We are not perfect, will Mrs. CF is of course (yup, I’m in need of brownie points), but I’m certainly not. Ignoring (many) mistakes on a personal level, which mostly don’t involve financial issues, financial mistakes were definitely made too. How did I screw up, why and what are the lessons learned? Here are my investment mistakes!

My Investment Mistakes

We were having a chat in the FIRENL slack group (which is surprisingly addictive and popular; all in Dutch) about investment mistakes. It was good to read that I was not the only one, but it made me realize I had my fair share of financial screwups. Most of them due to being arrogant and misinformed. Most of them also because of a short term vision. But also some because they don’t match my psychological profile. Let’s have a laugh (& cry) here shall we?!

My investment mistakes

My investment mistakes

Sprinters

Back in 2009, when we had moved abroad, I still had some money in a savings account. Because we didn’t need this money at the time, I decided to play around with this money on the stockmarket. This was mistake 1. I bought and sold some shares, which worked out okay but did not make much money. I got arrogant thinking that when I could make a little bit of money, I could also make more! This was arrogant mistake 2. I started trading with leveraged products (ING Sprinters). At the beginning I lost some, won some, lost more, won a little, and lost a lot!

Total damage: ~€9.000. I didn’t return to the stockmarket for about 6 years!

Moral of the story, don’t daytrade and definitely not with leveraged products. The chances of losing money are a lot bigger than making money in the longer term. Buy-and-hold rules! See also the graph below, and I was way worse!

High Dividend Yield

At the beginning of developing our dividend portfolio (2015-2016), I still needed to learn a lot. Based on the above I had somewhat learned to look at a longer period to invest (and not use leverage). But what I didn’t learn yet was to remain critical and not chase dividend yield. I had already seen several stories about dividend growth and it’s longer term return on investment “miracles”. So somewhat wisely I did pick the majority of our shares with a chowder rule of >12%, low(er) PE ratios and acceptable payout ratios.

However, when companies pay a very juicy +7% I did get tempted…….. and I got burned. The companies I bought were often cyclical in nature but well established. However, their business models were under attack due to changing market conditions, their debts were high and their earnings per share under pressure. The yields, as appealing as they seemed, were not sustainable. I’m talking here about NewAlta (NAL), Liquor Stores (LIQ) and Corus Media (CJR.B). So, I took my (our?) losses and moved on to other actual dividend growth shares.

Total damage: ~€5.000

Moral of the story, do not chase yield. It will lead to financial losses in 9 out of 10 times. Look for the companies that grow, have a solid business model and have lower payout ratios (so they can continue to keep paying your dividends).

My investment mistakes

My investment mistakes: I’m a loser sometimes! Pun intended 🙂

Options Trading

During a FIRE meetup in Antwerp I was introduced to options trading. The supplementing investment strategy that I found interesting was writing put options and collecting the premiums. Owning some dividend shares during a bull market, this seems like a good idea for some extra yield.

Wisely I started small to get a feel for how this option trading works. You can still find some of the option trading update posts under the “options trading” category in the side bar. However, I made and lost some money on the options again. Sometimes due to share price fluctuations but mostly due to the desire for (high) yield. I started to take more risks to recover losses I made. After a substantial market correction for some shares (which today have actually recovered!), I ended up losing my shirt.

Don’t get me wrong, you can make very good money with trading options, but you have to be consistent and stay calm under pressure. My psychology simply does not allow for that. I keep staring at that screen with red numbers and don’t feel well. I also don’t like the pressure of the unknowns that affect these option prices and movements in time. It’s not an investment method that works with who I am and how I work mentally. I simply felt very uncomfortable with this investment method. So I did what financially was not a smart decision, but psychologically was the best; I sold everything and moved on.

Total damage: ~€4.000

Moral of the story, do try different investment methods to find what works for you. But start small and as soon as you see that you get carried away, stop! Limit your losses and move on to an investment type that works better with your psychological profile. It will ultimately make you a better investor and a happier person.

Conclusions

I’m one of those people that has to try different things, to fail, get up and move on. I could have avoided many costly investment mistakes if I would just be true to myself and would have listened to others. I’ve been too arrogant and thought that I could chase yield and get away with it.

In contrast, Mrs CF is far more sensible and has not made any of these investment mistakes. She was the one that liked the real estate and initiated the first two property purchases, which have only made us money to date.

That being said, these personal lessons learned have gotten us to a mixed portfolio consisting of real estate, dividends shares and index funds. It might not be the best yielding investment portfolio, but I’m now comfortable with these investment, their price fluctuations and risks. I’ve also finally learned to look for the longer term and stop chasing high, unrealistic, yield. Furthermore, I won’t make the same mistakes again either! I’m happy with where I (and we) am (are) today.

 

How about you? What mistakes have you made? What did you learn about yourself and how you invest?

 

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Options Trading

In the same trend as July, the August 2017 Options Trading Update is not a positive one. I had to do lots of option rolling to later dates/other strike prices (or both). Let’s have a look at this ongoing options experiment.

August 2017 Options Trading Update

The options trading income for August was -€99,25. Oops again! The loss came primarily from put options. The reason for this negative options trading report is, once again, because I had to roll various options to a later date and/or different strike price. They were all in the money and share prices had moved “too” much to let them expire. I would have bought or sold shares at prices far from what they were worth. Neither is a good idea.

Options that were particularly painful are those from AH and VPK. Both shares heavily fluctuated in the month of August, and not in the right direction I might add. On that note, the value of our AH shares is down by more than €2600.00 since June! This makes our loss in options trading a drop in a bucket. Then again, could be worse.

August 2017 Options Trading Update

August 2017 Options Trading Update

Below is an option trading overview for 2017, which provides the monthly and total YTD incomes (or “expenses”……). So far the options trading generated a total of €180.00. We are still in the black and with the potential to make more premiums, but not until (much) later this year…..

Monthly Options Trading Income

Monthly Options Trading Income

Options Trading Forecast

The forecast for the immediate future is not very good either. We will likely make a paper loss again in September, and you already know the culprit: rolling options. We now have quite a few open option (about 14) with expiration dates in October and December (and even in 2018!). Some might expire worthless, others may need to be rolled again!

To put this all into perspective, and if I would not trade going forward, the “losses” for September are likely about €160. This would mean that all profits from the pervious months would have all but disappeared. On the other side, if all open options were to expire worthless, the total premiums would be about €1.370.

Guess I’m too greedy (read: “emotionally unstable” 😉 and want all options to work out well, which is not going to happen. Its likely that I have to take various losses at some point and move on. The last few months of options trading did teach me a valuable lesson, I like Real Estate better! I also prefer stock market options that do not involve “me”. With the latter I mean making a dividend portfolio or purchasing ETF’s on a monthly basis.

 

How did you do on the options trading front in August? What do you think about my option adventure?

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Options Trading

All that cycling is nice, but it’s a killer from a time perspective (+8 hours this week so far)! Struggling to find the time to sit down and go through all the options I’ve traded in the last weeks. But got it done! So here is the July 2017 Options Trading Update.

July 2017 Options Trading Update

The options trading income for July was, ahum, -€170,00. Oops…It was from both call and put options. The reason for this negative options trading report is because I had to roll various options to a later date and/or different strike price. They were all in the money and share prices had moved “too” much to let them expire.

I had a discussion with Amber Tree Leaves as how to report, he reports once the option is finally expired/closed, even when rolling a few times. I decided to report once an option is closed (or expired) at every trade, even as part of rolling an option. Gives me a better insight in what happens, but it does cause more fluctuations in update reports.

July 2017 Options Trading Update

July 2017 Options Trading Update

Below an option trading overview for 2017 is provided with the monthly and total YTD incomes. So far the options trading generated a total of €279.25. So we are still in the black and with the potential to make more premiums, but not until later this year…..

Monthly Options Trading Income

Monthly Options Trading Income

Experiences and Notes

Based on the last 4 months I’ve learned the following:

  • I suck at this! Primarily because I do not stick to my own rules. I have an (unstoppable) tendency to try to time the market, which sometimes works but most often not;
  • Options are however great instruments to increase your yield, when you are disciplined;
  • I really need to switch trading platforms if I want to be successful in the longer term (need broader selection of dividend shares to write option on); and,
  • I’m inclined to (temporarily) stop options trading as soon as we have found more Real Estate. I’ve noticed that I focus too much on market movements, which is not possible with Real Estate. In short, mentally RE takes less effort and results in less “stress” (for lack of better words).

Options Trading Forecast

There is a good chance that August and September will be (much) more profitable again. Especially for September we have several trades that are doing well, but the market could change in a heart beat. I think for the foreseeable future it’s not a bad idea to load up on more call options, rather than put options. Problem is that we have quite a few put options right now, for which I’m afraid I will have to roll (again).

Another thing we have to do is develop an exit strategy for options trading if we would find a new Real Estate opportunity, within the next few months. For what we are planning now (looking at a condo we can purchase in cash), we will pretty much need to liquidate all our Dutch investment accounts.

 

How did you do on the options trading front in July?

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Options Trading

I’m not very good at getting these options trading updates out on time. Probably because I don’t have a good system yet to update my trades automatically into a spreadsheet. Doing this work manually is a pain in the @$$. But with some perseverance one can come a long way, so here is the (belated) June 2017 Options Trading Update.

June 2017 Options Trading Update

The options trading income for June was a €142.50. Interestingly enough this was all derived from writing call options. Guess the market went down a bit in June (or at least the shares I chose to write options for).

June 2017 Options Trading Update

June 2017 Options Trading Update

Below an option trading overview for 2017 is provided with the monthly and total YTD incomes. So far the options trading generated a total of €449.25. This totally blows my mind, never expected this type of return from options trading within the first 3 months. How long can this winning streak continue (spoiler alert, not very long)?

Monthly Options Trading Income

Monthly Options Trading Income

Experiences

Based on the last 3 months I’ve learned the following:

  • I’ve noticed that I use options too much for “day trading”. This can be good sometimes, but I noticed that I prefer a more passive approach to options trading;
  • Need to learn to look more at a 1-3 month window;
  • Also need to be more picky in the option premiums I select;
  • I’ve only been trading options in about 5 stocks on the AEX, to make this options trading work for the longer term I would need to switch to a different broker and be able to trade US stocks as well (need a broader selection);
  • Options trading is fun, but can be challenging to make correct judgments on strike price and premiums (see notes above); and,
  • It takes more effort than I realized (rookie issue perhaps).

Options Trading Forecast

Ok, the forecast for July is not very good. Actually I’m going to be losing money this month (on paper any ways). Due to the violent swings in Ahold (downward…) I was “in-the-money” with a put option and had to roll the option to the end of the year to get back into the black. But because I report closed trades for each month, I’m going to incur some losses in July that will hopefully recover later in the year.

I’ve also had a similar issue with a call option for ABN, but this went to other way around. I don’t want to have the ABN shares for the long run (bought for the dividend and some speculation) so I want to close this position with a profit. However, I would like to do this with as much profit as possible. So I rolled the (still) in-the-money call to the end of the year and (hopefully) have the option being exercised for a higher strike price. In this way I will get the premium and a reasonable return on investment based on the purchase price of the shares and the dividend it generates for this year. If the option is exercised I should make a ROI of about 8% in about 7 months. Not bad, right? If not exercised I could still sell the shares or continue to collect premiums with writing call options, all depending on the share prices……. there are many “options” 😉

How did you do on the options trading front?

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Options Trading

Finally had some time to tally up the options trading income for May. I’m pleasantly surprised to be able to report we made some money again! Please find below the May 2017 Options Trading Update.

May 2017 Options Trading Update

Slowly getting a better feel for options trading and the risks and opportunities associated with it. Still not trading on a non-cash secured margin. Not my style! The options trading income for May was a very respectable €176.75.

May 2017 Options Trading Update

May 2017 Options Trading Update

See below for an option trading overview for 2017. We are already well over €300, that completely beats my expectations!

Monthly Options Trading Income

Monthly Options Trading Income

 

As you can see, we traded various options on Boskalis, the stock we bought as a mistake (were aiming for a quick win…wrong!). We were able to recover some of the losses and received the dividend as well last week. Still an overall loss on paper. But working hard to correct and potentially still make a bit of money on it……may be.

How did you do on the options front?

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Options Trading

After a weekend filled with exercise with some new skeelers, and a great frugal Saturday morning breakfast with blue (berry) pancakes (ok, it’s more purple…).

It’s time for the first official options trading update. After being motivated by Amber Tree Leaves, with his passionate presentation in Antwerp, I’ve started trading options as of late March (Mrs CF does not care about this at all). I also wrote up the basics of options trading in this post. But, without further ado, here is the April 2017 Options Trading Update.

April 2017 Options Trading Update

Without a good feel for how this work, no clear strategy and just wanting to have some fun. I’ve started full steam ahead (smart? probably not). However, we actually ended the month with a bit of money made! The options trading income for April was €130.

See below for an option trading overview for the  month of April.

April 2017 Options Trading Update

April 2017 Options Trading Update

Monthly Options Trading Income

Monthly Options Trading Income

The Options Trading Strategy

As noted earlier, there was no real strategy for options trading so far (other then a few high level ideas outlined in the initial post on options trading). Primarily as I was trying to find out what works for me and what I feel comfortable with. But I think I have found some rules that I should trade by:

  • Only trade options with stock you don’t mind owning, or better, actually want to own;
  • Use limit orders to write both puts and calls
  • Make sure the strike price is about 5-10% from trading value of that time
  • Trade with expiration dates of about 30-90 days in the future
  • Roll options within 10-30 days from the expiration date if you don’t want to be assigned the shares just yet
  • Accept an assignment of shares if the strike price is acceptable, and turn around to collect both dividend and write call options
  • Trade often and trade small
  • Develop a specific strategy for the stock/options and stick to it!

Oops….

Actually already ignored the above last week and bought/traded options on a share of a company I could normally not consider….. Boskalis (a maritime service provider). Their ex-dividend date was May and it pays a nice €1 per share (it’s a yearly dividend payer). They are not doing so peachy at the moment, and were punished in the stock market by dropping around 10%.

I thought to be smart and bought before the ex-dividend date at a relatively low price for that day. But then in the next week it plummets another 7%…ouch. I’m therefore now trading call options on this stock to recover from the loss in share value (even after the dividend payment is included!). It is going to take some time for this (paper) loss to be corrected with options trading. Dump move, as I don’t want to own this stock for the long term.

The moral of this story, stick to your own trading rules! A quick win can bite you in the a$$ and turn around into a loss really quickly.

Any trading mistakes on your end? How was your options trading for last month and this?

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After Amber Tree Leaves gave a passionate presentation during the BENL FIRE meetup in Antwerp about options trading, I got interested in this trading method. Based on the presentation, we made the decision to only write options in an attempt to either:

  1. purchase additional dividend shares (via put options)
  2. try to earn some extra money (in addition to dividend) on dividend paying shares (via call options)

Options writing

I’m not going to write an entire tutorial here with regards to options, but here are a few useful sites if you are interested.

Options Trading?

Options Trading?

For the Dutch among you that want to understand the basics:

https://beleggenmetplezier.nl/opties-uitgelegd/

https://www.aex.nl/beleggen/begrippenlijst

For those of you that want to go into a bit more detail (both are in English):

http://www.investopedia.com/articles/active-trading/040915/guide-option-trading-strategies-beginners.asp

http://www.investopedia.com/university/options/

A great blogroll for options trading can be found here:

http://www.optionshunting.com/blogroll-options-traders/

Short options summary

What’s important to realize is that there are 2 “types” of options. You have “call” and “put” options. The differences are as follows:

  • Call options: These options give the buyer the right (not the obligation) to purchase the shares of the underlying asset at the predetermined price on or before the specified date.
  • Put options: These options give the seller the right (not the obligation) to sell the shares of the underlying asset at the predetermined price on or before the specified date.

You can buy and sell both call and put options. Giving you 4 ways to trade options. The chart below gives you a visual indication.

The other important thing to consider is that when you write options, you can earn a premium as you take the risk that you have to either buy (put option) or sell (call option) the underlying shares (usually at 100 shares per contract) at a given price (the strike price).

This writing of options and collection of premiums is what we are after.

Initial trades

We bank with the ING and also have our trading account with this bank. This is temporary as we may eventually move to an actual broker such as DeGiro/Binckbank/Lynx/Alex at a later date to keep trading costs in check. DeGiro actually has a nice overview of trading costs of the various Dutch  brokers.

With the ING we are only able to trade options at the AEX (Amsterdam Stock exchange). Here is a list of the options we can trade:

https://www.aex.nl/koersen/aandelenopties

Not a whole lot of choice but because we are just starting to trade, we are more than happy with it.

This week we wrote a total of 8 contracts, 6 puts and 2 calls. The puts were on AH, RDSA and VPK; the calls on UNA. An overview of the options we traded can be found below.

Options Trading Overview

Options Trading Overview March 2017

Potential outcomes

With the above noted options we have a “best case” and “worst case” scenario.

The “best case” scenario is that we earn all of the received premiums (about €577) and our holiday in April is pretty much paid for. This would be nice for an first attempt at trading options 🙂

In the “worst case”, when all contracts are exercised and we have to buy/sell all shares at the various strike prices, we suddenly own about €16.300 in additional shares of AH, RDSA and VPK. But we would get about €9.300 in cash and lose all our UNA shares (making about €2000 in profits along the way due to the UNA share price increase since our purchases).

The final results will be somewhere in the middle. We might sell a few of the option contracts if we are happy with the profits made. And perhaps some will be exercised and we will receive some more dividends in April, May and/or June. These are the upcoming dividends payment dates for VPK, AH and RDSA respectively.

Time will tell! But I’m definitely are having fun trying this new trading method. Just need to get a better feel for the risks, prices and define our buy and sell strategies. Any tips of tricks are more then welcome!

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