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.

Here’s some background before I dive into the details of my options activity this past month.  Readers can skip the Background section if familiar with my previous options income posts.

 

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.

I had two open options that I carried into this month, a call set to expire on July 20th, and a put set to expire on August 17th.  Also, I wrote 2 options during the month (a normal amount is 2 to 3) – both being put options set to expire July 20th.  So, in total 4 options in play.

I had an assortment of results this month with one option being Closed, one option remaining Open, one option Expiring, and one option being 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.

 

Previously Opened Options

I had two Open options that I carried into this month, one call and one put.  Let’s briefly revisit these…

Option #18 – CALL HBI (HANESBRANDS INC) $22 EXP 07/20/18, premium = $25

At the time I wrote this option, HBI was trading for $20.90, or 5% lower than the $22 strike price I selected.

Should this option expire out of the money, the $25 premium on the $2,090 value of the shares for the 38 days to expiration, translates to an annualized yield of 11.49% on that money.

Should this option be assigned to me, the $25 premium would add to my sale proceeds, resulting in a total of $2,225, or $22.25/share (prior to any commission & SEC fees).

 

Option #19 – PUT AL (AIR LEASE CORP) $45 EXP 08/17/18, premium = $200

At the time I wrote this option, AL was trading for $44.25.

Should this option expire out of the money, the $200 premium I would collect on the $4,500 reserved for the 64 days to expiration in case of assignment, translates to an annualized yield of 25.35% on that money.

Should this option be assigned to me, the $200 premium would reduce my cost basis on the acquired shares, resulting in a purchase of 100 shares at a cost of $4,300, or $43/share (prior to any commission).

 

Newly Opened Options

Once again, familiar names for my written options.  I wrote a put option for Comcast (CMCSA), and a put option for Bank of the Ozarks (OZRK) – now Bank OZK (OZK).  Both of these stocks have seen previous options activity for me in 2018.

Option #20 – PUT CMCSA (COMCAST CORP) $32 EXP 07/20/18, premium = $75

Each of the last two months I’ve written put options on CMCSA, and each time they’ve expired…. just how I like to see it.  Since my CMCSA position continues to be nearly the smallest in my Portfolio, I wrote another put option.  I would double my position and average down should the put be assigned.

At the time I wrote this option, CMCSA was trading for ~$32.70, or about 2.2% higher than the strike price.

Should this option expire out of the money, the $75 premium I would collect on the $3,200 I must reserve for the 32 days to expiration in case of assignment, translates to an annualized yield of 26.73% on that money.

Should this option be assigned to me, the $75 premium would reduce my cost basis on the acquired shares, resulting in a purchase of 100 shares at a cost of $3,125, or $31.25/share (prior to any commission).

 

Option #21 – PUT OZRK (BANK OF THE OZARKS) $45 EXP 07/20/18, premium = $110

At around $45, I felt like OZRK was approaching a good purchase price.  However, since I already own over 200 shares of OZRK, I wasn’t necessarily looking to add more shares, so I wrote a put option instead, planning on the price to rise so I could collect the premium.

At the time I wrote this option, OZRK was trading for $45.10, just a dime above the strike price.  This spread, and an upcoming earnings report, led to a decent premium.

Should this option expire out of the money, the $110 premium I would collect on the $4,500 I must reserve for the 15 days to expiration in case of assignment, translates to an annualized yield of 59.48% 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

I decided to Close one option this month.

Option #18 – CALL HBI (HANESBRANDS INC) $22 EXP 07/20/18, premium = $25

For most of the month leading to expiration, HBI was hovering around my $22 strike price.  As expiration approached I decided I wanted to keep my shares should they get above the $22 strike price.  I was holding out hope that the price would sneak back under $22 on expiration day, but instead it stayed just above.  So, late on expiration day, I bought this option to close it, spending $20 to do this.  After factoring in the $3 commission, I made a net profit of $2 ($25 – $20 – $3), and kept my shares.

 

Expired Options

Only one option Expired this month.  It was a usual suspect.

Option #20 – PUT CMCSA (COMCAST CORP) $32 EXP 07/20/18, premium = $75

This option traded out the money the entire time it was open.  As the month went on, the price of CMCSA kept rising, putting the option further out of the money.  So, I just had to wait for expiration day and realize my premium, which I did.

My put options on CMCSA over the past 3 months have been good.  I’ve realized the premium on all of them.  I love it when it all goes according to plan.

 

Assigned Options

One option was Assigned this month.

Option #21 – PUT OZRK (BANK OF THE OZARKS) $45 EXP 07/20/18, premium = $110

Well, this option certainly didn’t go according to plan.  OZRK’s earnings report disappointed investors and the stock dropped from about $46.50 to $42.50 in one day.  With a little over 1 week until option expiration, I hoped for a price recovery, but it didn’t materialize.  A few days before option expiration, the option holder exercised his/her right to sell the shares at $45, and I had to purchase them.  After factoring in the premium I received as the option writer, I had to purchase at $43.90/sh.

So, for now I’m down on the trade, but I own 100 more shares of OZRK (now OZK).  I’ll look for a price increase in the coming weeks/months to see if I can make this a positive trade, or I’ll plan to write some covered calls against the shares and earn some additional income while I hold them.

 

Options Income

For the 2nd straight month, I came up short of the $150/mo. average I’m looking for, but each small amount helps and continues to push me toward my annual goal.

My year-to-date options income total now stands at $1,057.90.  My monthly average is just above the $150/mo. pace needed to achieve my 2018 goal of $1,800.

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

 

 

Looking forward, I have one Open option that I carry into August.  However, that option is currently in the money, so I need to avoid early assignment and get the price to increase in order to realize that premium.

With the assignment of the OZK shares this month, I now have two stocks to write covered call options against.  Recall, I had some Celgene (CELG) shares that were assigned a few months ago.  The CELG shares have been on the rise recently, but are still below my assigned price.  If I can get CELG and OZK to rise in price, I’d have the choice to sell at a higher price than I paid, as a way to realize more option income.

 

Summary

My sputtering the last couple of months with regard to options income has got me barely ahead of pace to reach my annual goal.

Overall, I’m not in a bad spot, but I do need a few things to go in my favor, and right now those all entail price increases.  I could use the price of AL, OZK and CELG to move up.  My Open put option is written on AL, and a price increase could allow me to realize a $200 premium.  Price increases in OZK and CELG would give me the chance to sell those shares for an amount higher than they were assigned to me.

Of course, I could always write more options, too.  However, writing more call options on my Portfolio stocks puts me at risk of having those shares called away, while writing more put options is a bit prohibitive right now since I’ve already got $13,500 tied up on the assignment of the CELG and OZK shares.

I’m ready to move forward and see what I can do in August!

 

Have you written any options recently?  Has the options income you’ve generated this year been to your liking?  Please let me know in the comments.