I Just Rolled My 401k Into an IRA

Earlier this year I left my job to take a similar role at a company with a better location and hopefully a bit more upside growth potential (and a little bit more money, of course!). In just over four years there, my 401k had grown to nearly $40,000. I let it sit there for the past six months while I considered how I wanted to proceed. Once the COVID-19 induced pullback happened shortly after I left, I was reluctant to move it since I would have to close all my positions at a big loss. The account balance dropped down to about $31,000, which was actually a negative overall invested return at that point (i.e. I had contributed more to the 401k than it was currently worth)! I felt the market would recover most of its losses fairly quickly (I was right… and am happy I invested extra cash in our taxable brokerage accounts during that time) and was concerned some of that recovery would happen while I moved funds around. So there it sat for about 6 months.

I considered rolling it into my current employer’s 401k plan so I could keep it all together. The other benefit to doing this is that I would have a larger amount in my 401k to take a loan out against in case I found the right deal I wanted to pull the trigger on and needed some extra resources (I know most of the literature out there says 401k loans are a bad idea, but I’m not considering it to buy a truck or an RV! This would be exclusively for buying assets like rental properties.).

One thing I don’t like about the 401k’s is that I don’t have that many options to invest my money. With an IRA, I can pick and choose my investments. And in the event I get tired of picking and choosing, or I’m unhappy with my performance, I can always just put my money in some ETF’s or just buy the same mutual funds I used to have in my previous 401k.

As I started to see the power in options trading for increasing portfolio returns, I began to lean much more favorably toward an IRA. I considered rolling it over into a Roth, but my household income is still below the maximum income limit to contribute to a Roth, so I still have the option to fund a Roth going forward without paying a large tax bill now for the rollover. If I ultimately open up the Roth, I will definitely discuss my strategies for that account as well. For now, it’s just another traditional IRA. A final point that I think is worth pointing out is that my wife and I still have 401ks that we contribute to regularly, which gives me more freedom to invest this portion myself.

How I am investing ~$42,000

After the bounce back from the COVID-19 panic, my portfolio climbed back, and eventually comfortably surpassing its previous highs, to almost $42,000. This past Friday morning I opened my account and to my delight found the wire transfer was complete! So much cash! So many possibilities. Without going into too many gory details on how I plan to trade this account, here are the trades I made in day 1:

  1. I bought SPY, QQQ and IWM. These are my reference point. I think it will be fun to always check these holdings to get an idea of where I would be if I had just invested all my cash into one of these (or all three) index funds. The bar has been set!
  2. I sold a put on AAPL. As long as I’ve know what a cash-secured put was I wanted to “write a put” on Apple! Finally I have the resources to do so. I sold the November 20 $106.25 put for a $170 credit. I immediately bought one share of Apple at $120.31.
  3. I sold a put on O. REITS are on my wish list for this account, including O first and foremost. I sold the November 20 $60 put for a $128 credit. I then bought 2 shares of Realty Income at $60.56.
  4. I sold a put on SBUX. Starbucks and Apple. A match made in heaven. I sold the October 30 $85 put for a credit of $100. I then bought one share of Starbucks at $88.70.
  5. I sold a put on T. I sold the November 6 $26.50 put for $45 and then, you guessed it!, bought one share of AT&T at $27.46.

I now have two-thirds of my opening balance put to work, with $1,1512 in long stock, $28,677 being held as collateral, and an extra $75 in cash generated. Things are off to a fine start!

$1 Million Portfolio

Here’s my pie in the sky: turn ~$42,000 into $1 million by the time I retire (which we will say will be 30 years from now). Since my wife and I both have 401k’s, we won’t be able to contribute to this account going forward, which means I will have to do all the heavy lifting myself. In order to do this, I need to achieve a CAGR of 11.2% (or 0.89% compounded monthly). A lofty goal indeed. Let’s see what happens!

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.