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.