Welcome to another Monthly Options Income post.  I ended up writing 3 options this past month, 1 call option and 2 put options.  These were written not too long after my last options post, and all of them were set to expire in mid-March.  Thus, the time to expiration was just 2-4 weeks, which has been the usual for me.  The call option I wrote was my first of the year.  For the puts, I really liked the strike prices I established, so I wasn’t in a rush to close any of the positions to avoid assignment.  Instead, I let things play out.  Let’s find out what happened with these options.

 

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.

As I mentioned, I wrote 1 new call option, and 2 new put options.  I didn’t have any open options at the time of my last post.

As you can see, the 1 call option expired, and the 2 put options both got 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 the 3 new options as shown in the table above:  a call option on Southern Co (SO), a put option on Celgene (CELG), and a put option on Comcast (CMCSA).

 

Option #7 – CALL SO (SOUTHERN CO) $45 EXP 03/16/18, premium = $35

After being assigned these shares last month, I turned right around and wrote a call option on the shares at the same $45 strike price.  I decided to not include SO in my dividend portfolio yet, instead writing call options on the shares until my first dividend payment comes around in June.  If I still have the shares in June, SO will most likely be added to my dividend Portfolio.  At the time I wrote this option, SO was trading for at $43.55.

Should this option expire out of the money, the $35 premium on the $4,355 value of the shares for the 24 days to expiration, translates to an annualized yield of 12.22% on that money.

Should this option be assigned to me, the $35 premium would add to my sale proceeds, resulting in a total of $4,535, or $45.35/share.

 

Option #8 – PUT CELG (CELGENE CORP) $90 EXP 03/16/18, premium = $110

I’ve had put options on biotech company CELG each of the last two months, and these options have successfully expired each time.  This past month I wrote yet another put option.  Again, I was able to select a lower strike price ($90) than the previous time.  CELG was trading just under $94 at the time I wrote the contract.

Should this option expire out of the money, the $110 premium I would collect on the $9,000 I must reserve for the 24 days to expiration in case of assignment, translates to an annualized yield of 18.59% on that money.

Should this option be assigned to me, the $110 premium would reduce my cost basis on the stock, resulting in a purchase of 100 shares at a cost of $8,890, or $88.90/share.

 

Option #9 – PUT CMCSA (COMCAST CORP) $36 EXP 03/16/18, premium = $45

CMCSA has been on my radar the past few months.  The stock price ran away from me since the first time I looked at it a few months ago.  However, recent months have seen it drift lower again.  With the stock getting close to the price I am willing to pay for it ($37-$38 range), I decided to write a put option for some shares.  At the time I wrote the contract, CMCSA was trading just north of $37, and I selected a $36 strike price.

Should this option expire out of the money, the $45 premium I would collect on the $3,600 I must reserve for the 17 days to expiration in case of assignment, translates to an annualized yield of 26.84% on that money.

Should this option be assigned to me, the $45 premium would reduce my cost basis on the stock, resulting in a purchase of 100 shares at a cost of $3,555, or $35.55/share.

 

Closed Options

As was the case last time, I did not close any options this month.  Instead, I decided to let the options either expire or be assigned.

 

Expired Options

Only my lone call option expired this month.  Unfortunately, it was the option with the smallest premium, so I only realized $35 this month due to expiring contracts.

 

Option #7 – CALL SO (SOUTHERN CO) $45 EXP 03/16/18, premium = $35

My call option on SO was out of the money nearly the entire time until expiration.  The stock spent nearly the entire month moving between $43 and $45.  I think there was one day SO reached $45 and was in the money, but it didn’t stay there long.  So, this option expired without much fanfare and I realized my $35 option premium.

 

Assigned Options

Two options were assigned to me this month: a put option on Celgene (CELG), and a put option on Comcast (CMCSA).

 

Option #8 – PUT CELG (CELGENE CORP) $90 EXP 03/16/18, premium = $110

The stock drifted lower yet again this past month after CELG had an issue with the application of one of its high profile drugs with the FDA, and the snafu will most likely cause a delay in this drug getting to market.  CELG’s descent to $87 drove this option well into the money for a while.  The stock recovered early in March, only to drift lower again, pushing my option into the money yet again the day prior to expiration.

I think the price for CELG here is good, so I let the option expire, and I ended up purchasing shares for $88.90/share after adjusting for the premium.  Given the $89.61 closing price this past Friday, I’ve got a small profit on paper for now.

Since CELG doesn’t pay a dividend, it won’t become part of my dividend Portfolio.  So, I’ll either hold the shares long enough to see the shares rise meaningfully, or I’ll write covered calls against them to earn some income.  Given that I already own two biotechs in Abbvie (ABBV) and Gilead Sciences (GILD), I don’t think I want to hold the shares too long, maybe a few months.  We’ll see.

 

Option #9 – PUT CMCSA (COMCAST CORP) $36 EXP 03/16/18, premium = $45

I wrote this option on the day the stock dropped due to CMCSA making an offer for Europe’s Sky TV.  The option stayed out of the money until the day of expiration.  Again though, I was going to be happy with the purchase price if assigned, so I didn’t attempt to close it.

With the assignment, I purchased the shares for $35.55/share after adjusting for the premium.  Given the closing price of $35.83 this past Friday, I again have another small profit on paper for now.

I intend to add CMCSA to my dividend portfolio.  It will be one of the smaller positions based on total value.

The stock sports a dividend yield of 2.12% based on my purchase price.  This purchase will result in another $76 of forward dividend income.

 

Options Income

I was just a day or two from securing all $190 of premium income I had in play, but some late price declines by the stocks in question in the days prior to expiration resulted in some assignments as opposed to expirations.

As a result, only 1 of 3 options expired, and this month saw me realize only $35.00 in income, bringing my yearly total to $391.00  The monthly average is now below the $150/mo. pace needed to achieve my 2018 goal.  However, I’ve got plenty of time to make up ground.

Since I don’t currently have any open options, I don’t have any expected income for next month.  Thus, I’ll have to find some acceptable trades.  Writing call options on my assigned SO shares from last month, and my assigned CELG shares from this month, are certainly a possibility.

Here’s a breakdown of the 2018 options income by month.

 

 

Summary

Although I didn’t secure a lot of income this month, I did get assigned some stocks I’ve been watching for a while at what I feel are some good prices.  In the case of CMCSA, I’ll be adding it to my dividend Portfolio.  In the case of CELG, I’ll be looking to write covered calls against the shares, hoping to generate some income while I look for the stock price to move higher.

I’m a bit behind my options income pace if I want to achieve my $1,800 goal for 2018, but it should only take one good month to fill the gap.

 

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.