It’s been two months since my last update on my covered call strategy on $F while I wait for a dividend to be reinstated. As outlined in my first post, the ~6% dividend Ford was offering in 2019 was the primary reason I started accumulating shares. With the COVID “crash” in March the dividends were “suspended” while the company stabilized. That was probably the correct move for the company’s longterm future, but that doesn’t mean I didn’t miss those quarterly payments!
With that in mind, I started selling covered calls at strike prices above my average price to generate some income on that tied up capital I had in Ford. As the share price has rebounded, I have found myself in the money on my positions, but I have still been able to roll them out for an acceptable rate of return.
As of my last update, I had two February 19 covered calls, one at $9 strike and $10 strike. I had taken in $67 in credits before commissions. $F is now trading in the mid-$11s. Since then, I have been able to roll both of those out to March for another credit.
On January 22, I rolled the $9 covered call out to March 19 for a net credit of $16.68. This is a 1.9% return over 57 days, which is 11.9% annualized. With that credit, I bought one additional share for $11.47. This is similar to a DRIP (Dividend Reinvestment Program) with a traditional dividend.
On February 2, I was able to roll the $10 covered call out to March 19 expiration for a net credit of $31.68. This is a 3.2% return of 46 days, which is 25.1% annualized! As of now, I haven’t reinvested that credit and have just kept the cash.
This brings the total net credits from selling covered calls to over $115. At a current share price of $11.58, that’s a return of 5% over the course of about 3 months.
These positions, especially the $9 strike, are sitting pretty far in the money at this point. This means that there is very little extrinsic value remaining in these contracts, which means sooner or later I will choose to let it expire at have the shares called away. Fortunately, I have more than 200 shares of $F that I’ve own for more than 1 year, so my gains on those shares will be taxed at longterm capital gains if I’m forced to sell when they’re called away (to be clear: all the credits I’m receiving for selling the covered calls are taxed as ordinary income, unfortunately). If the stock price sees a pullback down below $11 again, I will look at rolling these out again as it’s likely there will be some more extrinsic value again. As long as I can get a 1% net credit for rolling out between 1 to 2 months, I think it will still be worthwhile as that’s a 6-12% annual return that, I feel, is pretty low risk.
I do expect Ford to resume the dividend at some point, so it would be nice if I could continue to roll out until then. But if Ford continues to climb higher and I get further and further in the money, that becomes increasingly unlikely. Either way, I will continue to update the blog with what happens.
The market in January had a strong start before Game Stop mania threw a wrench into things. I actually participated in the craziness in a very small way. I sold a call credit spread that was WAY in the money for a few days (like… $300 in the money!) Since it was a defined risk trade I had no problem waiting it out. In the end I was probably the only person on that $GME trade that ended up with a $10 profit. I think most were were up or down 100x, 1000x or more than that. As the dust began to settle, $SPY retreated a bit and closed the month down 1.0%.
My total profits from trading were $2,623.63, another best ever month by 13%! That was a 1.5% total portfolio return from options trading. Not bad for a month where the markets were in the red. My total portfolio value across all accounts – which includes options trading profits, current stock & options positions, contributions & withdrawals for extra mortgage principal payments – was up 0.6%. I did contribute $6,000 into my ROTH IRA in January, but that isn’t included in the returns for the month. In January I closed 71 trades with a win rate of 96%*.
(* That win rate is a bit misleading because it doesn’t count positions that were assigned as losses. The only way I get a loss according to my tracking is if I close a position with a negative net credit. I took assignment on 3 trades. If those 3 are counted as losses, my win rate comes down to 92%.)
I continue to split my accounts between two strategies. One is to trade mostly credit spreads and naked puts in margin accounts and the other is to sell cash-secured puts & covered calls (i.e. “the wheel” strategy) in non-margin and IRA accounts. As I wrote in my January update of my mortgage pay off, I am starting to do some “poor man’s covered calls” as well. The goal for the margin accounts continues to be to 1) raise cash to increase trading capital and 2) run through my mortgage pay off strategy. The other accounts are reinvesting the profits into stock positions for future growth or passive income via dividend stocks.
My favorite part about writing these monthly reviews is looking back at what was my biggest winner and loser. Since I am doing so many trades in a month, each trade is closed and put behind me quickly. It’s only because I keep detailed records of each trade that I can look back and learn what’s working and what isn’t.
My biggest winner for January came from a poor man’s covered call on $AAPL. On January 26th I opened a $100 strike June 2022 Call LEAP contract for $49.50 ($4,950 total). I’m bullish on Apple going higher. This contract gives me almost 18 months to be right and gives me a break-even of $149.50. I then sold a covered call at $152.5 strike for the January 29 expiration for $1.85 per contract ($185 total). Due to the frenzy around earnings (which Apple killed by the way with quarterly revenues topping $100 billion!) the premiums were pretty rich even for such a short dated contract. I closed it two days later (one day before expiration) for a net credit of $178.34. This was all in an IRA, so it’s all mine to keep!
I will continue to sell covered calls at $150 or above to generate income from that LEAP contract and hope I don’t get assigned. If I do, however, I know I will make a profit because my break-even is at $149.50. I may occasionally sell credit spreads if I think there is a chance the stock price could blow past my covered call. Selling a spread is more likely to allow me to roll the position up when I move it out because of the long call as extra “protection” allows me to widen my spread.
You can see my LEAP is in the red at this point. With 16 months remaining in the contract, however, I’m still feeling pretty good about it.
I’m going to consider a cash-secured put that I was assigned at expiration on as my biggest loser for January. It was a January 29 short Put on $SBUX at the $99 strike that I sold on January 7th. I collected a $1.25 credit ($124.34 net commissions), but was assigned while the shares were trading at $96.79. Therefore, at assignment, I was down a net $96.66 ($1.2434 – $99 + $96.79). Looking at the chart below you can see I had a comfortable margin of safety until it really dragged down just before expiration.
Fortunately, I happen to think Starbucks is a fantastic business and was not worried at all by the assignment. I immediately sold a covered call that, as you might expect from looking at the rebound at the beginning of February, is now in the money and looking like I will get assigned in the other direction now! This one was also in an IRA so no tax-man to collect on all these trades.
Another great thing about writing these blogs is that they hold me accountable. In my December review I posted some goals for the year. Here’s a look at how they are going so far:
Contribute $6,000 to my ROTH IRA. CHECK! I already funded my ROTH IRA in the first few days of the new year. Now the trick is to put those dollars to work!
Build $100/month in passive income, primarily from dividends. I want to finish 2021 with a forward looking $100/month in 2022. I am now tracking my dividends separately from my options trading. I collected $55.97 in January. The biggest contributor to that was a quarterly dividend from $SPY.
$10,000 in non-W2 income. It will take $833 per month on average to hit this. Adding the $55.97 from dividends and $751.86 from my taxable accounts puts me at $807.83. Very happy to be at 97% of the monthly goal in January!
Increase our 401k contributions. I have increased my contributions to hit the maximum $19,500 by the end of the year. My wife’s contribution has remained the same so far. We’ll see if we are able to maintain that throughout the whole year, but we are off to a great start.
Increase net worth by 30%. A 30% net worth increase for the year will take a 2.21% compounded monthly return. For the month of January our net worth was up 2.51%. So we’re on track! As I wrote in my post where I set this goal, an increased savings rate, at this point in our accumulation phase of growing our wealth, has a dramatic impact on our net worth. As we grow our net worth we will be more subject to market conditions (assuming we have a decent amount of our wealth in the stock market, for example).
That’s a wrap on January. We are off to a slightly slower start than January so we’ll see if I can close the gap for another record breaking month. If not, no sweat. I’m trying to stay on a consistent path of progress and not looking for home runs.
Disclaimer: I am long $AAPL, $SBUX and $SPY. I am not a financial advisor. This is not investment advice. Please do your own research before investing in anything discussed herein.
Recapping from last month, I had put a total of $220 towards my mortgage principal from options trading profits, saving a total of $338 in interest over the life of the loan. I started to diversify away from putting all my profits straight into my mortgage by beginning to split it three ways: mortgage principal, preferred stock, and Hedgefundie’s Excellent Adventure. With everything included, my $3,328.42 invested in this strategy had returned $470.38 (14.1% ROI/69.7% CAGR!). Surely those returns aren’t sustainable, right?!
In my fourth month, my options trading returns set another record-high of $188, a 5.2% return on capital. My principal barely grew from $3,498.35 to $3,515.08 however, thanks to a big stumble in the markets in the last trading day of January.
For the most part I have continued the same strategies from the past few months. I did add a couple synthetic covered calls (aka “poor man’s covered call” or “PMCC”). I will share those positions and strategy below.
My positions & trades
$AAL, 100 shares at $13.98 average ($1,398 total principal). Principal is currently up 22.8% ($319), however I currently have a $16 covered call position expiring on February 19, limiting my capital gains to $202 total. I closed two positions for the month and for a profit of $34. Similar to last month, I collected a net credit of $12 after rolling up from a $15.50 strike position to the current $16 position.
Last month I mentioned I may continue to sell at the $15.50 strike even if it stays in the money. I opted to roll up to the $16 instead. American Airlines continues to have some very high implied volatility and I think some longterm upside. In the short term I’m really limiting my monthly returns by continuing to roll up, but I think it will pay off over the next few months in terms of total return.
As a sneak peak to February’s update, I’ve actually already rolled up to $17. This time with a very respectable credit due to the reddit frenzy over stocks like $AAL. I also sold another put credit spread at the $14.5/$13.5 strikes.
$APHA, no open stock positions. I continued selling cash-secured puts on Aphria this month for some modest profits. I closed two trades for a combined $23 profit from a maximum collateral of $700, which is a 3.2% return.
In recent days $APHA has really taken off. If I choose to sell more puts I will most likely switch to credit spreads to limit my downside and give me more flexibility with rolling positions down and out when challenged. Currently I have a $13/$12 put credit spread for the February 26th expiration.
$CLSD, no open positions. I sold one cash-secured put on Clearside Biomedical at $2.50 for a credit of $41. I came across this one after reading this “breakout” post over on Seeking Alpha. The article was compelling enough for me to make a speculative trade on it. It worked out, and I closed the trade with a $21 profit a few days later, leaving me with an 8.4% return.
$GE, 1 LEAP January 21, 2022 $5 Strike at a cost of $6.55. GE and MRO (below) are my first attempts at synthetic covered calls (aka “poor man’s covered call” or PMCC). I’ve had good success in the past few months using typical covered calls on stocks like $AAL, $GPRO & $FCEL. Rather than purchasing 100 shares of a stock, I am buying a deep in the money LEAP contract to use as collateral for selling my covered calls. So instead of paying $1,140 for 100 shares of $GE, I bought 1 LEAP contract for $655. When I sold a $12 strike covered call for a $.38 credit, I got a return of 5.8% (38/655) vs. 3.3% (38/1140).
So the obvious benefit is you are putting up (and risking) less capital. There are two main drawbacks to using this method vs. using typical covered calls to consider. The first is that this is a leveraged position. So when $GE goes up by 5%, the price of my LEAP goes up by ~8%, and when it goes down by 5%, I’m losing ~8%. So this drawback actually goes both ways. The other major drawback is my collateral now has an expiration date! This means that if $GE closes below $5 next January, I lose all of my principal. However, I know I will be selling lots of premium before then and feel confident that I will have plenty of opportunities to get out for a profit or sell for a more manageable loss before then.
I am currently selling $12 strike covered calls and look forward to showing those results in the next month.
$GPRO, no open stock positions. In January I had some good results with selling put credit spreads on Go Pro. I closed a total of two trades for a total profit of $39. The largest spread I had for the month was $200, so that’s a 19.5% return. It’s really tough to beat the ROI of credit spreads.
I adjusted one contract by moving the long Put leg down from $7 to $6 strike when the price started challenging the $8 strike. I had decided that I would be OK with taking assignment at $8 if it came to it, so I was willing to increase the spread to $2, increasing my max loss for the trade but not effecting the likelihood of the position getting assigned. In the end the stock moved up dramatically about a week later so I decided to close it when there wasn’t much extrinsic value remaining. I then opened a similar position that same day with an expiration of one week later for a high probability “easy” profit.
$M, no open stock positions. Macy’s is now trading in the mid teens. Crazy that I was selling covered calls in the $6 range when I started. Here is an example of where I could have made a lot more money just buying and holding. But who knew the stock would nearly triple in a few months? For this month I closed 3 positions for a total profit of $32. I ended the month with another credit spread with a potential profit of $20.
$MAC, no open positions. I just had one trade on $MAC for the month for an $8 profit (5.3% return). I found $MAC on a Seeking Alpha comment. Liquidity wasn’t great so I decided to not continue trading it. It looks like it was caught up in some $GME short-squeeze mania at the end of the month that I wasn’t aware of until looking at the chart just now. It has more that 50% short interest, so it was an easy target for the short-squeeze crowd.
$MRO, 1 LEAP January 21, 2022 $5 Strike at a cost of $3.80. As I wrote above regarding $GE, I am going long with a LEAP contract on Marathon Oil Corporation. I think as things begin to open up we will see an increased demand in oil, raising oil price and profits for many of the oil corporations. I closed two trades earlier in the month for a profit of $31. At the end of the month I had a covered call at the $9 strike with a credit of $34, a 9% potential return.
Extra Mortgage Principal Paid
As I explained in last month’s post, I am no longer putting all profits (less taxes) into the mortgage principal. I think I can do better with other fairly passive, and more risky, investing. Those profits, which will beat the 3.125% return that I get by paying down my mortgage, will then go towards the mortgage. My new minimum goal for the mortgage is 1% of the beginning portfolio value each month. January began with a value of $3,498, so I rounded it up to $35. With a combined $255 put towards my mortgage principal in three months, I will save $392 in interest over the life of the loan.
My first passive alternative to directly paying off my mortgage principal is preferred stock. At the end of January, my preferred stock portfolio for this mortgage pay off strategy was worth $116.97 and consisted of five different positions. I purchased three preferred stocks for the month, totaling $69.27. I do plan to write a bit more about my strategy with these, but for now, here are my current holdings (1 share of each):
SCE-J, 5.375% coupon with a yield on cost of 5.55%
I haven’t received any dividends on these positions yet, but they will go toward the mortgage when they come in. I hope to buy at least one new preferred stock each month.
Hedgefundie’s Excellent Adventure
This strategy is purely for capital growth. The target allocation is 55% UPRO/45% TMF, which are both 3x leveraged ETFs. Once their value is enough to reduce my mortgage term by one month, I will put it all towards the mortgage and start over. I have yet to rebalance this because the total value is still so small, but rebalancing is critical to this strategy’s success. For January, $13 was put into $UPRO and $12 into TMF. At the end of the month, the value in these funds was $60.51. To reduce my mortgage by one month I would need to make a $610 payment, so still a long way to grow.
Of the $188 earned from options trading in January, $58 was set aside into the ULP for taxes, $35 was put towards the mortgage principal, $69.27 was invested into preferred stocks and $25 was invested into Hedgefundie’s Excellent Adventure. The remaining $.73 will stay in my trading account. The trading account’s value ended January at $3,515.08, preferred stock was at $116.97 (with a forward yield of 7.4%) and Hedgefundie was at $60.51.
In my introduction post I identified three different benchmarks I will be comparing my performance to. Benchmark #1 is putting all of my savings from my refinance, plus a 1 month skipped mortgage payment, into a savings account. When I wrote that post I was actually getting 0.6% APY, but it has reduced twice down to 0.3%. Benchmark #2 is putting all of those savings straight into extra monthly payments to the mortgage principal. Finally, Benchmark #3 is simply buying $SPY.
After 4 months I have invested $3,492.63 (initial $3,000 + $164.21 per month). Benchmark #1 is at $3,497.02, Benchmark #2 is at $3,517.41, Benchmark #3 is at $3,643.84. My actual total has just passed the $4k mark at $4,005.76. This is a total return of $513.12, or 14.7% (50.9% CAGR). My returns include the value of my principal in my trading account + the monthly contribution of $64.21 and interest into my savings + the difference between the original loan and what is actually remaining this month. My results are beating Benchmark #1 by 14.6%, #2 by 13.9% and #3 by 8.6%.
Obviously I am very pleased with the results so far and can only hope things continue to grow at a similar rate. What’s especially cool about all of this is that it all came from refinancing my home loan. The 3.125% rate I ended up with is pretty mediocre relative to what the averages are at right now, but because it allowed us to skip 1 month of mortgage payments and allows us to save $164.21, and because I am aggressively investing it rather than sticking it in a “high yield” savings account or, worse, spending it, I am slowly turning that opportunity into wealth.
Disclaimer: I am long $AAL, $MRO, $GE, $CDR-C, $NRZ-A, $NRZ-B, $PMT-B, $SCE-J, $SPY, $UPRO and $TMF. I am not a financial advisor. This is not investment advice. Please do your own research before investing in anything discussed herein.
The market had another strong month, though not quite as great as November. $SPY was up 3.3% in December, closing on New Year’s Eve at an all-time high. If I had told you there would be a worldwide pandemic and most of the world would shut its doors in 2020, I bet you wouldn’t have guessed the S8P 500 would be up more than 16% by the end of year? Crazy.
Since I’m just a few months into this blog, it doesn’t make sense to have a big yearly review of my performance in my accounts. I will review some changes I made this year, what I plan to do going forward, and some goals. But first, let’s wrap up December!
For the month of December, my total profits from options trading were $2,320.73, my best month yet and nearly 10% more than last month. That’s a total portfolio return of 2.1% and below the market’s 3.3% for the month. However, my total portfolio value across all accounts – which includes options trading profits, current stock & options positions, contributions & withdrawals for extra mortgage principal payments – was up 3.6%, just edging out the markets performance. The portfolios had net contributions of $246.30 for the month. I closed 69 options trades with a win rate of 97%*.
(* That win rate is a bit misleading because it doesn’t count positions that were assigned as losses. The only way I get a loss according to my tracking is if I close a position with a negative net credit. I took assignment on 5 trades. If those 5 are counted as losses, my win rate comes down to 90%.)
I continue to split my accounts between two strategies. One is to trade mostly credit spreads and naked puts in margin accounts and the other is to sell cash-secured puts & covered calls (i.e. “the wheel” strategy) in non-margin and IRA accounts. The goal for the margin accounts continues to be to 1) raise cash to increase trading capital and 2) run through my mortgage pay off strategy. The other accounts are reinvesting the profits into stock positions for future growth or passive income via dividend stocks.
My biggest win of the month, and ever by total profit, was a cash-secured put on $LOW. Lowe’s has shown to be very resilient during the COVID shutdowns thanks to many people taking up home improvement projects (myself included! In fact, I swiped my Lowe’s credit card countless times in 2020). There was a big pullback on November 9 and I decided to open the December 18 cash-secured put at the $150 strike for a credit of $3.75. At one point I was in the money, but held my ground and let it ride, knowing that if I was assigned I would be happy to own $LOW at $150. About a week before expiration the stock jumped back up and I took that as an opportunity to close the trade for a net credit of $340.68, a 2.3% return (25.1% annualized).
My biggest loss was on Chinese EV company $NIO. The loss was only $15, and looking at the chart below, would have been a winner if I had held until expiration. It was a Put credit spread for December 18 expiration at the $41/$40 strike. I opened the trade on December 9. The stock started moving against me, and rather than holding the line, I decided to roll out one week and down a bit. I also increased the width of the credit spread, allowing me to bring in some credit for this trade. I ended up with the December 24 expiration now at the $39/37.5. Once the stock began moving in my direction, I decided to let it go and pocket a $31 profit. So net was a positive $16. Not bad for my biggest loser!
I had an actual paper loss due to an assignment on $PFE at expiration. I had a cash-secured put at the $41 strike. At expiration, $PFE was trading at $37.68, so the paper loss was $332 ($41-37.68). I did collect $102 in credit, so net is a loss of $230. Pfizer is obviously a very strong company and am not worried holding a long position. I will sell covered calls at above $41 and collect premiums until I get assigned. Currently I have the February 19 expiration $42 covered call for a net credit of $64. If I hold it until expiration, that is a 9.2% annualized return. In addition, Pfizer currently pays a dividend of ~4%, which I will collect until the shares are called away.
Looking forward to 2021
In my first few months of options trading I’ve had some really great success. While I’m not about to retire from my day job and go YOLO on selling options, I do see potential to make this sort of a side hustle. One thing I am realizing, and one of the things I am drawn to, is it is not at all a passive form of investing — at least not the way I’m doing it! I do, however, believe that passive index investing is a great strategy for building wealth and that is what my wife and I are doing in our 401k’s.
With that said, here are some of my investing related goals for 2021 (in no particular order):
Contribute $6,000 to my ROTH IRA. I opened my ROTH towards the end of 2020. With $12,000 in the account I should have some good options for… options trading.
$10,000 in non-W2 income. This includes profits from options trading, dividends, interest, etc. only in my taxable accounts. This is pretty aggressive, and definitely a stretch goal. Last month was my best month of option trading profits yet at $620 for the month in those accounts. I will need to average $833 per month.
Build $100/month in passive income, primarily from dividends. Again, this is in my taxable accounts. The goal isn’t to have $1,200 in dividend income for the year as I think that is too aggressive for me at this point, but to be averaging $100/month as I go into 2022 (or $300/quarter since most stocks pay out quarterly). I haven’t added up all the numbers, but I was probably around $60/month in 2020. I might start including dividend income in my monthly updates.
Increase our 401k contributions. We certainly won’t be in a position to max out both of our 401k’s this year, but I’d like to get there over the next few years.
Increase net worth by 30%. This one is also a bit of a stretch goal. As we become more invested each year, net worth increases will become more subject to market conditions and less due to our savings. We benefited from being able to put more into the market in March and April of last year, and it’s unlikely we will have another opportunity like that. But who knows! We ended 2020 up 32%.
Reduce mortgage length by 1 month. As a part of my mortgage pay off strategy, I’m hoping to be able to pay enough towards the principal to reduce the length of my loan by one month. As of this month, I need to put another $643 towards principal to accomplish this. At my current rate of monthly progress, that would take less than 6 months to achieve. However, I’m not putting quite as much directly towards the mortgage as I did the first two months. In the long run it will “pay off”, but may make this goal more difficult to achieve in 2020.
First off, HAPPY NEW YEAR! This is not a yearly recap post and since I just started this blog a couple months ago, I’m not sure I will be making one. I will likely have a forward looking 2021 post though. Now, onto the post…
After two months of this experiment, I had put a total of $187 towards my mortgage principal from options trading profits which will equal $288 of interest saved over the course of my 30-year 3.125% loan. In addition, my options trading account principal of $3,200 (which was/is funded from savings from refinancing) was up to $3,240.86. A great start and already ahead of my initial goal by 2.6%.
I have continued to outperform in December, my third month, with $170 in options trading profits which is a 5.1% return on capital! In addition, my principal has grown to $3,498.35, 6% more than the $3,300 added to the account thus far. Remember, that 6% is after deducting taxes and withdrawals from the account to make the extra mortgage principal payments.
This month I have made a dramatic tweak to how I am divvying up my options trading profits towards my extra mortgage principal payments. More on that after I review this month’s positions and trades.
My positions & trades
$AAL, 100 shares at $13.98 average ($1,398 total principal). Principal is currently up 15.4% ($215.08), however I currently have a $15.50 covered call position expiring on January 29, limiting my capital gains to $152 total. I closed two positions for the month and for a profit of $74. I collected a net credit of $12 after rolling up from a $15 strike position to the current $15.50 position.
Going forward I will most likely continue to sell the $15.50 strike even if it stays in the money. I should be able to collect a large credit at least one more time. I will consider moving up to the $16 strike if I can still collect a decent credit. My main objective here with this account is to generate income, with a secondary goal of capital preservation and tertiary is capital growth, however I don’t want to leave easy money on the table in the name of current income. Like so many things in life, it is a balance.
$FCEL, no open positions. This month I finally had my shares of FuelCell Energy called away. In the end, I made about 30% in profits from that position. BUT I missed out on a $1,000 profit! This was a classic case of picking up pennies in front of a steamroller. In my defense, the pennies were very shiny and no one could have seen that steamroller coming!
I only closed that final $2.50 covered call for a $10 profit. On to the next one!
$M, no open stock position. Last month I had my Macy’s position called away at $6.50. I had just about given up on the stock when I saw an easy trade by selling a $9 Put for January 15 for a credit of $15. This trade is a 1.7% return (26% annualized), so it meets my 1% goal.
If the stock drops suddenly to below $9 and I am assigned, I expect the premiums to go up and good potential for selling covered calls.
$GPRO, no open stock position. Similar to Macy’s, Go Pro was a stock that was called away from me in November. I decided to sell some puts this month, and that worked out well for me. I closed three positions for $34 profit. My highest strike price on those positions was $7.50, so that $34 was made using $750 as collateral, which is a 4.5% return.
I currently have a put credit spread at the $8/$7 strikes that I collected a credit of $27. In the past couple months I have had a lot more success with simply selling naked positions (cash-secured puts or covered calls, technically) than with credit spreads. However, more recently I’ve found some decent success with credit spreads as long as I’m willing to roll it out when I’m challenged. Contrary to a lot of advice, I am generally able to do this while collecting a credit if I widen the spread. So if I start with a $1 spread, I roll it out and down (for a Put) or up (for a Call). I’m therefore increasing my potential loss, which is why it generally isn’t advised, but it’s working for me right now so I’m going to go with it.
$APHA, no open stock position. I continued selling cash-secured puts on Aphria this month for some decent profits. I’ve thus far avoided getting assigned the stock. I closed three positions for a total profit of $33. Similar to the $GPRO puts, those $33 were earned with a maximum collateral used of $700, so a 4.7% return.
I currently have a $6.50 cash-secured put for January 15 open that I am watching closely. I collected a net credit of $18 after rolling down and out from December 31 $7 strike. That’s looking like a pretty smart move since it closed at $6.92 on New Year’s Eve and I would have been assigned. I may look to roll down and out to the $6 strike if I am able to for at least a 1% credit (i.e. $6).
$MRO, no open position. I had one trade on Marathon Oil Corporation this month, a credit spread from $5.50 to $4.50, with a profit of $9.
$MAC, no open stock position. I have an open credit spread on The Macerich Company (a REIT) from $9 to $7.50. I collected a credit of $13.
Extra Mortgage Principal Paid
As I said earlier in the post, I’ve changed how much of my profits I am putting straight into my mortgage principal. Perhaps this deserves its own lengthy post, but essentially I am wrestling with the opportunity cost of locking those profits up into the equity in my home. Now don’t read this as my giving up three months in.
As I listen to more finance podcasts and Youtube videos, I often hear about the velocity of money. When money is moving, it has velocity. Option trading is great because you are constantly moving money from one opportunity to the next. The money has velocity. When a dollar goes into my mortgage principal, it comes to a screeching 3.125%-halt. Remember my goal, which I am currently outperforming considerably, is 1% a month or 12% a year! Wouldn’t it be great if I could keep the velocity going before slowing it way down with my mortgage?
Of course it would be. However, the only reason anyone ever put extra principal into a mortgage was for that guaranteed rate of return. It’s essentially risk free! Compare that to a 0.4% APY “high yield” savings account and that 3.125% rate now looks pretty good! Based on my performance in the past three months, I should sell options with every dollar I have since my returns are so great, right?! Well, no. I’m not so naive to think that this will continue on forever without any losses.
All this to say that I will continue to remove my profits from my mortgage payoff trading account. I will continue to set aside the correct amount for taxes. Assuming I am left with more than my 1% goal for the month, I will take that 1% and put it towards my principal. The remaining balance is where I plan to… diversify.
I’m not going to take the time to explain the nuances of preferred stock here (Investopedia definition). It is often referred to as a hybrid of stocks and bonds. Anyway, I have been reading a book called Preferred Stock Investing and I believe there are some great opportunities for some fairly high yields. This month I actually bought two preferred stocks with dividends that yield an average of about 8%. I plan to take those dividends and put that money into the mortgage principal. Instead of taking my super high return from options trading and slowing it down immediately into my mortgage, these dollars will keep speed for a while longer.
While I expect (hope) to outperform even these high yields of 8% with my options trading, these income source has the benefit of being nearly completely passive. Options trading is one of the most active forms of trading, I am learning. Diversifying profits away from the options trading and into more passive income streams will help keep everything more sustainable as the account size grows.
Hedgefundie’s Excellent Adventure
Honestly, not really sure where to start with this. Think leverage. Think risk parity. That’s Hedgefundie’s Excellent Adventure. The strategy, specifically, is 55% in a 3X leveraged S&P 500 ETF $UPRO and 45% in a 3X leveraged long term bond ETF $TMF. Rebalance as required. There’s a great write up of the strategy here (it initially started from an epic thread on the “Bogleheads” forum).
After setting aside my portion straight towards the mortgage and purchasing any preferred stocks for the month, I will split my profits 55/45% into the Hedgefundie strategy. For now, my plan is to let this pile grow until I reach enough to reduce my mortgage term by one month. As of now, I need $643. This allows me to benefit from the great growth potential of leveraged ETFs while minimizing the risk since I won’t be letting it grow indefinitely.
So how did I slice this complicated pie this month?
After taxes ($53 into ULP), the $170 profits was $117 net. Instead of putting that $117 total into the mortgage as I would have in the previous two months, I put just $33, which is ~1% of my account’s starting principal of $3,240.86 for December. I bought two preferred stocks ($NRZ.A for $23.22 and $PMT.B for $24.75) for $48.15. Finally, I invested $36 into the Hedgefundie strategy, as $20 in $UPRO and $16 in $TMF.
With a combined $220 put towards my mortgage principal in three months, I will save $338 in interest over the life of the loan. In addition, my preferred stocks are now worth $49.55, a 4.2% return, and will yield ~8% going forward ($3.88 in dividends annually). Finally, the Hedgefundie’s Excellent Adventure is also up 4.2% to $37.53.
In my introduction post I identified three different benchmarks I will be comparing my performance to. Benchmark #1 is putting all of my savings from my refinance, plus a 1 month skipped mortgage payment, into a savings account. When I wrote that post I was actually getting 0.6% APY, but it has reduced to 0.4%. Benchmark #2 is putting all of those savings straight into extra monthly payments to the mortgage principal. Finally, Benchmark #3 is simply buying $SPY.
I continued to make gains across all three benchmarks this month. When considering the value of my principal in my trading account + the monthly contribution of $64.21 and interest into my savings + the difference between the original loan and what is actually remaining this month, my total value is at $3,799 after the month of December, a 13.2% improvement over November. That beats Benchmark #1 (all savings) of $3,332 by 14.0%, Benchmark #2 (extra mortgage payments only) of $3,344 by 13.6% and Benchmark #3 ($SPY) of $3,561 by 6.7%. Below is a chart of my progress so far.
Thanks again for following along. Looking forward to more progress in 2021!
Disclaimer: I am long $AAL, $UPRO and $TMF.I am not a financial advisor. This is not investment advice. Please do your own research before investing in anything discussed herein. This post contains affiliate links.
According to this article (which I found via googling, “picking up pennies in front of a steamroller”, so take it with a grain of asphalt…), “The term `picking up pennies in front of a steamroller’ is linked to Nassim Taleb, an acclaimed author on randomness and risk, whose books describe an investment strategy that has a high probability to yield a small return (pennies), and a small probability of a very large loss (steamroller).”
I didn’t look further into what specific types of investments Taleb wrote about, but one clear example, at least through the lens of this blog, is writing puts and calls in options trading. We are collecting “pennies” at high probabilities, but once in a blue moon the “steamroller” is going to sneak up on us. Will all the pennies be worth it? Well, that of course depends on how shiny those pennies are and how many you pick up.
Let me tell you about how I just got steamrolled by over $1,100 while picking up $55 worth of pennies. The steamroller was $FCEL. I opened a position on FuelCell Energy on October 8 by purchasing 100 shares at $2.34. I then went on to sell multiple covered calls over the next couple of months at the $2 and $2.50 strikes, proudly picking up $10 to $15 at a time. With a $234 initial investment, each of those premiums represented a 4-7% return!
Things were looking just fine until mid November when the stock price shot up, way past my strike price. The price eventually reached over $10 (and over $13 today)! Had I not had that covered call position at $2.50 strike expiring December 18, I would have been up almost $800. A 336% return! Instead, I got my $55 worth of premiums and $16 in capital gains… a ~30% return.
Well, the short answer is no, I didn’t learn a lesson here. I am still selling covered calls on positions. There is one thing I might do differently with these types of positions in the future.
$FCEL was a pretty speculative play. In fact, my original covered call was an in the money call at the $2 strike. I expected to make about a 6% return after selling for a capital loss and be done with it. I didn’t know if it was going to go up, down or sideways.
In the future, if I’m in a similar speculative play, I could potentially participate in the upside by buying “protection”: buying a cheap, long call at a strike price way out of the money. This would make my covered call a call credit spread. For example, if I had bought a call at the $4 strike, it probably would have only cost me a couple bucks. Sure, my return if the contract expires out of the money would have been those couple dollars less, but I could then have participated in the upside a bit. In this case, if I had a long $4 Call position, that would have been worth over $600 when the stock rocketed up past $10!
A couple days later, the book arrived and I literally read it in one afternoon. It’s short at just 98 pages. Chris gets straight to the point and clearly lays out the reasons why his “Ultimate Liquidity Portfolio” is better than stashing emergency (or opportunity) funds into “high-yield” savings accounts as I had been doing. Currently, I’m earning 0.4% APY on my high yield account. When you account for the Fed’s current target inflation rate at 2%, it is obvious that you are losing money everyday it sits in your account. The book has several charts and graphs showing just how much buying power cash has lost in the past. But there is obviously some value to knowing that the money is safely set aside and liquid for whenever it is needed.
Other Assets & Volatility
So how do you keep up with inflation? The typical answer is to buy assets. Gold, stocks, real estate… most assets will rise in value with inflation, though generally with volatility as well. The downsides to putting all of your emergency funds into any one of those assets are obvious. When you need to pull $1,000 out, for example, you want to know your asset is still worth $1,000 (not less) and it can be easily liquidated. It’s clear you aren’t going to be able to sell off a little bit of real estate every time you are in a crunch.
Also consider the reason you need access to these funds. Perhaps we are in a bear market (e.g. because of a pandemic!) and you just lost your job. If you had your “emergency” funds in the stock market, you’d be forced to sell at the same time as everyone else, losing a good chunk of your value just when you need it. This is why FDIC insured accounts like high yield savings accounts are so popular despite such low rates of return.
Diversification: The Perfect Mix
Chris has a great metaphor in his book for a perfectly diversified portfolio. Imagine you are a farmer with hens. There are two types of hens: ones that lay eggs on sunny days and those that lay eggs when it’s not sunny. If you have both types of hens, you know that you will get eggs whether it is sunny or not. This is what you want in an emergency fund, one that continues to grow in both booms and busts.
So how is this achieved in practice? With a mixture of bonds and stocks. But this isn’t your typical 60-40 stock to bond ratio. Such a portfolio is likely to grow over the longterm, but will still have more volatility than you want. Remember, you want eggs on cloudy days, too.
Chris’s solution is a mix of 88% intermediate term US Treasures and 12% US total stock market. Intermediate term treasuries mature in approximately 5-10 years. The two generally move in opposite directions, especially when there are big moves in the market. For example, see the chart below showing $VGIT vs. the S&P 500 this year. Just when the market was crashing in March, $VGIT started laying eggs!
Since 2009 when $VGIT was formed, it has had a -0.43 correlation to the US stock market. The 88/12% combo of $VGIT and $VTI have a combined correlation to the US stock market of just 0.11. When the stock market is zigging and zagging, the ULP is just steady.
If you put $10,000 into $VTI in that time, you’d have $41,923 (13.9% CAGR), but with a max drawdown of over -20% and worst year of -5%. $10,000 in $VGIT gives you $14,381 (3.36% CAGR) with a max drawdown of -4.3% and worst year of -2.8%. The ULP slightly increases the return of the 100% bond portfolio and actually reduces drawdowns. $10,000 in the 88/12 ULP gives you $16,568 (4.7% CAGR) with a max drawdown of just -3% and worst year -2.2%. This is with an annual rebalancing. Remember that this is only looking at a short time frame in which there was a historic bull market — in other time periods, as the book shows, the ULP returns compare even more favorably with the stock market returns.
One final benefit of the ULP over savings accounts is the tax advantages. Tax implications should never be the primary driver for an investment choice, but a secondary benefit is always welcome. Interest income from the savings account will be taxed as ordinary income. Dividends from the $VTI portion are qualified, so therefore will be taxed as more favorable longterm capital gains, which is 15% for most (including myself) at the federal level. In addition, for those of us in higher taxed states, the dividends from US Treasuries aren’t taxed at all at the state and local level.
Implementing the ULP
Interested in implementing the ULP for yourself? First, I suggest you get a copy of the book first before throwing your life’s savings in it. Chris is much more qualified to give financial advice than I ever will be.
With that said, the easiest way to achieve this is with M1 Finance. M1 Finance allows you to create your portfolio with multiple “pies” where you split your portfolio among different slices. Each slice is a unique ETF or stock. In this case, the ULP pie is 88% $VGIT and 12% VTI. You can view this pie on M1 Finance here.
One question I’ve been wrestling with is how much to put in the ULP vs our savings accounts. Chris’s book devotes a chapter to determine how much should be in an emergency fund. He discusses unexpected costs (home repairs, healthcare expenses, auto repairs, etc.) as well as loss of income. You often hear of 6-12 months of expenses should be saved in the emergency funds. Because my wife and I both work, I actually did a calculation of how much we need to cover 6 months of our expenses living on only one of our incomes (the smaller of the two incomes). That is the goal to reach in my ULP account.
Our unexpected costs — which includes $3,000 for an expensive car repair (e.g. transmission) + 1% home value + $3,000 for a home repair (e.g. A/C repair) and the difference between our maximum out of pocket healthcare expenses and our HSA balance — are what we plan to keep in our savings account going forward. I’m not going to go over the exact numbers here (I’m realizing this is getting quite complicated and might deserve its own future post), but will say that the target values for the ULP and savings account come out to be fairly similar amounts.
After reading Chris’s book, I am convinced that investing some of my emergency fund into the ULP will better preserve, and potentially grow, the value of those funds compared to a high-yield savings account. I have started to implement the ULP at M1 Finance, which makes it easy to achieve the desired allocation between $VTI and $VGIT.
Chris has a blog with some interesting personal finance posts as well as some health related posts (that I haven’t really read) at upwarding.com. I commented on one of his posts and he replied via email. I was very impressed with the time and thoughtfulness he put in his correspondences with just some random reader.
Disclaimer: I am long $VTI and $VGIT. I am not a financial advisor. This is not investment advice. Please do your own research before investing in anything discussed herein. This post contains affiliate links.
Since writing that post, $F price went from $8.80s to almost $9.50 and now has pulled back down to nearly $9 again. We all know volatility is great for options sellers!
Here are the trades I’ve made and the current positions I have open:
Prior to writing that post, I actually had two open covered call positions on $F, one that was right at the money at $9 due to expire on November 20. Rather than risking the shares being called away, I closed that position and sold the December 24 $9.50 Call for a net credit of $.11. $.11 may not sound like a lot, but if that was a dividend payment, it would be the equivalent of an 11.5% yield! I used that credit to buy 1 share of $F for $9.00.
I had another $9 Covered Call position for December 18. I rolled that one out to January 15, this time keeping the $9 strike price. I took in a net credit of $.16 that time (11.9% annualized yield). Again, I reinvested that net credit by purchasing one share of $F at $9.10.
On December 3, I rolled the December 24 $9.50 out again to January 8 for a net credit of $.11 (10.7% annualized yield). I purchased one more $F at $9.26 with the credit.
On December 9, I rolled the January 15 $9 Covered Call (which is now pretty well in the money at this point), out to February 19 for a net credit of $.21 (11.3% annualized yield). I then purchased two $F at $9.43 with the credit. It’s unlikely $F will come down below $9 by February, but I will continue to roll this one out for as long as possible.
As the price of $F continued to tick up, I decided I wanted to try to roll out and up this time. I took that $9.50 January 15 covered call and rolled it out to February 19 for a net credit of $.08 (7.9% annualized yield). Since I didn’t get enough in credit for this one to buy another share of $F, I just pocketed the cash. However, it puts me in a great position to start selling covered calls at the $10 or higher strike price in the future.
Overall, I have taken in $67 of credits, less commissions, by doing this strategy over a fairly short time period. Let’s say that $67 was the quarterly yield amount for holding 200 shares of $F at the current trading price of $9.03, that would be equivalent to a dividend rate of 14.8% ($67 * 4 / (200 * $9.03) = 14.8%)!
I always want to be mindful of what risks I am taking. 14.8% yield sounds pretty good for a savings account, but of course, this isn’t in an FDIC account. This is real money that could be lost. With that said, before beginning options trading, I was OK with the risk of holding $F, at that point, because I thought the reward of the dividend payments and maybe some modest growth was worth it. In that case, I have no more risk than I had prior to selling these covered calls.
On the other hand, I have limited my upside potential. This isn’t a risk per se, but may make the risk I am taking less worth it. Some argue that option selling is the wrong kind of asymmetric risk… limited upside and unlimited downside (although in this case, the downside actually is limited because the stock can’t go below $0, but you get the point). To that, I would ask them would you rather be casino or the gambler? I’ll pick playing the casino every time. In addition, I’ve demonstrated that sometimes you are able to roll positions up to allow for even more upside from the stock. This is often an option so long as the stock hasn’t had an incredible run up in a short amount of time. And if it has, since I have been reinvesting my credits back into the stock, I still get to participate somewhat in that upside.
I do hope that Ford chooses to reinstate its dividend in 2021. There is still lots of chatter over at SeekingAlpha on when that might occur. However, as long as I am able to continue to roll out and, hopefully, up, I won’t be missing it much!
November was an incredible month for the markets. The S&P 500 rose 10.8% for the month and hit an all-time high. The Dow Jones’s 11.8% return for the month is the best single month since January 1987!
Because of my option writing (aka selling) strategy, my option trading returns weren’t able to beat the market. However, a large portion of some of my portfolios remain heavily invested in the markets, which keeps me from feeling too much FOMO and giving me the confidence to continue on with this strategy. I’m looking for lots of base hits here, from month to month. Over a long period, I think I can outperform the market, but only time will tell.
For the month of November, my profits from option trading were $2,114. That’s a total portfolio return of 2.3%, which is well below the S&P 500’s 10.8%. My total portfolio value across all accounts – which includes options trading profits, current stock & options positions, contributions & withdrawals for extra mortgage principal payments – was up 10.7%, inline with the markets. Contributions to these accounts were small this month, and $114 was withdrawn, so actual return is probably right around 10%. Remember that the markets were down 2.5% last month, and I generated options trading profits then, too. I closed 71 trades with a win percentage of 91%.
I continue to split my accounts between two strategies. One is to trade mostly credit spreads in margin accounts and the other is to sell cash-secured puts & covered calls (i.e. “the wheel” strategy) in non-margin and IRA accounts. The goal for the margin accounts continues to be to 1) raise cash to increase trading capital and 2) run through my mortgage pay off strategy. The other accounts are reinvesting the profits into stock positions for future growth or passive income via dividend stocks.
Last month almost half of my profits came from my margin accounts despite being just 11% of the total portfolio size. Many of my non-margin accounts had longer holding periods with expiration dates further out, so I realized a lot more profits in those accounts in November than I did in October. As a result, 84% of the profits came from the non-margin accounts this time. The margin account profits were a 3.7% return on total capital (43.1% annualized) and the non-margin profits were a 2.1% return (24.7% annualized).
10% is often cited as the historical annual performance of the S&P 500 since the 1920’s. Every month that I am beating that annualized return with options trading profits (and I crushed it this month with a combined 27.4% annualized return) and my total portfolio value is roughly inline with the overall market when it’s up (which I was within by about 1%), that’s a huge win. Just a couple years of this type of performance will have huge effects in my family’s longterm wealth creation. Let’s see if we can continue!
My best trade for the month in terms of profit was a wide Put credit spread on $FSLR. First Solar has been moving a lot over the last few months so the option premiums are really good. My original intent was to sell a cash-secured put (“naked put”), but decided I wanted to take some of the risk off the table so went with the spread instead. On November 13 I sold the $76 strike December 4 Put for a $2.04 credit and bought the $65 strike December 4 Put for $.35, giving me a net credit of $1.69 before commissions. When the stock moved up shortly after, I decided to close the position to lock in most of the profits on November 20. After commissions, I ended up with a profit of $130.36 on a 7-day trade which is an 11.9% return (541% annualized).
With the initial credits I actually purchased 1 share of $FSLR for $80.30, which is now up 11.9% to $89.26.
My biggest realized loss was $52 on a Call credit spread on $SPY. On November 2 I sold the $348 strike December 2 Call for a $3.57 credit and bought the $349 strike Call for $3.26, for a net credit of $31 (commission free trades with Robinhood). This trade had a 74% chance of profit when I placed it, making the $31 possible gain with a $100 risk worthwhile. However, the market went way against me and I decided to cut my losses early on November 9 for a $52 loss. In hindsight it was the right move because the market just kept going and going, so I saved myself another $17 in potential losses ($100 risk – $31 credit – $52 loss = $17).
This trade was part of a strategy I coined “ETF Challenger” that I mentioned in previous posts. Essentially I am challenging the ETF to continue moving in the same direction when it made a greater than 1% move. So when $SPY is up more than 1% on the day, I sell a Call credit spread above it near the .30 delta (Investopedia: Understanding Position Delta). If it’s down more than 1%, a Put credit spread. I’m seeing just as many losers as winners on this, so I’m probably going to be ditching it going forward.
My biggest paper loss is actually much worse than $52. I sold the November 20 cash-secured Put on $GOLD at $27.50 for a credit of $.30. At expiration, the stock was trading down at $24.28, so I was assigned the 100 shares at $27.50 and immediately had a paper loss of $292 (+$30 – $2,750 + $2,428 = -$292). Unfortunately $GOLD has continued to pullback to $23.50 currently. I took in a small credit $7 credit for selling a December 18 $28 covered Call, which makes my current paper loss at $363 (+30 +7 – $2,750 – $2,350). I’m going to be patient with this one and continue to sell covered calls above my originally assigned price of $27.50. This position is in an IRA, so when I look at a horizon over many years I expect there to be an instance where I will want the hedge against the market in gold (while $GOLD is actually a mining stock, it generally moves in the same direction as the price of gold).
Funding ROTH IRA
My last update for the month of November is that I finally funded a ROTH IRA! My wife and I are still under the household income limits for funding a ROTH, but I hope and expect that to no longer be true at some point in the future. I’m hoping to be able to fund that account with the maximum limit of $6,000 until we no longer qualify.
The obvious benefit of a ROTH over a traditional IRA is that future withdrawals are tax-free. Because of this, I’m hoping to create a stream of dividend income that can grow to a sizable amount at age 59.5. At that point, we will be able to take those dividend payments out each month/quarter and pay no taxes on them! For now, I’m planning to build the portfolio with REITs. My first trade: a cash-secured put on Realty Income $O, of course!
The second benefit I like about funding a ROTH is that, since contributions have already been taxed, they can be withdrawn at any age without penalty. It can essentially be used as a savings account where the principal is always available but the interest can’t be touched until age 59.5. My wife and I are keen on getting more involved in real estate, which means we will have a need for capital at some point in the future. By funding the ROTH rather than putting more money into a traditional IRA or regular 401k, we aren’t giving up control of that money for the next 30+ years.
I am very happy to report that my second month was even better than my first: $167 in profit! This is a 6.2% return on capital for the month of November (75% annualized).
Thanks to the overall market’s strong month, my long positions went up and I was able to completely reverse the 16% my principal was down. It is now at $3,240.86, which is 1.3% higher than the $3,200 I have added to the account thus far.
My positions & trades
$AAL, 109 shares at $13.98 ($1,523.73 total principal). Principal is currently up 2.3% ($34.97). I closed a total of four positions for a profit of $34. I currently have a $15 covered call position that I expect to collect another $34 from on New Year’s Eve.
$34 is a 2.4% return on my initial principal on American Airlines, well above my 1% goal each month, but much lower than the total portfolio’s returns of 6.2% for the month. The higher returns came from the other positions this month, but I’m happy to hold onto American Airlines for now. I think it will continue to move up and down with the COVID vaccine news, and I plan to ride that wave.
$FCEL, 100 shares at $2.34 ($233.78 total principal). At the close of November, Fuel Cell was trading at $10.18. That’s a 335% return! However, I sold a call option at $2.50, meaning my upside is limited to just $16, or less than 7%. Picking up pennies in front of a steam roller is a common metaphor used for selling options, and I think this is a perfect example of that. I plan to have a future post on this after it all shakes out. It will have a catchy title like, “How I missed out on $784.”
As for the trades, I had a $2.50 call option that I collected $15 on due to expire on November 20. Rather than letting the shares be called away, I decided to roll the $2.50 to the next month for a net credit of $10 (the November contract was bought for $1.55 and the December contract was sold for $1.65). This is basically a guaranteed $10, or 4% return on the $250 principal I would collect if/when the shares are assigned. For me to lose money on this, the stock would have to retreat all the way back below my purchase price of $2.34. I am now so far in the money that I’m not sure I will be able to continue to roll the position for a profit. However, I will still try as long as I can get 2% or so.
$M, no open position. Macy’s is another stock that I missed some big upside gains on. However, I was able to milk it a little more than the $FCEL trade. I closed two trades for the month, netting me $54 on a position size of $617, which is an 8.8% return. When I finally had the shares called away at $6.50 on November 20, I profited $33 on the sale, but missed out on an additional ~$250 since the stock was then trading near $9. The stock is now above $10. I most likely won’t enter $M again unless there is a pullback.
$GPRO, no open stock position. Go Pro was my third position that was called away this month. I had 100 shares at $6.46, and the shares were called at $7 on November 6. You can see in the chart below that there was a big spike that I got caught in.
In total I closed three trades for a net profit of $52. I currently have a $6.50 put due to expire this Friday, December 4. It is only an $8 credit, but that exceeds my 1% goal and was only a one-week contract. I expect to trade more cash-secured puts around the $6-$7 level going forward.
$APHA, no open stock position. Marijuana stocks are going nuts right now and option premiums are juicy. Aphria has been especially volatile due to a recently announced acquisition of Sweetwater Brewing Company. I currently have a $6.00 cash-secured put contract for December 11 that I collected a $17 credit on (2.8%). If I get assigned, I will sell a covered call in the $6.50-$7 range most likely.
Extra Mortgage Principal Paid
With $167 in net credits earned for the month, I am setting $53 aside for tax purposes. Last week I said I would be using $GNMA for my “tax escrow.” I have since been enlightened with the “The Ultimate Liquidity Portfolio” (ULP). I will have a forthcoming post on the idea as well as the book How to Stash that Cash by Chris Kawaja. In practice, the ULP can be implemented by putting 88% into intermediate term treasuries (e.g. $VGIT) and 12% in the US total stock market (e.g. $VTI). This puts my tax escrow account value at $99.82 as of this post.
So after taxes, I’m left with $114 that I decided to put directly towards my mortgage principal. With a combined $187 put towards my mortgage principal after two months, I will save $288 over the life of the loan.
In my introduction post I identified three different benchmarks I will be comparing my performance to. Benchmark #1 is putting all of my savings from my refinance, plus a 1 month skipped mortgage payment, into a savings account. When I wrote that post I was actually getting 0.6% APY, but it has reduced to 0.4%. Benchmark #2 is putting all of those savings straight into extra monthly payments to the mortgage principal. Finally, Benchmark #3 is simply buying $SPY.
After losing to all three Benchmarks in my first month, I am now well ahead in all three. When considering the value of my principal in my trading account + the monthly contribution of $64.21 and interest into my savings + the difference between the original loan and what is actually remaining this month, my total value is at $3,356 after the month of November a 27.8% improvement over October. That beats Benchmark #1 (all savings) of $3167 by 6.0%, Benchmark #2 (extra mortgage payments) of $3,172 by 5.8% and Benchmark #3 ($SPY) of 2.2%. I’m pretty impressed that I managed to beat $SPY since November was the best month in the market in over 30 years.
I plan to put all these details onto my Using Options to Payoff My Mortgage Early page, including some tables and charts to show my progress from month to month. I’m still trying to format that so it’s easy to read, but hopefully I get that done before the end of the year!
Thanks for following along. I’m very happy with my progress, but it is just early days. Please don’t follow what I’m doing without doing your own research. Trading stocks and options can be risky. I hope you are inspired by these series of posts and my website to learn more about the strategies I am using to trade options and build wealth rather than attempting to follow blindly.