,000 of capital. And then get assigned stocks that I want at a strike price that I’m comfortable buying at. 😀

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Random Useless Fact:

Kitchen drawers should be taller.