Using Options to Pay Off My Mortgage Early: Month 4

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.

Preferred Stock

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):

  1. CDR-C, 6.5% coupon with a yield on cost of 7.39%
  2. NRZ-A, 7.5% coupon with a yield on cost of 8.07%
  3. NRZ-B, 7.125% coupon with a yield on cost of 7.95%
  4. PMT-B, 8% coupon with a yield on cost of 8.08%
  5. 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.

Accounts Summary

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.

Benchmark Comparisons

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.

Using Options to Pay Off My Mortgage Early: Month 3

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.

Preferred Stock

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.

Benchmark Comparisons

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.

Using Options to Pay Off My Mortgage Early: Month 2

In my first month of using options trading profits to pay off my mortgage early, I earned a total of $152 and put $73 of that towards my mortgage principal. Over the life of the loan, that $73 is worth a total of $113. My goal as stated in my introduction post was to earn 1% of my initial $3,000 starting principal and put just $21 towards the mortgage principal. I was off to a great start, though my principal was down 16%.

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.

$AAL November 2020 chart from StockCharts.com

$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.”

$FCEL November 2020 chart from StockCharts.com

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.

$M November 2020 chart from StockCharts.com

$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.

$GPRO November 2020 chart from StockCharts.com

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.

$APHA November 2020 chart from StockCharts.com

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.

Benchmark Comparisons

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.

Using Options to Pay Off My Mortgage Early: Month 1

I have been looking forward to making this post since I wrote my introduction post earlier this month, stating my intention to pay down my mortgage principal early using extra monthly cashflow from recently refinancing our home to a lower interest rate. Rather than simply putting the money saved thanks to our new, reduced payment straight into the principal, I am investing the extra cash flow with options, and then using those profits to pay down the mortgage. You can read more about my general options trading strategy I will be using in this post.

I officially began this strategy on October 8. $SPY, the S&P 500 ETF, was trading at $350.10 at the time. It closed the month at $326.54, down 6.73%. Thanks to option trading, I was still able to generate premiums well in excess of my 1% monthly target. I was able to profit $152, representing a 4.9% return on my capital (that’s 78% annualized!).

As I wrote in my previous post, the difficult part of option trading is often preserving your capital. And my holdings were far from immune from the market pull-back. After taking my premiums out to pay down the loan and setting aside a portion for taxes, my portfolio value is actually down 12.9%. I am not concerned (yet, anyway) as my positions are still at a value that I can sell premiums (with covered calls) at strike prices that would still be profitable if I had to sell at expiration and still meet my 1% portfolio goal for the month. I actually already have open positions due to expire next month that will provide at least a 2% return. I will explain the details below.

My positions & trades

O.K., confession: I actually started this journey with an existing long position, rather than $3,000 in cash like I said I would. I had 68 shares of $AAL with an average price in the low $14.XX’s. Since I was already fairly close to a 100 share position (which is required to sell covered calls), I decided to just purchase the remaining 32 shares at $13.07. I actually bought another 9 shares later in the month at $12.31 per share, bringing my average price down to $13.98. Now I can sell covered calls at $14 knowing that if my option contract is exercised, I will get all of my principal back.

$AAL, 109 shares at $13.98 ($1,523.73 total principal). Principal is currently down 19.5% ($297.48). I closed a total of four positions for a profit of $63. I currently have a $14 covered call position that I opened for a $16 credit. After the big pullbacks last week I decided to open a put credit spread at $10.50/$10, taking in a $10 credit for a $50 risk.

After my $AAL position, I had about $1,500 in cash left to work with. I wanted to try to split this among at least two different positions for diversity sake. Rather than selling cash-secured puts to put my capital to work, I decided to purchase 100 shares of these stocks and then immediately sell covered calls on those positions. Honestly I’m not really sure why I decided to go this route. I must have been happy with the call premiums I could get at the time.

$M, 100 shares at $6.17 ($616.76 total principal). Principal is currently up 0.4% ($2.24). I closed one position for a profit of $26. I currently have a $6.50 covered call position that I opened for a $20 credit. Macy’s is pretty volatile right now, which is why I’m able to collect some solid premiums (that $20 credit is 3% of $6.50 for an 8-day long contract!).

$GPRO, 100 shares at $6.46 ($646 total principal). Principal is currently down 8.0% ($52). I closed a total of three positions for a profit of $33. I currently have a $7 covered call position that I opened for a $17 credit. Implied volatility is great on this stock as well, giving me an opportunity to likely sell another intra-month contract at a profitable level (strike price of $6.50+).

$FCEL, 100 shares at $2.34 ($233.78). Principal is currently down 14.4% ($33.78). I closed a total of two positions for a profit of $30. I currently have a $2.50 covered call position that I opened for a $15 credit. I had a couple hundred dollars left and decided to be a bit more risky. Fuel Cell is an alternative energy play from way back in the .COM days (it’s all-time high is almost $7,000 per share!). Both of the positions I closed were actually in-the-money calls ($2 strike price) that I closed because most of the value of the contract was gone once the stock price dipped. If this contract expires out of the money, I will probably look to sell another in-the-money call if I can guarantee a profit (e.g. if I sell a call at $2, it needs to be worth more than $34 to be a guaranteed profit at expiration).

Extra Mortgage Principal Paid

With $152 in net credits earned for the month, I am setting $47 aside for tax purposes. I am currently using $GNMA as my tax escrow account, so I bought $47 worth of it. $GNMA is an ETF that holds mortgage-back securities issued by the government and currently yields about 2%. It is a pretty stable ETF and I feel better about setting this cash aside for next year in something that will earn a bit of interest rather than sitting on the sidelines.

So after tax, I’m left with $105. I have decided to take $73 of that total to put directly toward my mortgage principal. That $73 puts me 254% ahead of my goal for the month and will amount to $113 savings in interest over the life of the loan. It’s a great start!

Why didn’t I use the entire $105? Since my principal had such large paper losses this month, I decided to keep a bit of that cash in my portfolio. I came up with $73 by balancing the difference between my starting principal, deposits, premiums earned, stocks purchased and the tax I’ve set aside.

Benchmark Comparisons

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 0.5%. For comparison this month, I will stick to 0.6%. Benchmark #2 is putting all of those savings straight into extra monthly payments. This one will probably be the hardest to “beat”, but the funds are the most illiquid, which is important to me at this point in my life. Finally, Benchmark #3 is simply buying $SPY.

So how did I do this month? On paper, it doesn’t look so good. If you take my paper losses on my stock positions, add the extra principal payment I made, cash remaining in my portfolio, my $3,000 is actually down to $2,576.41. Had I put the $3,000 into my savings account, it would now be worth $3,001.50. If I had put the $3,000 into my mortgage principal, I actually wouldn’t have gained anything yet since it hasn’t compounded, so it would still only be worth $3,000. Had I bought $SPY, that $3,000 would now by just $2,798.11.

So I’m actually down 14.2% to Benchmark #1 (savings), 14.1% to Benchmark #2 (extra mortgage payments) and 7.9% to the S&P 500. Currently, putting everything into a savings account is the winner! But that will definitely change.

So here is where I rationalize my performance this month. First, a big portion of my paper losses come from those 68 shares of $AAL I had bought months ago that were already down more than 10% when I got started. That alone makes the difference in my performance deficit to the $SPY. The $73 I put towards my mortgage principal hasn’t had any time to compound yet, so that will start to grow and grow, quickly closing the gap to Benchmark #2.

Overall I am still quite optimistic and excited to see where I continue to stack up against these benchmarks. Looking forward to another month of options trading!

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.