Cheesy Finance 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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Cheesy Finance 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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Cheesy Finance 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.

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:

Blogroll of 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:

Stock Option Process Chart

Stock Option Process Chart. Source: http://investintowealth.com/wp-content/uploads/2015/02/Stock-option-process-chart.jpg

  • 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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