Time for another Monthly Options Income post.  This past month saw some wild market swings, especially to the downside.  With nothing but put options open, I was watching my options fairly closely.  At one point, 3 of my 4 open put options were considerably “in the money”.  However, the recovery over the past week helped.  All in all, this month saw an increase in activity on my part, so there’s plenty to cover.  Let’s get to it.

 

Background

Last year I decided I’d try to generate some additional income by writing options contracts.  The plan is to use any options income I realize to help make additional purchases in my dividend Portfolio.

I write covered calls for a stock that I own and don’t mind selling at a selected strike price.

I write cash-secured puts for stock positions that I don’t own and wouldn’t mind buying at a selected strike price.  I also write cash-secured puts for stocks that I already own but want to add more of at that price.

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.  This might be done if I can capture the majority of the premium prior to expiration, or to avoid having the option be assigned to me.  In the case of Assignment, 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.

 

Options Activity

Below is a snapshot of my options spreadsheet, which I use to help keep track of the options activity.  The entire spreadsheet is not shown, just the options that had activity this past month.

Since my last options post, I wrote 2 new put options, adding to the other 2 that I already had open.  Of these 4 put options, 2 expired and 2 were assigned.

More details on these options are in the sections that follow.  Note – the options #s in the sections below correspond to the numbers in the table.

 

Notes: Open DTE = Days To Expiration at the time the contract was opened, DOC Price = stock price on Date Opening Contract

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.

 

Opened Options

Since last month’s post, I wrote 2 new options:  a put option on Celgene (CELG), and a put option on HanesBrands (HBI).

 

Option #5 – PUT CELG (CELGENE CORP) $95 EXP 02/16/18, premium = $120

I had a put option on biotech company CELG successfully expire in January.  I went back to the well for this month, too.  This time I got a better premium at a lower strike price, mainly due to the volatility expected around their earnings report, but also due to the additional time to expiration.  CELG was trading at about $102 at the time I wrote the contract.    The $120 premium would reduce by cost basis on the shares to $93.80 should the option be assigned to me.

 

Option #6 – PUT HBI (HANDSBRANDS INC) $21 EXP 02/16/18, premium = $40

I already have a position in HBI (200 shares), but it’s one of my smaller positions from a $$$ perspective.  I was open to adding to it, despite it raising my cost basis.  At the time I wrote the contract, HBI was trading just south of $23 per share.  With the $40 premium, my cost basis would be $20.60 in the event of assignment.

 

Closed Options

In contrast to last month, I did not close any options.  I thought about closing a contract or two, but in the end decided to let the options either expire or be assigned.

 

Expired Options

Two of my put options expired this month.  Each allowed me to realize over $100 in options income.  It was just the way I planned it (if only it were that easy!).

 

Option #4 – PUT FRC (FIRST REPUBLIC BANK) $85 EXP 02/16/18, premium = $135

My put option on FRC was out of the money the entire time until expiration… just how I like it.  Rising inflation and interest rate fears didn’t punish the bank stocks too much during the market decline.  FRC rose to over $95 by the time the expiration date came around.  I was happy to realize the $135 option premium.

 

Option #5 – PUT CELG (CELGENE CORP) $95 EXP 02/16/18, premium = $120

This was an option I wrote earlier in the month (as noted above).  CELG made it through their earnings announcement without much of a price swing, but then dipped noticeably with the overall market decline.  CELG actually closed at $91.02 one day early in February, no doubt “in the money” at that point.  However, a price recovery took place over the past week, putting the option back out of the money just prior to expiration.  Thus, I realized the $120 option premium.  CELG continues to look undervalued to me right now, so buying shares at $93.80 would have been just fine with me.  I suspect I’ll write another put option on CELG this coming month.

If the option had been assigned, CELG would not have been added to my dividend Portfolio, as it doesn’t currently pay a dividend.  Instead, I would have held the shares looking for an increase in stock price, and written covered calls with my position until I was able to realize an acceptable sales price.

 

Assigned Options

Two options were assigned to me this month: a put option on Southern Co (SO), and a put option on HanesBrands Inc (HBI).

 

Option #3 – PUT SO (SOUTHERN CO) $45 EXP 02/16/18, premium = $100

I had a feeling this option might get assigned.  At the time the option was opened, SO was just $0.25 out of the money (at $45.25).  As utilities continued to decline, SO dropped with them and was soon in the money, staying there most of the time leading to expiration.  SO nearly reached $42.60 at one point.

I considered closing this option prior to expiration, but as the days went by, I didn’t think $44/sh. would be a bad cost basis, so I let it play out.  Seeing others in the DGI community add shares around this price solidified my thinking.  I still think SO may drift lower in the near-term.

In the end, SO reached expiration trading below the $45 strike price at $43.93.  Given the $100 premium I collected, my cost basis for the 100 shares of SO is reduced to $44.00.

With earnings being released this week, I may write a call option against these shares.  If SO heads lower, I’ll at least add some additional income, and if SO heads higher, I could exit the position with some profit.  I could also just sell shares outright.  We’ll see.  Should I still own the shares at the end of February, SO will become part of my dividend Portfolio.  In that case, SO will add $232 to my forward dividend income.

 

Option #6 – PUT HBI (HANDSBRANDS INC) $21 EXP 02/16/18, premium = $40

This was an option I wrote earlier in the month (as noted above).  The earnings report released from HBI a week or so ago sent the stock sliding, and well into the money.  HBI regained some of the lost ground over the past week, but not enough to get it back over the $21 strike price.  Thus, I’m now the owner of another 100 shares of HBI, giving me 300 shares in total.

HBI reached the expiration date trading below the $21 strike price at $20.49.  Given the $40 premium I collected, my cost basis for these 100 shares of HBI becomes $20.60.

This purchase will result in another $60 of forward dividend income.

 

Options Income

As a result of my two expired contracts, February saw me realize $255.00 in income, bringing my yearly total to $356.00  The monthly average is above the $150/mo. pace needed to achieve my 2018 goal.  The $255.00 realized this past month was the most options income I’ve secured in a single month.

Since I don’t currently have any open options, I don’t have any expected income for next month.  Thus, I have some work to do to get something in place.  Writing call options on my newly acquired SO and HBI shares are a strong possibility here.  Another put option on CELG could be in the cards, too.

Here’s a breakdown of the 2018 options income by month… so far so good.

 

 

Summary

I’m happy to see a record month for options income, securing $255.00 in total.  This provides me a little cushion with regard to staying on pace to hit my annual options income goal of $1,800.  With no open options at this time, the income total for the March post is not looking promising, but I can rectify that.  Now that I’ve been assigned some shares, writing some call options will most likely occur – up to this point, it’s been only put options that have been written.  The nice thing about call options is that I don’t have to set aside any cash.

Any thoughts regarding my options activity?  Do you like the price paid for either of the assigned stocks from this month?  Please let me know in the comments.