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

Well, things will be a bit different this month, as I’m away from my primary computer, and don’t have access to my normal options spreadsheet.  Thus, I won’t have any spreadsheet clips to share with you.  Luckily, my options activity was minimal this month, so even though I can’t share my usual clips, you won’t be missing much.  Hopefully, things will be back to normal next month.  I’ll try to do my best to fill in the blanks.

I didn’t carry any options into the month, and I only opened one option for October, a put option.

The option number was #27 in my table (you know, that one you don’t see).  The details on this option are in the sections that follow.

 

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 ventured into writing an option for a new stock this month.  I wrote the put option for residential homebuilder D.R. Horton (DHI).

Option #27 – PUT DHI (D.R. HORTON INC) $42 EXP 10/19/18, premium = $105 (after commission)

At the time I wrote this option, DHI was trading for ~$42.10… just out of the money… less than 0.25% above the strike price.

Should this option expire out of the money, the $105 premium I collect on the $4,200 I must reserve for the 25 days to expiration in case of assignment, would translate to an annualized yield of 36.5% on that money.

Should this option be assigned to me, the $105 premium would reduce my cost basis on the acquired shares, resulting in a purchase of 100 shares at a cost of $4,095, or $40.95/share (prior to any commission).

 

Now let’s see what happened with this option.  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 did not Close any options this month.

 

Expired Options

I did not have any Expired options this month, either.

 

Assigned Options

So, you know what that means… my lone put option was Assigned.

Option #27 – PUT DHI (D.R. HORTON INC) $42 EXP 10/19/18, premium = $105 (after commission)

A little over a week after I sold this put, DHI’s stock price started dropping, pulling back along with the rest of the market, and it didn’t take long for this put to be in the money.  Concerns over rising interest rates and a slowing housing market contributed to the slide.

It only took about 10 days for DHI to drop over 10% in price, putting it deep into the money, and this was enough for the option buyer to exercise his/her right to assign the shares to me.  The assignment took place on 10/12 – a whole week prior to the option expiration.

I could have saved myself some dollars writing this put just 2-3 weeks later than I did.  However, I can’t predict the market.

I don’t mind having to purchase DHI at the price I did, as I think it will be a good investment in the long-term.  This was part of the reason I didn’t try to roll the option into the future.

I will most likely add DHI to my dividend portfolio.  It’s pays a small dividend of 1.45% at its current price.

 

Options Income

So, needless to say, a quiet month on the options front for me, despite all sorts of noise with the market.

Since my only option was assigned, I don’t have any October options income to add to my 2018 total.  A big $0 to report.  My first such month in 2018.

After a good couple of months in August and September, I came nowhere near my $150 target for October.  As a result, my 2018 options total stays at $1499.90, and now essentially leaves me on pace to hit my 2018 goal of $1,800, instead of being ahead of pace.

Here’s a breakdown of the 2018 options income by month… you’ll have to mentally record 0.00 for October since I don’t have access to my spreadsheet!

 

 

Last month, I was confident that I might hit my $1,800 goal for 2018, but after this month I now have my doubts.  I need to average $150/mo. for the final two months of the year to reach my $1,800 target.

I don’t have any Open options that I’ll carry into next month, and I’ve been using available cash to add to various dividend Portfolio positions.  This buying means less available cash for writing cash-secured put options.  In addition, given all the price declines for stocks in my Portfolio this month, I don’t suspect I’ll be interested in writing many covered calls on my existing shares, as I don’t want the threat of having to sell at depressed prices.

 

Summary

A quiet month, with no options income to report, has left me with an 2018 option income goal that now hangs in the balance.  I’ll have to get creative, or take some unusual risks, if I’m going to find way to deliver the necessary income I need to reach my goal.

 

How has all this market volatility impacted your options trades?  Do you adjust your strategy to fit the current environment?  I look forward to your comments.