Earlier this year, I decided to try to generate some additional income by writing options contracts. I’d use the income to help make additional purchases in my Dividend portfolio.
I submitted an application at my brokerage to get approval to trade options in my account, requesting approval for Level 2 trading which allows me to write covered calls, as well as write cash-secured puts.
For background on trading options, take a look at “Characteristics and Risks of Standardized Options”…. https://www.theocc.com/components/docs/riskstoc.pdf
The covered calls are written for a stock that I own and don’t mind selling at a selected strike price. The cash-secured puts are written for stock positions that I don’t own, but wouldn’t mind buying at a selected strike price.
Thus far, I’ve only written single contracts – 1 contract constitutes 100 shares of stock. In addition, the contracts I’ve written are fairly short in duration – the shortest being a few days, and the longest being a few weeks. This minimizes the amount of time value by minimizing the number of days to contract expiration.
I’ve usually had 1 to 2 contracts open each month. This small number has allowed me to get acclimated to options trading, and keep my invested time at a manageable level.
Ideally, the contracts I write will expire “out of the money”, my gain being the collected premium for writing the contract. Alternatively, I may buy the contract to close it prior to expiration. However, some contracts are Assigned. In this case, the option holders end up exercising their right to buy the underlying stock (in the case of a call) or sell the underlying stock (in the case of a put) at the strike price should it move “in the money” prior to expiration. As the option writer, an assigned call means I sell the shares, and an assigned put means I buy the shares.
Below I’ve provided a snapshot of my options spreadsheet, which I use to help keep track of the options activity. I started with something I saw at both Two Investing and Investment Hunting, and tweaked it a bit since then.
I have no Open contracts at this time.
Notes: Open DTE = Days To Expiration at the time the contract was opened, DOC Price = stock price on Date Opening Contract
Since I started trading options in March, I’ve exceeded my expectations with regard to the options income I’ve generated. As you can see, I’ve collected $1,229.81.
Here’s a breakdown of the options income by month.
Even though I collect the premium for writing the contract up front, I don’t realize the income until the contract is Closed or Expired. If a put option is Assigned, the premium decreases the cost basis of the purchase. If a call option is Assigned, the premium will increase the amount realized in the sale.
I plan to keep trading options as I move into 2018. In addition, I plan to add a Monthly Options Income post here on the blog starting in January. Hopefully, I can continue to steadily generate some options income, and in turn use it to generate even more dividend income by making additional purchases for the Dividend portfolio. I hope you will follow along.
Are you currently an options trader? Writer or Holder? If so, do you feel you’ve been successful at it? What’s been your experience? Please let me know in the comments.