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.

Let me provide some background before I dive into the details on my options activity.

 

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 wouldn’t mind adding 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.

It was another good month on the options front.  I started with 2 open put options that I carried into the month, and then opened 2 more put options during the month.  All 4 of these options had the same expiration date.  As the expiration day arrived, I closed 1 put option, and the remaining 3 expired out of the money.  The premiums realized from the closure and expirations nearly added up to a record options income haul for a single month… so close.

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.

 

Previously Opened Options

Here’s a recap of the two put options that were Open at the end of last month.

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).

 

Newly Opened Options

I’ve gone back to the well for this month’s new options.  I wrote a put option for Comcast (CMCSA) and a put option for Southern Company (SO).  Both of these stocks have seen previous options activity for me in 2018.

 

Option #15 – PUT CMCSA (COMCAST CORP) $31.50 EXP 05/18/18, premium = $50 (after commission)

I had a CMCSA put option assigned to me a couple of months ago, and I added the shares to my dividend Portfolio.  The stock has continued to drift consistently lower since that time, with its bid for Sky, and the burden of the financing for that, perhaps weighing on the stock.  Since my CMCSA position is nearly the smallest in my Portfolio, I decided to write another put option with an even lower strike price ($31.50), in an attempt to double my position and average down should the put be assigned.

At the time I wrote this option, CMCSA was trading for $32.20, or about 2.2% higher than the strike price.

Should this option expire out of the money, the $50 premium I would collect on the $3,150 I must reserve for the 21 days to expiration in case of assignment, translates to an annualized yield of 27.59% on that money.

Should this option be assigned to me, the $50 premium would reduce my cost basis on the acquired shares, resulting in a purchase of 100 shares at a cost of $3,100, or $31/share (prior to any commission).

 

Option #16 – PUT SO (SOUTHERN CO) $43 EXP 05/18/18, premium = $32 (after commission)

I had some SO shares called away last month at $45, essentially sold for $45.70 after factoring in the premium.  Early this month, SO took a quick tumble on concerns over rising interest rates.  I took the opportunity to write a put option on SO at a $43 strike price, hoping to re-establish my position at a price below $43.  Alternatively, should the stock not get that low, I’d happily collect some additional income should the option expire out of the money in just 10 days.

At the time I wrote this option, SO was trading for $44.16, or about 2.7% higher than the strike price.

Should this option expire out of the money, the $32 premium I would collect on the $4,300 I must reserve for the 10 days to expiration in case of assignment, translates to an annualized yield of 27.16% on that money.

Should this option be assigned to me, the $32 premium would reduce my cost basis on the acquired shares, resulting in a purchase of 100 shares at a cost of $4,268, or $42.68/share (prior to any commission).

 

Closed Options

As mentioned earlier, I Closed 1 of my put options this month.

Option #16 – PUT SO (SOUTHERN CO) $43 EXP 05/18/18, premium = $32 (after commission)

Early this week, I had a good feeling this option would expire out of the money.  However, as the week progressed, the stock traded steadily downward.  The decline was helped along with the stock going ex-dividend on the same day as my option expiration.  As option expiration neared, I became less comfortable with a possible assignment of the option, so I decided to close the option early on expiration day, and keep the cash I had reserved for the purchase in my account.  I had to give back most of the premium I got for writing the option in the first place, but I did make a small profit overall, and did avoid assignment, as the stock closed at $42.73.

This stock is a candidate for another put option this month, but with a lower strike price this time.

 

Expired Options

This is where most of the action was this month, with 3 of my put options expiring out of the money.

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

This option never got closer to being in the money than on the day the option was opened.  Since the start of May, AL’s stock price has climbed steadily, moving the option comfortably out of the money.  I happily realized the $100 premium.

 

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

This was another option that never got closer to being in the money than when it was opened.  The price for OZRK also moved steadily higher since the start of May, putting the option comfortably out of the money as well.  With such a nice margin of safety, not too much attention needed to be paid to this option.  I realized the $110 premium.

 

Option #15 – PUT CMCSA (COMCAST CORP) $31.50 EXP 05/18/18, premium = $50 (after commission)

This option was in limbo for a while, as Comcast (CMCSA) traded below its strike price during the time the option was Open, but it was not Assigned.  As the expiration date drew closer, CMCSA climbed back up in price, putting the option out of the money again.  I would have been comfortable with assignment on this option, but I’m good with realizing the $50 premium as well.

I may turn right around and write another put option on CMCSA this month.

 

Assigned Options

I did not have any options Assigned this month.

 

Options Income

This month I realized a good amount of income, with a total of $266.00.  This was less than $3 short of last month’s record options income.

So with two nice months of income in a row, things appear to be picking up steam!  My year-to-date options income total now stands at $925.90.  My monthly average is now nicely above the $150/mo. pace needed to achieve my 2018 goal of $1,800.  In fact, I could earn $0 next month and still be ahead of my needed pace.  A welcome cushion to have.

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

 

 

I don’t have any Open options to carry into next month, so if I want to realize some income from premiums next month, I’ll need to write some options.  Of course, I still have my Celgene (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 as well.  Unfortunately, CELG shares have continued to pull back, so selling at a profit may be difficult unless the shares rally a good 10% from their current price.

 

Summary

Another stellar month as far as I’m concerned… nearly setting another record for monthly options income.  In addition, I continued to stay ahead of pace to achieve my yearly $1,800 goal.

My options efforts continue to yield extra income to further seed my dividend Portfolio, so I’m not looking to shake things up, rather just stay the course.  However, as mentioned last month, I may try to find a longer trade and see if I can realize a larger premium somewhere.

 

Do you have any thoughts of trading options in your future?  If so, what kinds of trades do you think you’d make?  And on what stocks?  Please let me know in the comments.