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 didn’t carry any options into the month, and I opened two options for September, one call and one put.
More details on these two 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 did not have any previously opened options that I carried into this month.
Newly Opened Options
I continued with writing options on familiar stocks this month. I wrote a call option for Celgene (CELG), and yet another put option for Comcast (CMCSA). I’ve “gone to the well” several times on each of these in 2018.
Option #25 – CALL CELG (CELGENE CORP) $97 EXP 09/21/18, premium = $100 (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.
CELG had been on an upward trend in recent weeks, creeping up towards the mid $90s. Similar to last month, 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 $93.90, or ~3.20% lower than the $97 strike price I selected.
Should this option expire out of the money, the $100 premium on the $9,390 value of the shares for the 23 days to expiration, would translate to an annualized yield of 16.90% on that money.
Should this option be assigned to me, the $100 premium would add to my sale proceeds, resulting in a total of $9,800, or $98.00/share (prior to any commission & SEC fees).
Option #26 – PUT CMCSA (COMCAST CORP) $36 EXP 09/21/18, premium = $55 (after commission)
This is the 5th month in a row that I’ve written a put option on CMCSA. The previous 4 all expired. My CMCSA position continues to be nearly the smallest in my Portfolio, so I wrote another put option this month. I would double my position should the put be Assigned.
At the time I wrote this option, CMCSA was trading for ~$36.10… just out of the money… less than 0.3% above the strike price.
Should this option expire out of the money, the $55 premium I collect on the $3,600 I must reserve for the 15 days to expiration in case of assignment, would translate to an annualized yield of 37.18% 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 $3,545, or $35.45/share (prior to any commission).
Now let’s see what happened with these Open options. In each case…
- I can Buy to Close the option prior to expiration
- I can let the option Expire, or
- The option gets Assigned to me
Closed Options
I did not Close any options this month.
Expired Options
Both of my options Expired this month, and I was able to realize their associated premiums. With the expired call I retained my shares, and with the expired put I no longer had any obligation to purchase the stock.
Option #25 – CALL CELG (CELGENE CORP) $97 EXP 09/21/18, premium = $100 (after commission)
CELG never traded much higher than the price at which I wrote the call. Within a few days after I wrote the contract, the price of CELG started moving down and never came close to threatening the strike price. I had a 10% safety margin after a couple of weeks. Needless to say, this option was of out of the money the entire time. I just waited until expiration and realized the premium.
Part of me was hoping CELG would surge higher and move past the $97 strike price I set so that the option would be Assigned. The ~$910 profit I would have realized would have easily put me over my $1,800 options income goal for the year. In addition, it would have freed up some cash for writing future puts.
Option #26 – PUT CMCSA (COMCAST CORP) $36 EXP 09/21/18, premium = $55 (after commission)
CMCSA traded sideways for about 1 week after I wrote the option, moving into the money by a small amount on a couple of occasions during that time. However, about 1 week prior to expiration, the price moved up and never sniffed the $36 strike price again. So, I let my CMCSA put expire and I realized the entire premium.
That’s now 5 for 5 on my CMCSA put options over the past 5 months! I’ve realized $278 in premiums for these CMCSA puts.
Assigned Options
No options were Assigned this month.
Options Income
All in all, a rather quiet month. Quiet not only in the number of options in play (only 2 this month), but quiet with regard to the amount of realized options income this month. Recall that last month was a record-setter. However, this month’s two options did bring in $155 in options income, and that was enough to squeak past my $150 target for the month.
My year-to-date options income total now stands at $1,499.90. My monthly average stays 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.
I don’t have any Open options that I’ll carry into next month. I normally start looking into writing some options contracts the week after this monthly post. However, I don’t feel the urgency to do so this time given the fact that I’m ahead of the pace needed to achieve my annual goal. I need to average $100/mo. for the final three months of the year to reach my $1,800 target.
Once again, I still have my CELG shares, and some Bank OZK (OZK) shares (not part of my dividend Portfolio) to write covered calls against. Based on current prices, I’d like to have the CELG and OZK shares move up before I write another call option for either of them. I could see writing a covered call on some of the HBI shares in my dividend Portfolio as well should they climb to around $20/sh.
For put options, I’ve been thinking about one for D.R. Horton (DHI), as I wouldn’t mind adding some of those shares around $41. This would be a stock that I haven’t previously written any options for. Of course, a put on CMCSA remains a possibility considering it’s worked well for me in each of the last 5 months.
Summary
As we enter the final quarter of the year, I feel good about my prospects for reaching my annual goal. This month, I stayed on track with a just a couple of options being able to deliver the target monthly income I was looking for.
If you buy or write options, what stocks do you find yourself going back to on a regular basis, and why? I look forward to your comments.
Nice update ED, and interesting timing on the CMCSA put as they had a pretty big drop today after winning the auction over the weekend for Sky.
Do you have a breakdown on how much of your option earnings have come from calls vs. puts? I am asking because I could see myself using puts to build positions that I’d like to add to at a certain price, and be able to collect the premium if my price is not obtained. I don’t have a lot of positions with 100+ shares yet so doing covered calls would give me less opportunity right now.
Hey DivvyDad. I was aware of the date for upcoming Sky auction when I wrote the put. I’m usually on the lookout for events that might move the stock, such as earnings announcements, as well as ex-dividend dates if the stock pays a dividend. About a week or so ago, I got confirmation that my CMCSA put option was slated to expire the day before, so I let it expire rather than close it early in order to secure all of the premium. Good timing for me with regard to the auction.
As for the calls vs. puts breakdown, I do have some numbers. So far this year I’ve written 26 options – 7 calls and 19 puts.
Of the 7 calls: 5 expired, 1 was closed, and 1 was assigned. The 5 call expirations led to $298 in income. I realized $2 on the closed call.
Of the 19 puts: 11 expired, 3 were closed, and 5 were assigned. The 11 put expirations led to $844 in income. I realized $189 on the closed puts.
I’ve realized $166.90 on the assignments.
Your thinking on the puts aligns with mine. One downside to the puts is the amount of cash you need to reserve for the duration of the open option. Of course, you could trade on margin to reduce the cash outlay, but my puts are all cash-secured at this point.
Writing calls are great (no cash outlay), but having a minimum of 100 shares isn’t doable at times, especially for a high-priced stock. Of the 41 stocks in my dividend Portfolio, I have 100+ shares for only 25 of them.
Thanks for the question!
I’m apprehensive to utilize margin, and would prefer to reserve the cash in the account in the event that the put is assigned to me. It might be a good way to use some of my cash reserves that are in an online savings account now. Time for me to start doing some research on options with Fidelity.
Thanks for the breakdown of earnings between the calls and puts as well, very informative!