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

Here’s some background before I go 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 my options activity.  The entire spreadsheet is not shown, just the options that had activity this past month.

I had one Open option that I carried into August, which was a put set to expire on August 17th.  Also, I wrote 3 options during the month – 2 calls and 1 put.  All of these were set to expire August 17th, too.  In total, I had 4 options in play.

This month’s results were almost as I drew it up, as 3 of the 4 options Expired, allowing me to realize the premium.  Meanwhile, the last option was a put I Closed a week early, as I was able to secure over 80% of the potential profit while eliminating any future obligation to purchase.

The really good news this month is that I set an options income record!  I’ll delve into that in just a bit.

More details on these options are in the sections that follow.  Note – the option #s in the sections below correspond to the #s in the far left column of 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 one Open put option that I carried into this month.  Here’s a quick recap…

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… so it was in the money.  This led to a bigger than normal premium for me.  This option also had the longest number of days to expiration of any option I have written, which also contributed to the larger premium.

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

As has been the case the past couple of months, I’ve got familiar names for my written options.  I wrote a call option for Hanesbrands (HBI), a put option for Comcast (CMCSA), and a call option for Celgene (CELG).  All of these stocks have seen previous options activity for me in 2018.

Option #22 – CALL HBI (HANESBRANDS INC) $24 EXP 08/17/18, premium = $32 (after commission)

Back in February, I had 100 HBI shares assigned to me at $20.60 ($21 strike price minus the $0.40 premium).  I moved these shares into my dividend Portfolio.

With HBI recently trading at or above the level those shares were assigned to me back in February, I’ve been writing call options.  I hope to make a profit on the shares themselves, plus an option premium, should the call get Assigned.  With HBI trading in the mid $22s, I figured I’d write another call option.  If this call option with its $24 strike does get Assigned and I have to sell 100 shares, I would be doing it for $3.72/sh. more than I paid for them.

At the time I wrote this option, HBI was trading for $22.45, or ~6.5% lower than the $24 strike price I selected.

Should this option expire out of the money, the $32 premium on the $2,245 value of the shares for the 25 days to expiration, would translate to an annualized yield of 20.81% on that money.

Should this option be assigned to me, the $32 premium would add to my sale proceeds, resulting in a total of $2,432, or $24.32/share (prior to any commission & SEC fees).

 

Option #23 – PUT CMCSA (COMCAST CORP) $32 EXP 08/17/18, premium = $43 (after commission)

Each of the last three months I’ve written a put option on CMCSA, and each time it’s expired…. just how I like to see it.  Can I make it four months in a row?  Since my CMCSA position continues to be nearly the smallest in my Portfolio, I wrote another put option.  If it ain’t broke, don’t fix it.  I would double my position and average down should the put be assigned.

At the time I wrote this option, CMCSA was trading for ~$32.80, or 2.5% higher than the strike price.

Should this option expire out of the money, the $43 premium I collect on the $3,200 I must reserve for the 23 days to expiration in case of assignment, would translate to an annualized yield of 21.32% on that money.

Should this option be assigned to me, the $43 premium would reduce my cost basis on the acquired shares, resulting in a purchase of 100 shares at a cost of $3,157, or $31.57/share (prior to any commission).

 

Option #24 – CALL CELG (CELGENE CORP) $94 EXP 08/17/18, premium = $50 (after commission)

Back in March, I had 100 CELG shares assigned to me at $88.90 ($90 strike price minus the $1.10 premium).  I did not move these shares into my dividend Portfolio, as CELG doesn’t pay a dividend.

Since the end of June, CELG has run up from the mid $70s to the low $90s.  With CELG’s recent stock price climb, I was at a point where I could write a call option I liked that would also allow for a profit on my trade, plus some premium, should the option get Assigned.

At the time I wrote this option, CELG was trading for $91.50, or ~2.66% lower than the $94 strike price I selected.

Should this option expire out of the money, the $50 premium on the $9,150 value of the shares for the 9 days to expiration, would translate to an annualized yield of 22.16% on that money.

Should this option be assigned to me, the $50 premium would add to my sale proceeds, resulting in a total of $9,450, or $94.50/share (prior to any commission & SEC fees).

 

 

Now let’s see what happened with these Open options.  In each case…

1. I can Buy to Close the option prior to expiration
2. I can let the option Expire, or
3. The option gets Assigned to me

Closed Options

I decided to Close one option this month.

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

Shortly after I wrote this put option in mid June, the price of AL continued its decline for a couple more weeks, driving it further into the money.  AL bottomed out in the mid $41s at the end of June.  From that point on, it had been steadily climbing leading into its earnings report last week.  The earnings report didn’t move the price much, but AL did creep over $45, so the option was out of the money for a bit.

I decided to Buy to Close the option, as I was able to secure 81% of the premium (after commissions), and then not have to worry about whether or not the option was going to be Assigned over the course of the next week until expiration.  It also freed up the $4,500 in cash that was being held in reserve in case of assignment.  I used some of this money for my Blackrock (BLK) purchase in my dividend Portfolio a few days ago.

 

Expired Options

I was happy to see three of my options Expired this month, as I was able to realize their associated premiums.  Two were calls, so I retained my shares, and one was a put, removing any obligations I had to purchase the stock.

Option #22 – CALL HBI (HANESBRANDS INC) $24 EXP 08/17/18, premium = $32 (after commission)

If any of my options was going to get Assigned, this was the one I was hoping for.  I would have turned a decent profit from these shares (which were Assigned to me back in February).

As it was, HBI released its earnings report at the end of July, and investors were not happy.  Disappointing earnings and an announced dissolution of a clothing deal with Target (TGT) weighed on HBI.  This pushed the stock price down, and my option way out of the money.  This meant that this option probably wasn’t going to be Assigned, but it also meant I was probably going to secure the premium.

In the end, I did realize the premium of $32, and I retained my shares.  I’ll look to write more call options on these shares moving forward.

 

Option #23 – PUT CMCSA (COMCAST CORP) $32 EXP 08/17/18, premium = $43 (after commission)

CMCSA moved up in price just the day after I wrote this option, moving it further out of the money.  Just like last month, my CMCSA option traded out the money the entire time it was open.

Once again, I just waited for expiration and realized the entire premium.

I’m 4 for 4 on my CMCSA put options over the past 4 months!  I’ve realized $223 in premiums for these CMCSA puts.

 

Option #24 – CALL CELG (CELGENE CORP) $94 EXP 08/17/18, premium = $50 (after commission)

CELG has been hot of late and traded up to the high $92s just a few days prior to my option expiration.  However, it eventually pulled back on Wednesday of this week, leaving the option out of the money.  I was able to secure the $50 premium as a result.

If CELG had continued to move higher and past the $94 strike price, the option would have been Assigned.  The ~$560 profit I would have realized would have put me over my $1,800 options income goal for the year.  It’s nice to see the annual goal is in sight!

 

Assigned Options

No options were Assigned this month.

 

Options Income

After two months of moderate options income, it was nice to see a bounce back of record proportions in August.

I realized $287.00, eclipsing my previous monthly high of $268.90 set back in April.  This month’s total also came close to doubling the $150 amount I target each month.

My year-to-date options income total now stands at $1,344.90.  My monthly average is now handily 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 don’t have any Open options that I carry into September.  I’ll have to start looking around this coming week if I want to line up some premiums.  I’m averaging about 3 written options per month this year.

I still have my CELG shares, and some Bank OZK (OZK) shares (not part of my dividend Portfolio) to write covered calls against.  The CELG shares are the most likely of the two to be part of a covered call, based on current prices, assuming I wish to secure a profit should it be Assigned.  As mentioned above, I could see writing a covered call on some of the HBI shares in my dividend Portfolio as well.  These are some good potential choices for call options.  For put options, I’ll first look to see if there are any candidates within my Portfolio that I might want to add to.  I still believe CMCSA remains my best option there.

 

Summary

I’m back in a good spot after a record options income month.  The biggest help this month was securing the majority of my AL put option premium.  Having three other options expire helped my cause as well.  The annual goal is coming within reach, too, and I’m feeling better about my chances to get there.

 

Still contemplating using options to generate additional income?  If so, do you see yourself as a seller or buyer of options?  Maybe both?  Please share your thoughts in the comments.