Welcome to another Monthly Options Income post.  In these posts I discuss my various options activity, and report on my options income for the month, and year-to-date.

This month was a little busier than normal on the options front.  I wrote 5 options: 2 call options and 3 put options.  For a change, not all of the options were set to expire just prior to my monthly post… two of them will expire in May.  In addition, I bought an option to close it, a first for this year.  We’ll dive into some details on these various options after covering some background.

 

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 2 new call option, and 3 new put options.  I didn’t have any open options at the time of my last post.

As you can see, 1 call option got Assigned, 1 put option was Closed, and the other call option Expired.  I also have 2 put options that remain Open.

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 5 new options as shown in the table above:  a call option on Southern Co (SO), a put option on Comcast (CMCSA), a call option on Celgene (CELG), a put option on Air Lease (AL), and a put option on Bank of the Ozarks (OZRK).

The call options were for stocks (SO & CELG) that were assigned to me in previous months and which I have chosen not to add to my dividend Portfolio yet.  The plan for SO is to add it to my dividend Portfolio if it isn’t called away prior to its next ex-dividend date (5/18/18).  In the case of CELG, it isn’t going to make it into my dividend Portfolio in any event, as it doesn’t currently pay a dividend.  I look to generate income with these shares by: 1) writing call options that expire and collecting the premium, or 2) writing call options that are assigned, where the stock sells for a higher price than I obtained it, thus realizing a capital gain.

The put options were for stocks (CMCSA, AL & OZRK) that are already in my dividend Portfolio, and I wanted to add to if the price was right.

 

Option #10 – CALL SO (SOUTHERN CO) $45 EXP 04/20/18, premium = $70

After being assigned these shares in February, I wrote my second call option on the shares at the same $45 strike price.  As mentioned earlier, I decided to not include SO in my dividend portfolio yet, instead writing call options on the shares until I secure my first dividend payment.  If I still have the shares in late May, SO will be added to my dividend Portfolio.

At the time I wrote this option, SO was trading for at $44.57, so not too far out of the money at less than 1% lower than the strike price, which led to a decent premium.

Should this option expire out of the money, the $70 premium on the $4,457 value of the shares for the 32 days to expiration, translates to an annualized yield of 17.91% on that money.

Should this option be assigned to me, the $70 premium would add to my sale proceeds, resulting in a total of $4,570, or $45.70/share (prior to any commission & SEC fees).

 

Option #11 – PUT CMCSA (COMCAST CORP) $33.50 EXP 04/20/18, premium = $55

I had a CMCSA put option assigned to me just last month, and I added the shares to my dividend Portfolio.  The stock continued to drift even lower after that, so I decided to write another put option with an even lower strike price ($33.50).  Since my CMCSA position within my Portfolio was rather small, I won’t mind adding to it should the new put option get assigned.  In that case, I’d be averaging down while I doubled my position.

At the time I wrote this option, CMCSA was trading for $34.85, or about 4.0% higher than the strike price.

Should this option expire out of the money, the $55 premium I would collect on the $3,350 I must reserve for the 31 days to expiration in case of assignment, translates to an annualized yield of 19.33% on that money.

Should this option be assigned to me, the $55 premium would reduce my cost basis on the acquired shares, resulting in a purchase of 100 shares at a cost of $3,295, or $32.95/share (prior to any commission).

 

Option #12 – CALL CELG (CELGENE CORP) $95 EXP 04/20/18, premium = $81

I acquired these CELG shares last month after a put option with a $90 strike price was assigned.  I believe there’s some good potential for price appreciation with these shares, so I hope to secure a capital gain should my call option get assigned and I have to sell my shares.

At the time I wrote this option, CELG was trading for $88.80, or about 6.5% lower than the strike price.

Should this option expire out of the money, the $81 premium on the $8,880 value of the shares for the 23 days to expiration, translates to an annualized yield of 14.48% on that money.

Should this option be assigned to me, the $81 premium would add to my sale proceeds, resulting in a total of $9,581, or $95.81/share (prior to any commission & SEC fees).

 

Option #13 – PUT AL (AIR LEASE CORP) $40 EXP 05/18/18, premium = $100

AL is currently the largest position in my dividend Portfolio, but I like the stock at the strike price.  I sold 100 shares of AL about 8 months ago at nearly $42, so buying them back at less than $40 given that AL traded over $50 just 3 months ago is enticing to me.

At the time I wrote this option, AL was trading for $41.50, or 3.75% higher than the strike price.

Should this option expire out of the money, the $100 premium I would collect on the $4,000 I must reserve for the 39 days to expiration in case of assignment, translates to an annualized yield of 23.40% on that money.

Should this option be assigned to me, the $100 premium would reduce my cost basis on the acquired shares, resulting in a purchase of 100 shares at a cost of $3,900, or $39.00/share (prior to any commission).

 

Option #14 – PUT OZRK (BANK OF THE OZARKS INC) $45 EXP 05/18/18, premium = $110

OZRK is one of the top 10 positions in my dividend Portfolio.  While I’m not necessarily looking to add more shares, picking more up below $45 is appealing to me.  I last added to this position about 1 year ago, picking up 50 shares at $44.56.  OZRK hasn’t seemed to benefit from the rising interest rate environment yet.  Perhaps the market is waiting for the interest rate spread between loans and deposits to show up on the bottom line.

At the time I wrote this option, OZRK was trading for $45.85, or just 1.89% higher than the strike price, helping to boost the premium.

Should this option expire out of the money, the $110 premium I would collect on the $4,500 I must reserve for the 32 days to expiration in case of assignment, translates to an annualized yield of 27.88% on that money.

Should this option be assigned to me, the $110 premium would reduce my cost basis on the acquired shares, resulting in a purchase of 100 shares at a cost of $4,390, or $43.90/share (prior to any commission).

 

Closed Options

My first closed option of 2018 occurred this month.  I executed a “Buy to Close” in order to avoid assignment of a put option.

 

Option #11 – PUT CMCSA (COMCAST CORP) $33.50 EXP 04/20/18, premium = $55

I waited until the last day to close this option, as the stock hovered around the strike price as expiration neared.  Since I bought shares in another media company (NXST) earlier in the month, I was hoping that this CMCSA put option would just expire out of the money, as opposed to potentially being assigned and having to use more cash to buy more media stock.  When it looked like the option was going to expire in the money, I decided to buy the option to close it, and avoid assignment.

I paid $34 to close this option.  This amount is subtracted from the $55 premium I was paid when I wrote the option, for a net gain of $21.  It would have been nice to realize the entire $55 premium, but I was happy to still come out ahead and keep some cash in reserve.  I probably would have let this option get assigned to me if I hadn’t made the NXST purchase, as I would have liked to average down on my current CMCSA position.

 

Expired Options

Only one option expired out of the money this month.  Not great, but it’s better than none.

 

Option #12 – CALL CELG (CELGENE CORP) $95 EXP 04/20/18, premium = $81

Only my CELG call option expired this month.  This option never really got close to being in the money, so I didn’t have to pay much attention to it over the course of the 3+ weeks it was open.

I was able to realize the entire $81 premium I got for writing the option.  I like it when all goes according to plan!

 

Assigned Options

One option was assigned to me this month.  It was a call option, so I sold my shares… shares I acquired just a couple of months ago.

 

Option #10 – CALL SO (SOUTHERN CO) $45 EXP 04/20/18, premium = $70

My call option on SO was another that went into the expiration date with the possibility of going either way.  The stock traded just north of the $45 strike price as expiration neared.  I contemplated buying this option to close it, but decided to let the option get assigned and sell my SO shares that I acquired a couple of months ago.

I sold the SO shares at the same $45 strike price that I bought them at.  Thus, the net gain was essentially a result of realizing the $100 premium I got when I wrote the original put option that got assigned to me, plus the $70 premium I got when I wrote this call option that got assigned, minus commissions and fees.  My gain ended up being $166.90.  This is close to 9 months worth of dividends (3 payments) realized in about 3 months, start to finish.  I also collected a premium for an expired SO call I wrote last month on these shares, but this money was previously accounted for in my income total.

I liked trading options on SO, and would consider it again in the future.  The stock has a good amount of options volume, but the stock itself has a low beta.  Minimal wild swings in the stock means less monitoring for me.

 

 

Options Income

This month I realized income from a closed option ($21), an expired option ($81), and an assigned option ($166.90).  The total was $268.90… my best options income month yet!

This was a nice improvement from last month.  My year-to-date options income total now stands at $659.90.  My monthly average is once again above the $150/mo. pace needed to achieve my 2018 goal.

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

 

 

I currently have two Open put options (AL & OZRK) set to expire in May.  Should these expire out of the money, I will realize $210 in premiums.  Thus, potential options income for May is already in good shape, and I don’t need to look for new options trades if I don’t want to.  In addition, I still have my CELG shares to write call options against, or to sell at a higher price than I paid, as a way to realize even more income.

 

Summary

My options income showed a good bounce back from the March lows, and I’m on pace to achieve my yearly $1,800 goal again.

At this point, I plan to keep up my efforts.  I’ve been successful at writing both put and call options with 20-40 days to expiration.  In the coming months, I may try to find a longer trade and see if I can realize a larger premium.

 

Any thoughts regarding my options income thus far?  Are you an options trader?  If so, what strategies do you employ?  Please let me know in the comments.