Author: Wealthy from Options

Using Options to Pay Off My Mortgage Early: Trading Strategy

In my last post on this strategy, I introduced the plan to pay off my recently refinanced mortgage early with returns generated from options trading. The pros and cons of paying off a mortgage early aren’t discussed in that post or here, but I will likely write something about it in future posts. The capital used to fund this trading is the amount we are saving due to refinancing our loan at a lower interest rate, which is $164.21 in monthly savings. We were able to skip one month of mortgage payments (we closed in September and our first mortgage payment on the new loan isn’t due until November). Our skipped payment is the initial trading account’s starting balance (“principal”), which is $3,000. $100 of the savings will be added to the principal each month, with the remaining $64.21 going into our savings account (which yields 0.6%), at least for now.

There are further details in that introduction post, including three different benchmarks I will be comparing my results to.

In this post I want to dig a little bit deeper into the strategy I plan to use to generate my monthly return goal of 1%. The basic concept is to sell cash-secured puts and covered calls. If you are new to options trading, here are two good resources to explain what cash-secured puts (here’s a good explanation and Option Alpha has a good video) and covered calls (Investopedia and Option Alpha video) are. Basically, selling a cash-secured put gives you a premium up front for your obligation to purchase the shares at the chosen strike price. It is cash-secured because the amount you are obligated to purchase the shares at is used as collateral and is not available for trading until the contract is closed. Selling covered calls gives you a premium up front for your obligation to sell shares you currently own at the chosen strike price.

It’s actually very easy to generate 1% return on your principal each month using either of these strategies. The trick is to preserve that principal throughout market cycles. Let’s go over the risk of each strategy and how I might lose money doing this strategy. First, if I sell one $9 put contract on a stock currently trading at $10, and it drops below $9, say $8.50, then I will be down $.50 per share (or $50 total since one contract is equivalent to 100 shares). Remember I collected a premium up front for selling the put, so I’m actually down $50 less the premium received. If the premium was more than $50, I would actually still be profitable at $8.50 per share. As you can see, though, if the stock crashes, I’m losing money. If it stays above $9 at expiration then I keep the entire premium and don’t acquire the shares.

Now let’s say that I already owned the shares at $10 per share. I sell a covered call at a strike price of $11. If the stock goes above $11, I’m forced to sell it at $11 per share, even if it took off to $15. You lose the upside potential by selling covered calls. If it drops to $8.50 like the previous scenario, then I am now down $1.50 per share minus the premium received. In that situation, I still own the shares so I can sell a covered call at $11 (or $10.50 or $10 or…) the next month.

In an ideal world, I will sell puts, and the stock will always stay above my strike price. I keep the cash in my account and keep collecting premiums. If I get assigned, again ideally I just sell covered calls at above my average price on the stock. As soon as the stock comes back up to my strike price, I sell it for a profit and get to keep the premium. This is known in options trading as the wheel (Medium article).

The premium received on puts diminishes the lower the strike price is, and it diminishes on calls the higher the strike price is, relative to the stock’s current price. So if I get assigned a stock that I sold a put on, and it absolutely tanks, I won’t be able to sell calls at a profitable price because the premium will be so small. This is really the worst case scenario.

A couple strategies I have to help limit my principal losses:

  1. Diversify the stocks I’m working with. I’m limited by the share price of the contracts I’m selling puts on by the size of my principal since these are cash-secured puts. Starting with $3,000, the most expensive stock I can work with is $30 per share ($30 * 100 = $3,000). If that one stock crashes while I have a contract on it or own the shares, then I could be in trouble. If I instead am using three different $10 stocks, the chances of all three crashing at once is much less likely. Especially if they are in different sectors. Or even better if they have uncorrelated or opposing Betas (Investopedia Beta definition).
  2. Sell puts at a price where I don’t have a high likelihood of getting assigned. This is about not being too greedy or speculative. If my goal is 1% per month, I don’t need to try to get a return of 10% with a very aggressively priced put.
  3. Sell calls close to the money or even in the money. Opposite from puts, if I sell my calls at an aggressive price, I am more likely for the shares to be taken away from me and I lock in my profits. What I’m losing here is the upside of the stock taking off. But my goal of this strategy isn’t growth. It’s to generate regular income to pay down debt while preserving my capital.
  4. Use premiums to lower my average share price rather than withdrawing from the account to pay down the mortgage. If I’m down on a position, I may use the premium I used from selling a covered call to buy shares at a lower price to lower my cost basis. If it lowers my costs enough, this will actually allow me to sell calls at lower strike prices and still remain profitable. 1% in income is my goal, but not at the sacrifice of my principal. Currently, I am thinking I may do this if a stock I own is trading at a price that is more than 5% lower than my cost-basis (Investopedia Cost-Basis definition) and is one strike price lower than my cost-basis (so if I bought the stock at $10.55 and it is now trading at $10.10, I could buy more shares at $10.10, bringing my average down below $10.50 and allowing me to sell a call at $10.50 because that is now above my total cost-basis).
  5. In extreme cases it may be necessary to either sell the shares at a loss or start selling calls at below a profitable level. Hopefully this doesn’t happen, but it’s better then letting my principal go to $0!

Picking Stocks

The fun part! One of the keys to this strategy is to pick the right stocks. It’s best to trade companies that have a solid foundation and are likely to be around for a while. This isn’t a buy & hold strategy, however, so I don’t need to be forecasting 10 years in the future. It’s great if the stock goes up in price, and I can still make money on stocks that drop a little bit. The three killers to avoid are stocks crashing, super low options trading volume, and a large drop in implied volatility, all while holding a position in the stock.

I don’t have a strict set of criteria for stock picking for this strategy yet, but I intend to share my trades each month along with my progress. In time, I expect themes to present themselves and will hone my strategy more and more.

Progress

As long as I am continuing with this strategy, I intend to post regular updates on my progress, including trades made, profits, and the mortgage pay down progress. I am making a separate page here that will show some tables and graphs to keep track of everything in one place.

This plan is already in motion and I have made 7 trades in 4 different stocks so far. I’m excited to share my progress and begin reducing my family’s debt!

Weekly Options Trading Review: October 5 through October 9, 2020

Closed 7 trades for $45.31 profit (100% win rate). Opened 22 trades.

Closing Previous Weeks’ Trades (Positions closed that were opened previous to this week)

  • SLV Put Credit Spread (October 16, 2020 $19/18 @ +$.06 Credit)
    • Contracts: 1
    • Max Profit: $6
    • Collateral: $100
    • Max Loss: $94
    • Opened: September 21, 2020
    • Closed: October 5, 2020
    • P/L: +$2 ($0 commissions with Robinhood)
    • Return on Capital: 2% (49% Annualized)
    • I picked this one up after looking over Option Alpha’s stock scanner. I was literally my first couple days into options trading (funny how long ago just a couple weeks ago seems now…) and was trying to get my Level 3 options trading approval through Robinhood. I read online that once you’ve done ~10 trades you are more likely to be approved for Level 3. Since I was still Level 2 when I placed this trade, I couldn’t actually submit this as a single spread order. First I sold, essentially, a cash-secured put (at $19) and, once that was filled, immediately bought the $1 spread (at $18) to limit my risk. I was left with just a $6 credit on an ~80% probability trade… not a good risk/reward situation! Decided to finally close this to take that $94 risk off the table.
  • SPY Put Credit Spread (October 5, 2020 $335/334 @ +$.28)
    • Max Profit: $28
    • Collateral: $100
    • Max Loss: $78
    • Opened: October 1, 2020
    • Closed: October 5, 2020
    • P/L: +$4 ($0 commissions with Robinhood)
    • Return on Capital: 4% (292% annualized)
    • From last week’s opening trade: This is my second attempt at reducing a potential loss by selling the opposite trade, effectively making an iron condor. Option Alpha recommends this rather than cutting losses by selling the initial, losing trade (in this case the $341/342 Calls that ended up being profitable thanks again to the dip from the president’s COVID-19 results).
      In the end, this one worked out for me because SPY opened up on Monday morning. Had I let this expire at the end of the day, I would have kept the entire $28 premium, but since I was basically 50/50 at that point whether I’d make $28 or lose $72, it made sense to close for just the $4 gain.
  • F Cash-Secured Put (October 16, 2020 $6 @ +$.08)
    • Max Profit: $8
    • Collateral: $600
    • Max Loss: $592
    • Opened: September 16, 2020
    • Closed: October 16, 2020
    • P/L: +$5.33 (After commissions)
    • Return on Capital: .9% (15.4% annualized)
    • I am long F in this account with 200+ shares with a cost-basis of ~$8.80. Prior to learning about options, I’ve been lowering that cost-basis by slowly buying more shares. Going to be using cash-secured puts (and covered calls) to hopefully turn this one into a winner going forward.
  • AAL Call Credit Spread (October 16, 2020 $14/14.5 @ +$.13)
    • Max Profit: $13
    • Collateral: $50
    • Max Loss: $37
    • Opened: September 28, 2020
    • Closed: October 6, 2020
    • P/L: +$6 ($0 commissions with Robinhood)
    • Return on Capital: 12% (487% annualized)
    • As mentioned last week, I have held a long position in AAL since it tanked due to the COVID-19 pandemic. I have a comfortable feel for the stock’s recent range now and I will continue to sell calls and puts when the premiums make sense. This trade was triggered when the position fell into my 50% profit target range when President Trump tweeted that congress needs to sideline stimulus package talks until after his Supreme Court nominee is confirmed. Thanks for the volatility, Donald!
  • ANF Put Credit Spread (November 20, 2020 $13/12 @ +$.35)
    • Max Profit: $35
    • Collateral: $100
    • Max Loss: $65
    • Opened: September 29, 2020
    • Closed: October 6, 2020
    • P/L: +$15 ($0 commissions with Robinhood)
    • Return on Capital: 15% (684% annualized)
    • TL;DR: My wife was right! From last week’s opening trade: This might sound crazy, but my wife says she has seen lots of “influencers” on social media sporting Abercrombie lately. She thinks it’s going to be a “cool” brand again. I took a look at the premiums available, and they make sense from a risk-reward-probability  perspective, so I pulled the trigger. That’s one of the things I love about options trading is that for a small amount of capital, you can make speculative trades that are still high probability of success regardless of whether the stock moves much at all AND have defined risk.
  • GPRO Cash-Secured Put (October 9, 2020 $5 @ +$.50)
    • Max Profit: $50
    • Collateral: $500
    • Max Loss: $450
    • Opened: October 1, 2020
    • Closed: October 6, 2020
    • P/L: +$26.68 (after commissions)
    • Return on Capital: 5.3% (325% annualized)
    • From last week’s opening trade: After successfully closing last week’s short put on GPRO, decided to do another one. If I get assigned, I will sell calls at probably $5. If I don’t, I will probably buy a few shares of GPRO essentially “for free.”
      Stock took off, so pocketed ~1/2 the premium and bought a few more shares.
  • GE Put Credit Spread* (October 9, 2020 $6.5/6 @ +$.05)
    • Max Profit: $5*
    • Collateral: $650
    • Max Loss: $50
    • Opened: September 18, 2020
    • Closed: October 9, 2020
    • P/L: +$17.99 (after commissions)
    • Return on Capital: 2.8% (46% annualized)
    • This trade was my first attempt at a credit spread, but I wasn’t approved for spreads by my broker yet! So I made my own by selling the $6.50 put and buying the $6 put. GE was struggling around $6.20 for most of the time I had these contracts, but decided I’d be OK getting assigned on this one so I sold my long put for $14, which is the majority of the profit from this trade. GE jumped up the last few days before expiration as well.

Weekly Roundtrip Trades (Positions opened and closed within the week)

I had no roundtrip trades this week. This is because I currently have many at a paper-loss, and those that are winners, are generally balancing out my losers (e.g. losing on a bearish call credit spread, but winning on a bullish put credit spread). I have

Opening Trades

  • SPY Call Credit Spread (November 6, 2020 $351/352 @ +$.34)
    • Max Profit: $34
    • Collateral: $100
    • Max Loss: $66
    • Opened: October 5, 2020
    • This is part of an ongoing strategy I am working on that, in my notes at least, I’m referring to as “ETF Challenger” (it’s a working title, OK!). There are several other trades below that are all part of this strategy, so I’m not going to comment on each one. As my experience grows and I refine the strategy, I will more formally document it, but the idea is to challenge the market when it makes a large move up or down, which is about 1%. I then sell puts or calls at the ~.30 delta, if the premium is high enough. I think I got a little carried away with this in this week, but I chalk it up to learning!
  • UNM Cash-Secured Put (November 20, 2020 20 @ +$2.30)
    • Max Profit: $230
    • Collateral: $2000
    • Max Loss: $1,770
    • Opened: October 5, 2020
    • This is an IRA trade on a stock I’m very interested in going long on. I don’t intend to keep a full 100 shares, assuming I get assigned, but will put some of the premium I earn into buying the shares and then use covered calls to get my initial $2,000 principal back.
  • QQQ Call Credit Spread (November 6, 2020 $295/294 @ +$.33)
    • Max Profit: $33
    • Collateral: $100
    • Max Loss: $67
    • Opened: October 5, 2020
    • See SPY “ETF Challenger” comments above
  • F Cash-Secured Put (October 23, 2020 $7 @ +$.20)
    • Max Profit: $20
    • Collateral: $700
    • Max Loss: $680
    • Opened: October 6, 2020
    • I’m starting to warm up to the idea of more cash-secured puts (and covered calls). As I said last week, I’m already long Ford at an average price of $8.80ish. At $7 I’d be willing to add to the position. Will immediately be selling covered calls on this if it gets filled.
  • GPRO Cash-Secured Put (October 16, 2020 $5 @ +.18)
    • Max Profit: $18
    • Collateral: $500
    • Max Loss: $482
    • Opened: October 6, 2020
    • Go Pro has been super hot this week, so premiums are pretty good. The stock is now trading in the $6, so very unlikely this will be challenged again at $5. Will probably let it go until expiration next week.
  • SLV Put Credit Spread (November 6, 2020 $20.5/20 @ +$.14)
    • Max Profit: $14
    • Collateral: $50
    • Max Loss: $36
    • Opened: October 6, 2020
    • This one fits in with my “ETF Challenger” plan. Tuesday afternoon had lots of stocks taking a big dip after the previously mentioned Trump tweet. I tried to jump on the opportunity and put out lots of trades, but had trouble getting fills. This is one that did.
  • UNG Put Credit Spread (November 6, 2020 $10/9 @ +$.25)
    • Max Profit: $25
    • Collateral: $25
    • Max Loss: $25
    • Opened: October 6, 2020
    • See SLV above
  • SLV Put Credit Spread (November 6, 2020 $20.5/19.5 @ +$.27)
    • Max Profit: $27
    • Collateral: $100
    • Max Loss: $73
    • Opened: October 6, 2020
    • Same trade as SLV above, but in a different account with a slightly larger spread.
  • IWM Call Credit Spread (November 13, 2020 $166/167 @+$.35)
    • Max Profit: $35
    • Collateral: $100
    • Max Loss: $65
    • Opened: October 7, 2020
    • The market opened big on Wednesday after Trump essentially said, “JK.” As a result, lots of opportunities for “ETF Challenger.” Probably ended up with too many of essentially the exact same position (bearish on the overall market), which will mean either some big wins or big losses. Still learning here, so going to see how it plays out for now.
  • SPY Call Credit Spread (November 9, 2020 $352/353 @ +$.34)
    • Max Profit: $34
    • Collateral: $100
    • Max Loss: $66
    • Opened: October 7, 2020
    • “ETF Challenger”, as above.
  • QQQ Call Credit Spread (November 9, 2020 $295/296 @ +$.33)
    • Max Profit: $33
    • Collateral: $100
    • Max Loss: $67
    • Opened: October 7, 2020
    • “ETF Challenger”, as above.
  • AAL Call Credit Spread (November 20, 2020 $15/16 @ +$.25)
    • Max Profit: $25
    • Collateral: $100
    • Max Loss: $75
    • Opened: October 7, 2020
    • This trade actually gives me an iron condor on the November 20 expiration with a nice wide range from $9 to $15. Assuming AAL stays within this range, I will probably try to close both positions with one order for a combined ~50% of max profit.
  • DIA Call Credit Spread (November 13, 2020 $293/294 @ +$.33)
    • Max Profit: $33
    • Collateral: $100
    • Max Loss: $67
    • Opened: October 7, 2020
    • “ETF Challenger”, as above.
  • SPY Call Credit Spread (November 9, 2020 $352/353 @ +$.38)
    • Max Profit: $38
    • Collateral: $100
    • Max Loss: $62
    • Opened: October 7, 2020
    • “ETF Challenger”, as above. Actually identical to one of the above trades, but in a different trading account that was able to get filled at a really good premium of $.38.
  • BAC Cash-Secured Put (October 16, 2020 $25 @ +$.60)
    • Max Profit: $60
    • Collateral: $2,500
    • Max Loss: $2,440.67
    • Opened: October 8, 2020
    • I’m looking to get some financial exposure in our IRA account (it’s currently pretty tech heavy), and Bank of America is a stock I’d like to own at $25. Will probably accumulate shares with premiums, and if I get assigned, sell covered calls because I’m not sure we want $2,500 of that portfolio tied up in one stock (unless that money is being put to work with covered calls!).
  • SKT Cash-Secured Put (November 20, 2020 $6 @ +$.32)
    • Max Profit: $31.33
    • Collateral: $600
    • Max Loss: $568.67
    • Opened: October 8, 2020
    • Also an IRA trade. I’m a sucker for a high-yield REIT. This one has been beaten down by COVD-19, down 55% YTD, and for good reason. Tanger operates high end shopping malls! So this is speculative and, if I end up with shares, hoping that dividend gets going again soon. Also a decent premium for such a cheap stock (because volatility!).
  • AAL Covered Call (October 23, 2020 $14.50 @ +$.44)
    • Max Profit: $44
    • Collateral: $1413
    • Max Loss: $1369
    • Opened: October 8, 2020
    • These next four trades are part of my mortgage pay down strategy. You can read my introductory post here. I will have more updates regarding my specific strategy in the future, but essentially it is using extra cash flow, thanks to a refinance, on building a small portfolio concentrating on cash-secured puts and covered calls, and then paying down the mortgage with the premiums generated.
  • M Covered Call (October 30, 2020 $6.50 @ +$.29)
    • Max Profit: $29
    • Collateral: $617
    • Max Loss: $588
    • Opened: October 8, 2020
    • Mortgage pay down strategy.
  • GPRO Covered Call (October 23, 2020 $6.50 @ +$.31)
    • Max Profit: $29
    • Collateral: $646
    • Max Loss: $615
    • Opened: October 8, 2020
    • Mortgage pay down strategy.
  • FCEL Covered Call (October 16, 2020 $2 @ +$.41)
    • Max Profit: $7
    • Collateral: $234
    • Max Loss: $193
    • Opened: October 8, 2020
    • Mortgage pay down strategy. But this one is a little different because it is deep in the money, below my purchase price of $2.34. FCEL is from the dot-com bubble (checkout the historical chart — an all-time high of $7,731 back in September of 2000 and an all-time low of $0.13 last year!), so this one can go all over the place. It’s a small position, so worth the risk I think ($7 in 8 days on a $234 investment is 124% annualized return!).
  • RKT Put Credit Spread (November 20, 2020 $19/18 @ +$.26)
    • Max Profit: $26
    • Collateral: $100
    • Max Loss: $74
    • Opened: October 8, 2020
    • New mortgages are at all-time highs because of the housing and refinance markets, and Rocket is one of the biggest players these days. I feel good about this one holding above the $19 mark.

Weekly Options Trading Review: September 28 through October 2, 2020

This week kicked off my first full week diving into the world of options trading. I’ve been interested in stock market investing since I graduated high school in 2006. At one point in college I thought I could be a day trader, but then had a short series of losses that made me reconsider the viability of that. If this goes well, perhaps I will go into further detail on how I ended up on options trading. But for now, I’m looking to post weekly trading reviews (and perhaps a monthly review as well) to hold myself accountable and to have a history to look back on. Let’s get started…

Closing Previous Weeks’ Trades (Positions closed that were opened previous to this week)

  • GPRO Naked Put (October 16, 2020 $4.50 @ +$.55 Credit)
    • Contracts: 1
    • Max Profit: $55
    • Collateral: $450
    • Max Loss: $395
    • Opened: September 24, 2020
    • Closed: September 29, 2020
    • P/L: $26.66 (After commissions)
    • Return on Capital: 5.9% (360% Annualized)
    • This trade was in my regular brokerage account that hasn’t been approved for Level 3 Option trading yet. So silly that they will let me trade naked puts (so long as they are “cash secured”), but not risk-defined spreads. Anyway, sold this put just above the money, giving me a solid premium. My goal on this stock (and this account in general, at the moment), is to sell aggressively priced puts (at the money or even just above), knowing that I will likely be assigned. Then, I will sell calls if/when I am long the stock with 100 positions. I closed this one based on a GTC limit order at roughly 50% max profit. Actively looking to get into another one of these.
  • JNPR Put Calendar Spread (October 16-November 20, 2020 $21 @ -$.60)
    • Contracts: 1
    • Collateral: $60
    • Max Loss: $60
    • Opened: September 25, 2020
    • Closed: October 2, 2020
    • P/L: $7 ($0 commissions with Robinhood)
    • Return on Capital: 11.7% (532% Annualized)
    • This was my first calendar spread. I found this using the Option Alpha scanner ($47 for a lifetime access). Since I’m just getting my feet wet here, I wanted to take the early profit. Looking to get into another one of these in the future.
  • AFL Naked Put (October 16, 2020 $35 @ +$.70)
    • Contracts: 1
    • Max Profit: $69.33
    • Collateral: $3500
    • Max Loss: $3430
    • Opened: September 17, 2020
    • Closed: October 2, 2020
    • P/L: $38.67 (After commissions)
    • Return on Capital: 1.1% (25.2% Annualized)
    • I’m bullish on most insurance companies, generally speaking, and am looking to add some to me and my wife’s retirement portfolio. We have some cash in there thanks to a rollover from a pension that my wife had from a previous employer she worked a couple years with. I’m going to put that cash to work with naked puts. The plan is to sell puts on companies I want to have in our portfolio (ideally ones with a solid dividend — Aflac currently yields 3.1% and they have grown their dividend for 38 consecutive years! A true dividend aristocrat.). If the stock expires out of the money, then I keep the premium and purchase one or two shares of the stock. If it expires in the money, I will sell some covered calls to guarantee a return on that capital. When doing this on strong companies (like big insurance companies!), this really feels like a win-win. Ultimately I closed the contract early since I was able to guarantee the premium necessary to purchase one share. Rinse and repeat!
  • AAL Put Credit Spread (October 16, 2020 $11.50/10.50 @ +$.31)
    • Contracts: 1
    • Max Profit: $31
    • Collateral: $100
    • Max Loss: $69
    • Opened: September 21, 2020
    • Closed: October 2, 2020
    • P/L: $11 ($0 commissions with Robinhood)
    • Return on Capital: 11% (335% Annualized)
    • I jumped into AAL after COVID-19 hit and it started spiraling downward. I was just a simple stock investor then and hadn’t wised up to options trading yet. I am currently long 68 shares at an average price of $14.69. This stock has been trading in a range between about $11 to $14 and I think I have a good feeling for its price movement. With some good news eventually, I expect this to actually pop and I will get out of my long position. I decided to close out of this position on Friday since it shot up from $12.26 to $13.33 on news that they would be furloughing 32,000 workers. Hardly seems like good news to me… so decided to take the opportunity to snag a profit.

Weekly Roundtrip Trades (Positions opened and closed within the week)

  • NKLA Put Credit Spread (October 16, 2020 $15/14 @ $.30 Credit)
    • Contracts: 1
    • Max Profit:  $30
    • Collateral: $100
    • Max Loss: $70
    • Opened: September 29, 2020
    • Closed: September 30, 2020
    • P/L: +$5 ($0 commissions with Robinhood)
    • Return on Capital: 5% (913% Annualized)
    • I have made a number of trades in TSLA because I like the option premiums there (implied volatility is high). NKLA sneaks into some of the headlines since it’s a recent IPO competitor. I took a look at the premiums on offer, and I liked what I saw. The stock jumped up the next morning, and since this is a pretty speculative play on a stock with a 52-week range of $10.20-93.99, I figured I’d take my quick profit. Will consider trading this one again.
  • NKE Put Credit Spread (October 16, 2020 $125/124 @ $.40 Credit)
    • Contracts: 1
    • Max Profit: $40
    • Collateral: $100
    • Max Loss: $60
    • Opened: September 30, 2020
    • Closed: September 30, 2020
    • P/L: +$5 ($0 commissions with Robinhood)
    • Return on Capital: 5% (1,825% Annualized)
    • This is a trade I immediately regretted once I hit send. I got into it because I have a Call Credit Spread at $125/126 which was a pure, bearish speculative trade before earnings last week. That position is currently at a loss with the stocking sitting around $126. My original thinking here was to reduce my loss on the initial Call Credit Spread, but then I immediately realized that we have three weeks for the stock to come back in my profitable range. Happy to get out of this one for a small $5 profit. I think this might be a viable strategy, but only as we get closer to expiration.
  • SPY Call Credit Spread (October 5, 2020 $338/339 @ +$.35)
    • Contracts: 1
    • Max Profit: $35
    • Collateral: $100
    • Max Loss: $65
    • Opened: September 28, 2020
    • Closed: October 2, 2020
    • P/L: $12 ($0 commissions with Robinhood)
    • Return on Capital: 12% (876% Annualized)
    • You are going to see plenty of SPY trades in my trading journal. A critical component to success in high probability options trading is that you need to be making a high volume of trades, ideally in very liquid stocks. With three expiration dates per week (Mon/Wed/Fri), SPY appears to be the perfect candidate. I am working out my strategy still, but on this trade specifically I wanted to take a bearish position when the market jumped up on Monday morning this week. In hindsight, I think I should be looking beyond a one-week contract as there is more time “to be right”, but this one worked out. I did, however, get tested with the market climbing up just past my break even point in the middle of the week. Luckily I stuck it out (though I added a put position that I’m probably going to regret on expiration next week), and thanks to President Trump’s timely COVID-19 diagnosis, the market opened down on Friday morning. I took the profit on a silver platter. Thanks Donald!
  • SPY Call Credit Spread (October 7, 2020 $341/342 @ +$.34)
    • Contracts: 1
    • Max Profit: $34
    • Collateral: $100
    • Max Loss: $66
    • Opened: September 30, 2020
    • Closed: October 2, 2020
    • P/L: $12 ($0 commissions with Robinhood)
    • Return on Capital: 12% (1460% Annualized)
    • More or less, see above. I opened this one on Wednesday, but for the same reason as the market had opened up more than 1%.

Opening Trades

  • AAL Call Credit Spread (October 16, 2020 $14/14.50 @ +$.13)
    • Contracts: 1
    • Max Profit: $13
    • Collateral: $50
    • Max Loss: $37
    • Opened: September 28, 2020
    • As I said in my AAL trade above, I feel comfortable about the range of AAL. Implied volatility is pretty high for AAL right now and there are plenty of trades that look good from a risk/reward/probability standpoint. Since I am long this stock, this gives my portfolio some bearish upside, as well. Looking for about 50% of max profit. 
  • SQQQ Put Credit Spread (October 16, 2020 $22.50/22 @ +$.20)
    • Contracts: 1
    • Max Profit: $20
    • Collateral: $50
    • Max Loss: $30
    • Opened: September 28, 2020
    • SQQQ is a 3x leveraged ETF of the Nasdaq. This is effectively a bearish position on the market. I personally think It will make a move down, which will make SQQQ go up and I should be able to close this one for a profit if and when we see a jump up in price of the stock. Risk-reward was really good on this trade, as well, thanks to very high implied volatility and only $.50 spread.
  • QQQ Call Credit Spread (November 20, 2020 $296/297 @ +$.32)
    • Contracts: 1
    • Max Profit: $32
    • Collateral: $100
    • Max Loss: $68
    • Opened: September 28, 2020
    • Basically the same justification as above, but with a longer timeframe. 
  • ANF Put Credit Spread (November 20, 2020 $13/12 @ +$.35)
    • Contracts: 1
    • Max Profit: $35
    • Collateral: $100
    • Max Loss: $65
    • Opened: September 29, 2020
    • This might sound crazy, but my wife says she has seen lots of “influencers” on social media sporting Abercrombie lately. She thinks it’s going to be a “cool” brand again. I took a look at the premiums available, and they make sense from a risk-reward-probability  perspective, so I pulled the trigger. That’s one of the things I love about options trading is that for a small amount of capital, you can make speculative trades that are still high probability of success regardless of whether the stock moves much at all AND have defined risk.
  • XLV
    • Call Credit Spread (November 20, 2020 $110/111 @ +$.30)
    • Max Profit: $30
    • Collateral: $100
    • Max Loss: $65
    • Opened: September 30, 2020
    • In the past few weeks I’ve really dove head-first into options trading, and I have Option Alpha to thank (blame?). On their most recent podcast, this trade in XLV was featured on their “Closing Bell” segment, though they took a much bigger spread at 108/113, I believe. I checked the chart and options available, and the trade still made sense to me. 
  • SPY
    • Call Credit Spread (October 30, 2020 $348/349 @ +$.33)
    • Max Profit: $33
    • Collateral: $100
    • Max Loss: $67
    • Opened: September 30, 2020
    • The market moved up on Wednesday, so I’m challenging it with this position. Similar to the closing trades for SPY that I mentioned above. This one didn’t close on Friday like the other two due to the Trump COVID-19 induced pullback..
  • VIX
    • Put Credit Spread (November 18, 2020 $27/26 @ +$.41)
    • Max Profit: $41
    • Collateral: $100
    • Max Loss: $59
    • Opened: September 30, 2020
    • This is a speculative trade. The probability was a lot lower than the other trades I’ve been making (56% vs ~70%), but the payoff is decent and I think as we continue to move toward the election that we will see an increase in volatility, pushing the VIX higher. I actually sold this position in the money (trading at ~$25.50 when I placed the trade), hence the larger premium and lower chance of profit. 
  • SPY Put Credit Spread (October 5, 2020 $335/334 @ +$.28)
    • Max Profit: $28
    • Collateral: $100
    • Max Loss: $78
    • Opened: October 1, 2020
    • This is my second attempt at reducing a potential loss by selling the opposite trade, effectively making an iron condor. Option Alpha recommends this rather than cutting losses by selling the initial, losing trade (in this case the $341/342 Calls that ended up being profitable thanks again to the dip from the president’s COVID-19 results).
  • SPY Call Credit Spread (November 2, 2020 $349/350 @ +$.34)
    • Max Profit: $34
    • Collateral: $100
    • Max Loss: $66
    • Opened: October 1, 2020
    • Same same as the October 30 SPY Calls above, but entered one day later.
  • XLV Call Credit Spread (November 20, 2020 $111/112 @ +$.27)
    • Max Profit: $27
    • Collateral: $100
    • Max Loss: $73
    • Opened: October 1, 2020
    • Same XLV trade as listed above, but decided to add essentially the same position in another portfolio.
  • GPRO Naked Put (October 9, 2020 $5 @ +$.50)
    • Max Profit: $50
    • Collateral: $500
    • Max Loss: $450
    • Opened: October 1, 2020
    • After successfully closing last week’s short put on GPRO, decided to do another one. If I get assigned, I will sell calls at probably $5. If I don’t, I will probably buy a few shares of GPRO essentially “for free.”
  • QQQ Put Credit Spread (November 6, 2020 $264/263 @ $.32)
    • Max Profit: $32
    • Collateral: $100
    • Max Loss: $68
    • Opened: October 2, 2020
    • Tech was down quite a bit on Friday, so taking a similar strategy that I have going right now in SPY now in QQQ.
  • PMT Naked Put (October 16, 2020 $15 @ $.20)
    • Max Profit: $20
    • Collateral: $1,500
    • Max Loss: $1,380
    • Opened: October 2, 2020
    • PennyMac Mortgage Investment Trust is a stock I came across recently that is obviously invested in real estate. It caught my eye because it is local to me and its dividend currently yields over 9%. I’m planning to continually sell some out of the money puts on PMT and then invest premiums into buying the stock.
  • TSLA Put Credit Spread (October 16, 2020 $388/387 @ $.32)
    • Max Profit: $32
    • Collateral: $100
    • Max Loss: $68
    • Opened: October 2, 2020
    • TSLA had a bit of a sell-off. I think this stock is way overpriced, but was able to get a ~70% probability trade at nearly $40 below current market price.