Today our portfolio moved higher to one of our top twelve prints (each morning I download the value of our positions to update my spreadsheet model) and, as the value of underlying businesses rise, the value of the put options we’ve sold decreases. Our high-tech farming business AppHarvest (APPH) moved the other way – so our limit order to repurchase the covered-call option (strike: $20; expiration: 7MAY2021) was filled to close the position netting $48.63.
We also have exposure to the downside risk of APPH through three put option contracts we sold. I like the potential of growing vegetables in large greenhouses using hydroponics and other advanced technologies. If we add to our APPH position through these puts, our cost basis for the next 300 shares will be $10 less than the 200 shares we currently own.
Cloudflare (NET) moved substantially after announcing it would partner with NVIDIA to “bring AI to the edge at scale.” Whatever that means. To us, it effectively erased our losses on the 100 NET shares we own and our limit order filled to close the put option contract (strike: $60; expiration: 7MAY21) I had sold just six days ago. We netted just $48.63 on the trade, but 0.8% on our $6,000 capital collateralized by the trade. If we were able to repeat that trade every week of the year, this trade would earn nearly 50%. I also took the opportunity to sell a covered-call option contract (strike: $85; expiration: 23APR21) on the strong NET price action.
Our Datadog put option contract (DDOG; strike: $70; expiration: 21MAY21) was also closed, after just six days of exposure, to net $68.63 or one percent of the capital required to collateralize the trade. Our Unity Software put option contract (U; strike: $85; expiration: 21MAY21) was also closed after six days of exposure to net $88.63 and one percent of collateralized capital.
All three of the businesses whose put option contracts were closed today have volatile trading history and operate in exciting industries. I’d like to own small stakes in each. We’ll sell puts when the market presents profitable opportunities.