My Option Odyssey: Personal Experiences, Numbers, and the Path Forward after Year One

[larix.aurea]

Hi @Jaime

Since all my options expired worthless last Friday, I sold some new CSP today. Having approximately USD 51,200 in my options trading account, I know that the added strike price of all contracts x 100 must not exceed that amount. So there is no need to actively follow anything, since I do not use margin and I would be able at any point to buy the stock if I were to be assigned.

As you can see in the attached screenshot of my spreadsheet, I sold three contracts today with a combined strike price of USD 46,050. With that, I put around 90% of my cash “at work”, with no need to monitor or do anything until Friday, 12 July.

Edited graph:

[Jaime]

hmm, the screenshot is confusing to me. The expiration date is before the entry date and the exit date is in the future.

But anyway, I kind of get it. You have all three positions open at the same time. So no management until expiry and the Monday after Friday expiration, you enter 3 positions again at the same time. Am I understand correct?

It would be more complicated if all your positions are not entered and exited all at the same time. For example you sometimes choose to close one position earlier. Or sometimes you got assigned. Then your deployed capital fluctuates.

[larix.aurea]

@Jaime

The expiration date is before the entry date and the exit date is in the future.

Edited the table.

[larix.aurea]

Just received my final tax assessment for 2023 and I’m happy to confirm that I’m not considered a professional trader!

[Absinth911]

If the goal is supplemental income and you are afraid to be categorized as Pro, have you ever considered covered call ETFs like JEPI?

I have no prior experience with these kind of ETFs, so just genuinely curious. Do the tax authority see the distributed proceeds as dividends or proceeds from options sale?

[Tony1337]

Every single jepi distribution is classified as income.

You‘ll basically turn tax free returns of the s&p 500 into taxable distributions.

Unlike real options, that are tax free for us.

[Your_Full_Name]

If your goal is to minimize taxes and you’re interested in additional income and you aren’t afraid of trading options yourself, yeah, then maybe JEPI is indeed probably not the right vehicle for you.

Surely it’s less advantageous from a pure tax perspective. But if you were looking for additional income – as suggested by @Absinth911 – but were also afraid of trading options yourself (IMO unwarranted), then a 12-month rolling JEPI dividend yield of 7.55% is perhaps more attractive than the S&P’s currently paltry 1.23% yield for additional income?

Not recommending JEPI in any way, just saying that I would always look at things holistically from the the POV of the individual investor’s needs.

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* Sure, you could sell parts of your (probably better performing) S&P 500 holdings for cash flow, but personally I wouldn’t classify this as “generating supplemental income”. YMMV, of course.

[Tony1337]

But why would anyone do this, just to generate “income”. It‘s only income on paper.

It just does not make any sense in any capacity. The yield is basically fake that you get with covered call funds + you just waste money to taxes.

[Your_Full_Name]

Ah, to live off the income – not on paper, but actually in your brokerage account – with less volatility than selling your principle would be my reason.

YMMV, of course.

[larix.aurea]

My second year as an options trader was successful until it suddenly wasn’t … but here’s what happened in more detail:

In 2024, I sold 75 contracts (14 calls and 61 puts) and was assigned 12 times. The average strike price was $170 and the average contract duration was 7 days (20 days for the stock I was assigned and able to sell later). Still at IBKR, the average contract cost was $1.05.

The lowest premium in 2024 was $40 for 1 GOOG 12Jan24 132 P, while the highest premium was $1,308 for 2 TSLA 28Mar24 165 P (which I closed for $30 eleven days later).

All trades were cash-secured within a USD 50,000 portfolio. From 1 January to 21 October I was up USD 14,400… I felt very smart, but then – suddenly – the wheel came to a screeching halt when I was assigned 300 AMD in quick succession (at $149.33 on average) and 100 KO (at $65), which I still hold at a current book loss of USD 8,800 (ignoring other trades on the same underlying). This is the exact result for 2024 as of 31 December (in USD, combining premiums and capital gain/loss):

Ticker	Result
NVDA	4’091.06
GOOG	3’136.63
TSLA	2’776.44
IWM	1’476.78
CRM	1’058.47
AMZN	491.74
UNH	219.40
ABBV	99.94
MSFT	99.75
AZN	70.05
SONY	67.65
KO	-103.06
AMD	-7’021.19
TOTAL	6’463.66

I was made aware of the risks associated with options trading in this thread and I knew this could happen at any time. But despite this turn of events, the Internal Rate of Return of my options portfolio in 2024 was 24.4%, still higher than the IRR of my ETF portfolio (21.4%). These values are in my base currency (Swiss Francs).

My plan has been to move $5,000 from the options portfolio to the ETF portfolio every time it would reach $55,000. Starting the year with a balance of $56,500, I withdrew $7,300 in January, $5,000 in June and $5,600 in September. Now, I’m left with $3,400 in cash and $42,500 in AMD and KO.

So, what now? My plan is to wait for AMD and KO to recover (I am quite optimistic as both stocks have a price target well above my purchase price) and then to reassess what to do next: continue writing options or move everything into ACWI.

I’d be very interested to hear how your year in options went and/or what you would do in my situation.

[gaijin]

@weirded

I ended up with mine.

Thanks for sharing. I just looked at it and saw no new entries since Sept 24. Have you stoped options trading or switched to a different document?

[weirded]

Hi @gaijin,

The Google sheet is still current.

I’ve put the strategy “on hold” for the moment for a few reasons:

On one hand, my 2024 balance (65 trades) is currently negative, due to a single trade that turned out unsuccessful. I’ve included a summary of the trades in the table below for better clarity.

As you can see, due to the current valuation of INTC (which I was assigned on 06.05.2024 - and still hold), the current result is approximately -$1,000.

On the other hand, I had to withdraw the cash covering the puts for necessary lump sum expenses, so I’m not in a position to write further cash-covered puts - at the moment.

Finally, I didn’t have time during the last quarter of the year to monitor the market and look for securities I’d feel comfortable playing with. I plan to re-evaluate the situation in the first quarter of 2025.

I’m also considering whether to ‘try my luck’ with put spreads on cash-settled options. As shown in the table, I tested this once with SPXW and made a small gain. However, cash-settled options are a different beast, and I’m not sure I want to engage in this ‘lottery’ yet.

By the way, here’s the usual disclaimer that ‘this is not financial advice’…

N.B. I carry out these experiments using my play money ( <5% of my portfolio).

Ticker	SUM of P/L	SUM of Unrlz. P&L
TSLA	$2’138.61	$0.00
IWM	$1’412.56	$0.00
AMD	$768.24	$0.00
AMZN	$691.32	$0.00
VTI	$659.65	$0.00
GOOG	$654.57	$0.00
INTC	$632.20	-$8’780.00
UNH	$231.04	$0.00
META	$192.95	$0.00
CRM	$186.95	$0.00
SPXW	$145.00	$0.00
VWO	$68.91	$0.00
Total	$7’782.00	-$8’780.00

[gaijin]

Thanks for the reply!

@weirded

look for securities I’d feel comfortable playing with

I guesst that’s one of the cruicial points to find and stick with securities. At least as long as you have a full time job plus friends and family.

[larix.aurea]

@gaijin

At least as long as you have a full time job plus friends and family.

I have all three…

Usually, I would spend about 1-2 hours per week for the options trading. I have a watchlist of about 15 stocks. I pick the underlying based on current price action, volatility and earnings dates.

[hippo]

Interesting strategy but not sure how sound it is long term.

You have a big left tail risk for a more limited upside. Maybe you collect 15% a year but when one stock goes wrong (like AMD) and you get assigned your entire portfolio, you suddenly have a huge risk if the stock tanks and you can never offload it. All that risk is concentrated in one stock so you lose the entire free lunch of diversification.

And fee drag will be pretty poor compared to the boring but sensible buying and holding an index fund.

[almi]

@larix.aurea

My plan is to wait for AMD and KO to recover (I am quite optimistic as both stocks have a price target well above my purchase price)

Wonder whether these price targets show any correlation with reality. Doesnt make sense from a efficient market perspective (especially since those price targets are public information).

In my eyes this is just fortune-telling.

[gaijin]

@larix.aurea

I have a watchlist of about 15 stocks. I pick the underlying based on current price action, volatility and earnings dates.

I am starting to compile such a list. I started of with the companies in the Dow Jones index. Any insights you are willing to share regarding details of how you assess price action, volatility and earnings dates?

[larix.aurea]

@hippo

You have a big left tail risk for a more limited upside. Maybe you collect 15% a year but when one stock goes wrong (like AMD) and you get assigned your entire portfolio, you suddenly have a huge risk if the stock tanks and you can never offload it. All that risk is concentrated in one stock so you lose the entire free lunch of diversification.

True. AMD is now by far my largest stock position and the risk is definitely there. Perhaps I should add that the options portfolio is between 1.5-2% of my net worth, so no existential threat even if they go bust.

@almi

In my eyes this is just fortune-telling.

Probably. But basically you cannot go wrong with KO and I see some potential with AMD. Let’s see how things develop. I will keep you posted…

@gaijin

I am starting to compile such a list. I started of with the companies in the Dow Jones index. Any insights you are willing to share regarding details of how you assess price action, volatility and earnings dates?

It’s really just gut feeling and risk appetite of the day. So I wouldn’t dare to give any financial advice to any of you.

[gaijin]

@larix.aurea

I sold 75 contracts (14 calls and 61 puts) and was assigned 12 times.

Did you ever buy the contracts back when it was clear that you would be assigned?

I just looked at the details of my own options trading with VT and realized that buying back contracts is quite expensive. But I’m not sure yet if it’s cheaper to buy back the contract or be assigned the stock and sell it again immediately. (I know this would be a different strategy than you are doing.)

[larix.aurea]

@gaijin

Did you ever buy the contracts back when it was clear that you would be assigned?

Yes, on 6 occasions I have rolled a contract that was running against me before assignment, allowing me to get a lower strike price and a later expiry date. If the put option is not too much in the money already, this can be done at virtually no cost (or rather at the opportunity cost of not being able to earn a new premium).

But I have never bought back a put just to avoid assignment. Towards the end of a contract, the time value goes to zero and the price of the option equals the difference between the stock price and the strike price.