Today Cloudflare (NET) shares are down more than 3% to roughly $70 per share. Our outstanding covered-call option contract (strike: $80; expiration: 30APR2021) was closed on a standing limit order for $50. We netted $68.62 over the nine days we held the short position. Our 100 NET shares are down more than $19 per share but we’ve earned $850 on six covered-call contracts. If we can sell our next covered call for $0.80 per share on a contract with an $80 strike we’ll break even on the NET trade.
2021.04.07-04.09 Catching Up on a Few Days of Trades
On Wednesday, April 7th, our short position in a DataDog (DDOG) put option contract (strike: $65; expiration: 21MAY21) was closed to net nearly $50 two days after it was established. Though we only netted a 0.7% return on our collateralized capital it was a quick profit and I sold another DDOG put option contract along with five other options on 7APR21. Our new exposure to DDOG is through a contract with the same expiration date but a strike five dollars higher.
DDOG shares traded for less than $83 on 5APR21, when we sold the newly closed contract, and traded up significantly between the day of initiation and closure. On 7APR21, when we initiated the new DDOG contract, DDOG traded around $88.60. Today, 9APR21, our new strike, $70, is still 19% below the market.
April 8th saw three of our option contracts close: an AppHarvest (APPH) covered-call and two cash-covered puts – on BlackLine (BL) and Fastly (FSLY).
The APPH call (strike: $20; expiration: 16APR2021) was an aggressively priced order to liquidate recently acquired shares. Our APPH shares were distributed via a cash-covered put I had sold and I’d like to move our exposure to APPH to tax-exempt accounts.
The BL contract (strike: $90; expiration: 21APR21) netted $143.62, or 1.6% over 15 days. BL is a recommendation from one of our newsletters and we took advantage 7% drop in shares and subsequent recovery.
Source: MarketWatch.com
The FSLY put option contract (strike: $55; expiration 7MAY21) was a very aggressive closure that netted just $38.63. We held it for just one evening and it returned 0.7% on our $5,500 collateralized capital. Because we also hold 200 shares I wanted to limit our exposure and the annualized returns for this trade were more than 250%.
Today, our short position in a covered-call option contract (strike: $210; expiration: 21MAY21) on Appian (APPN) shares was closed to net $78.62. I’d like to liquidate part our exposure to APPN but I’ll take the nearly $80 and sell another covered-call option contract after APPN shares rally. We held the short exposure to the APPN contract for nine days and expiration was six weeks away. By holding the short exposure to the contract for 20% of time from initiation to expiration we earned 49% of the contract premium. We’ll sell another APPN covered-call option contract when the market presents a profitable opportunity.
2021.04.01 Catching Up on a Busy Week in Our Option Position Portfolio
At the start of last week our portfolio had short exposure to eleven put option contract positions and one call option contract position.
Remember, we consider short positions on put option contracts as selling downside insurance to shareholders of businesses we’d like to own at a lower price level; short positions on call options, covered-calls – our margin-free account requires us to own shares before selling a call, earn an extra dividend on our holdings and/or offer a premeditated exit point for positions we’d like to trim.
At today’s open we held short exposure to four put option contract positions and six call option contract positions. The week’s broad market advance provided opportunities to take profits in our put option contract positions and initiate covered-call positions. As I type, the market is at or near an all-time high and our portfolio is up three percent from the prior week.
Monday, 29MAR2021, saw a five percent decline in Square (SQ) shares and so exposure to our sole covered-call option (strike: $260; expiration: 16APR2021) was liquidated as the first transaction of the week. We netted $58.61 and only having exposure to the position for the weekend. Spoiler alert: I sold another covered call on our SQ shares to roll out the position to expire a week later (strike: $260; expiration: 23APR2021).
Source: MarketWatch.com; accessed 5APR2021
The week’s broad advance began on Wednesday but on Tuesday I closed two put option contracts below my target return thresholds. First, I closed a put option contract in Cloudflare (NET; strike: $65; expiration: 1APR2021) to net just a few dollars after holding the position for 42 days. With two days prior to expiration I thought saw this trade as an opportunity to breakeven and write another put at lower entry point. For the same reason I closed our NextEra Energy contract (NEE; strike: $72.50; expiration: 16APR2021) to net $53.61 (0.7% return; 7.5% annualized). NEE is up three dollars a share, or four percent, since last Tuesday so live and learn.
On Wednesday, 31MAR2021, I closed positions in three put option contracts when the market provided the opportunity to realize annualized returns greater than 25%. I remember feeling anxious holding downside exposure and closing these positions liberated $21,000 worth of collateralized cash. The cumulative return on the capital was one percent over two weeks; not bad.
Three put option contracts on Palantir Technologies (PLTR; strike: $20; expiration: 16APR2021) netted $64.87 over 15 days with $6,000 exposed to the trade. A Fastly put option contract position (FSLY; strike: $60; expiration: 16APR2021) generated $53.61 on $6,000 over 13 days. And our exposure to Unity Software (U) through a put option contract (strike: $90; expiration: 16APR2021) netted $103.61 on $9,000; also held for 13 days.
Thursday was the last trading day last week due to the Christian holiday and two more put option contracts closed as the market accelerated ahead of the long weekend. Our Trupanion (TRUP) put option contract position (strike: $70; expiration: 16APR2021) liquidated on our ask to net $98.62 to return 1.4% over our 13 day holding period (39.6% annualized). Pintrest (PINS) shares appreciated nearly ten percent over the nine days we were exposed to the put option position (strike: $55; expiration: 16APR2021) closed Thursday. The PINS trade netted $78.62 on our $5,500 in collateralize capital or 1.4%; 58% on an annual basis.
Source: MarketWatch.com
All of the companies to which we have had short put option exposure are high-flyers over the past 12 months whose shares have more recently experienced a significant correction. The market has experienced a rotation away from these companies whose business benefits from a socially distanced economy in favor of more cyclical businesses that stand to benefit as the economy returns to include more in-person services and activities. In this environment I will continue to keep such positions on a short leash and be quick to take gains. Another tactic you may have noticed was the smaller position size and the distribution of capital across more companies to mitigate company-specific risk.
2021.03.24 Two Covered-Call Option Positions Closed
We have no more covered-call option positions. With the NASDAQ down another two percent today our last two covered-call option positions, Apple (AAPL) and Cloudflare (NET), closed today on our standing limit orders, each to be bought for $0.15.
The AAPL call option contract (strike: $140; expiration: 16APR2021) was initiated 9MAR2021 when AAPL traded around $121; with three weeks until expiration, AAPL shares have slightly depreciated over our 15-day holding period but it only required $15.69 to close the trade. We did only net $56.61, but we’ll take it.
The story for NET is more remarkable as shares of NET closed down more than six percent today – but less than one percent lower than where shares traded when we sold the call option contract (strike: $80; expiration: 1APR2021). Again, closed for just $15.69 and we netted $68.61 over our 16 day holding period. We also hold a put option contract (strike: $65; expiration: 1APR2021) that is dangerously close to being in the money and due to expire at the end of next week. If our put option is exercised, I’ll sell more aggressive covered-call option contracts.
2021.03.23 Closed an APPN Covered-Call Option
Today our covered-call option contract for Appian (APPN) closed on its initial limit order. We sold the call option (strike: $280; expiration: 21MAY2021) on 11March2021 for $249.30 and closed it today to net $148.61. APPN was down nearly 4.5% on the day but was about four dollars higher than the closing price when our option was closed. Our limit order to close was the lone bid but I am happy to take our nearly $150 and run with nearly two months until expiration.
I will wait for an up day and sell another covered call option with a strike well out-of-the-money. APPN has been a stunning success for us even though it is down significantly from its high in January. Once our position is classified as a long-term position (for tax purposes), I’ll write contracts with more aggressive strike prices to trim the position. Were our shares distributed via this May 21 contract our capital gain would have been considered long term, but it was well out-of-the-money when I initiated the position. I want a covered-call option contact with an aggressive strike to be short-dated where as the contract closed today had about two and a half months to expiration when initiated.
2021.03.22 Closed a SQ Covered-Call Position
This afternoon our covered call option position on our Square (SQ) stock was closed. This covered call was active just eleven days and we netted $80.61 of the $119.30 for which we sold the option. Nearly four weeks remain until expiration (16APR2021) and SQ would need to appreciate 50% from today’s close, $226, to reach the strike, $340. If SQ has another solid day, I’ll sell another call of a similar expiration.
2021.03.19 Three Put Option Contracts Close in Three Different Ways
Well, two ways, technically. One expired in-the-money and two closed on limit orders but the first limit order was set yesterday, the day I sold the position to open it, and the other I set a limit order to buy on the closing date because of significant volatility of the Underlying stock.
Good news first – the early closure. Yesterday was a brutal day. We must have closed down more than two percent on the day. I did manage to sell three put option contracts as investors sought insurance to protect against further downside risk. Crowdstrike (CRWD) traded down more than 7% yesterday afternoon and I swooped in to sell a put (strike: $160; expiration: 16APR2021) for $224.30. Note I had just the prior day, 17MAR2021, closed a short position in different put contract with the same expiration but higher strike, $165, for $175.69 – netting $198.61 over five days.
Selecting another aggressive exit point, our limit order was filled at the open of today’s trading and we netted a quick $73.61. Our return on the $16,000 collateral required for the trade was about 0.5% but more than 167% on an annual basis. We skimmed some profit overnight and put the capital to work again today. Sixteen thousand dollars is more than two percent of our portfolio based on today’s opening value, and 32.8% of the premium for this contract was returned in less than 24 hours.
Source: Questrade.com; 19MAR2021
More happy news, the two Skillz (SKLZ) option contracts (strike: $20; expiration: 19MAR2021) were likely to expire out-of-the money by the end of today’s trading session. On Thursday, the business did announce a secondary equity offering yesterday and the market adjust the value of SKLZ shares because each outstanding share was now worth a smaller piece of the pie. This morning selling continued as the market opened today, falling from yesterday’s close ($26.30) to as low as $23.65, and I thought it best to close the position while the market would sell two expiring contracts for two cents each. Over 15 days we netted $163.25 on $4,000 in collateral for a 4.1% return (nearly 100% on an annual basis). I sold three more SKLZ put option contracts with April expirations at a $17.50 strike before this position closed.
AppHarvest (APPH) is a greenhouse tomato farming business in Appalachia that became public within the past few months and has had wild ride thus far. On 3FEB2021 APPH traded for $33.92, eight percent below its $36.77 peak (set the previous day), when I sold two put contracts (strike: $25; expiration: 19MAR2021) for $268.62. Six days later, APPH closed at a new high, $38.21 but eventually plunged to close at $16.87 on 5MAR2021. Perhaps I should have set a more aggressive limit order to repurchase the contracts, but I wanted to acquire APPH shares and did so through these put option contracts with a cost basis of $23.66 per share. These contracts allowed us to purchase APPH shares at a 25% discount to the closing price on the date we initiated the put position. I plan to write at least one covered-call option contract on the APPH shares but I’d like to honor the source of our capital by investing in a farming business.
Source: MarketWatch.com
2021.03.18 Closed a MKC Covered-Call Position
Yesterday, 18MAR2021, I decided to close a McCormick (MKC) covered-call option position (strike: $90; expiration: 16APR2021) because it had been within 3.5% of the strike price with four weeks remaining before expiration. These two option contracts had been intended to liquidate 200 MKC shares to move the position to a tax-advantaged account. After our Berkshire Hathaway covered-call option liquidated 100 Berkshire shares on 12MAR2021, we moved that capital to the tax-advantaged account. Effective income for 2021 was thereby reduced by the significant contribution of the Berkshire position and I thought it best to wait to move the MKC position during the 2022 tax year.
All told, we did net $77.25 on the two MKC covered-call contracts for the 22 days the position was active. I will sell another covered call on our MKC shares in 2021 but only if the market presents a attractive terms.
2021.03.17 Closed a QDEL Option Contract Early
Today I chose to close our short position in a Quidel Corporation (QDEL) put option contract (strike: $135) before it was scheduled to expire this coming Friday. We netted just $93.61 on the 23 day position that required $13,500 in collateral (0.7%, 11% annualized), but QDEL has been quite volatile based on pandemic news and demand for related tests and its trading just five percent from our strike.
2021.03.16 Bought BRK to Reassume the Full Exposure
Yesterday, Tuesday, March 16th, our deposit into the retirement account was available to invest and, lucky for us, Berkshire Hathaway (BRKB) shares moved below the strike price of the option we used to liquidate our shares. BRKB closed Friday above $260 per share and we sold the fortunate option owner 100 shares for $252.50. Our purchase of one hundred BRKB shares was executed just less than $251 per share so we actually made about $155 on the transaction in addition to the $125 premium.
After updating our trade record to show the true cost (benefit) of the transaction, our trade netted $279.30 compared to a loss of more than six hundred dollars. Our 2021 trade revenue is now more than $8,000 compared to almost $22,500 in 2020.
2021.03.17 Closed Our CRWD Put Option Position After Strong Earnings
Today our CrowdStrike (CRWD) put option contract (strike: $165; expiration: 16APR2021) short position closed on it’s initial limit order. By setting an aggressive limit order to repurchase the short position, I took advantage of the quick reversal of the option’s fortune. CRWD sold off with many highly-valued tech companies last week but rebounded nicely after reporting a strong quarter after Tuesday’s close of the trading day. Having sold the contract for $374.30, we netted nearly $200 just five days later. I like CRWD and want to add them to the portfolio, but will be content with writing options contracts when they are attractive until we have more liquidity in the portfolio.
2021.03.16 Closed a U Put Option Contract
Today our Unity Technologies (U) put option contracted was purchased to close our position on the limit order I set yesterday after U recovered from its recent dive. U has been on a wild ride since we first sold the contract (strike: $105; expiration: 19MAR2021) on 5FEB2021. We sold the put contract on a day when U traded between $125-140 – down from nearly $160 earlier in the week. While we held the contract U traded as low as $86 but it closed around $109 today as we prepare for the option to expire this Friday.
A $75 premium to close a contract in the last week prior to expiration seems quite expensive but we still earned a return of 1.6% the $10,500 collateral required to cover the position. We narrowly missed the 15% threshold I aim to meet for our option positions but who knows where U will close on Friday.
Source: Questrade.com, 16MAR2021
2021.03.15 Closed a Shortly Held Put Option, DOCU, and Distributed BRK shares via a Covered-Call Execution
Today we had our DocuSign (DOCU) put option contract (strike: $175; expiration: 16APR2021) closed on the standing limit order we set Friday immediately after establishing the short position. We opened the position late during Friday’s trading session and it closed by noon today, Monday. In roughly one trading day we netted $123.61 on the $17,500 of collateral exposed to the trade. Though we only made 0.7% it’s not bad for a day’s worth of exposure.
We had a covered-call call away 100 Berkshire (BRK.B) shares on Friday. Unfortunately for us our strike price was $7.52 below the market-closing price on Friday so we’ll record this as a loss for our record. We were paid $124.3 for the option so our loss on the option was just $627 but it would have been nice to have been paid $260 per share. When we entered the contract, BRK.B traded down to about $248 from $252 earlier in the session; the $252 strike, 12MAR2021 expiration call-option contract was a position we rolled out and up from a $250-strike, 07MAR2021-expiration contract. Since we earned $68.61 from the first covered-call option contract, we earned an extra $192.91 from selling the two contracts, plus the $252.50 execution price was about $10 higher than the prevailing market price on the day which we first sold the call option.
We wanted to move this part of our BRK.B position to a tax-advantaged account because it would be taxed at the rate for long-term capital gains and our return for BRK.B was less than most of the other positions in our portfolio. The option contracts helped us earn an extra $1,250, and the market appears to be offering a more attractive price to repurchase the shares within the other account.
Source: Questrade.com 15MAR2021
2021.03.11 Closed to Positions to Lock In Gains: BMBL, PLTR
Yesterday, March 11th, I repurchased two positions to lock in gains. Despite each of the contracts expiration a week from today, the market volatility has been elevated for the past two weeks and I thought it best to close when I could. Today our portfolio, and our former positions these contracts, are again heading south.
Our Bumble (BMBL) cash-covered put (short put position; strike: $55; expiration: 19MAR2021) closed on the open when our standing limit order was filled. We cleared $68.61 on the position we held for just nine days with $5,500 held for collateral. Our net was a 1.2% return or 50.6% on an annual basis. I like BMBL and hope it is as successful as its rival Match.com. Look for more exposure in our portfolio when the opportunity presents itself.
I chose to close our Palantir position, yesterday, to realize the $184.87 gain on the $6,900 collateral we had exposed to the trade. Over the 29 days we held the position that was a 2.7% return or 33.7% on an annual basis. Palantir provides exposure to a great market in data analysis and I hope to add exposure when the market becomes attractive.
2021.03.10 Closed Two Option Positions: APPN, SQ
Today our outstanding short position in a put option contract (strike: $100; expiration: 16APR2021) on Appian shares closed as the market opened. We wrote contract as markets fell last week, and, when the market rebounded yesterday and continued higher today, our standing limit order was filled to close the position. We held the position for eight days and netted $148 or 1.5% of the collateral.
We also chose to close our covered-call position on our Square (SQ) shares because it was trading for just $25 with three weeks to expiration (26MAR2021). The strike price ($330) was about 30% above the market when we wrote the contract on 2MAR2021 but, with the NASDAQ correction over the last week, SQ fell to 43% below the strike. We’ll realize the gain and write another covered-call when the opportunity presents itself.
An unrelated position in a cash-covered put option contract on Quidel shares fell $1000 today when the company announced testing was down significantly. The position went from a $100 gain yesterday to $900 loss around noon today. I could have closed this position for $85 a few days ago and this action inspired me to close the SQ call.
2021.03.08 Rolled Out a NET Covered-Call Option Position
Today, after Cloudflare (NET) shares fell significantly since January 26th when we bought 100 shares and wrote our first covered-call position. NET has had a remarkable year and we seem to have bought at a near all-time high in NET shares. Our investment of NET, $8,938, has generated $778.43 in covered call net premiums for a return of 8.7% in 41 days. Unfortunately, our position in NET shares is down 25%.
Today our fourth covered call on NET (strike: $77; expiration: 12MAR2021) closed to net about $75 as NET trades around $67. The four call option contracts we sold on NET were very short-dated, but, to find a more attractive liquidation point, I wrote today’s new NET contract to expire on 01APR2021, four trading weeks from today. We sold the contract for $100 at an execution price of $80 per NET share. My calculations indicate our breakeven point on NET is about $81.50 so, if our shares are called away, we’ll lose about $50 on our initial $8.9k.
2021.03.04 Rolling Berkshire
Last week I wrote a covered call to liquidate 100 Berkshire Hathaway (BRK.B) shares to move the capital to my wife’s retirement account. BRK.B has lagged most other positions in our portfolio and therefore will incur a smaller tax burden upon liquidation. Today, after another sharp broad market decline, BRK.B has fallen below our strike price ($250) with just one more full trading day until expiration (5MAR2021), and I purchased the position to close for $45.69 to net $68.61.
To roll out and up the covered-call position I sold another call option contract (strike: $252.50; expiration: 12MAR2021). Netting less than $70 in six days on the first covered-call contract is not too impressive but if our shares are called away by the new contract, as opposed to the newly closed contract, our redemption value is worth an extra $250.
2021.03.03 Rolled a NET Covered-call Out One Week
Today was another rough day for investors that have fared well in 2020. Perhaps the market sees the end of the pandemic-shuttered economy but our tech stocks fell again today while our banks and Berkshire performed well. Too bad I have a covered-call option strategy on half our Berkshire stake!
One of tech stocks slumping today was Cloudflare (NET). We bought shares of NET at $89.38 on 1FEB2021 and immediately sold a covered call (strike: $90; expiration 19FEB2021); had that covered call option contract distributed our shares we would have made more than $500 in less than 20 days on $8,950; I’ll take 5.6% in 20 days anytime I can get it.
Turns out I didn’t. Get it, that is. We netted $492.60 on the initial covered-call after closing it when NET shares fell. We immediately sold another call (strike: $90; Expiration: 26FEB21) which eventually netted $108.61. The contract we closed today while rolling out the covered-call position (strike: $77; expiration: 5MAR21) netted $101.61.
For those not keeping track at home, we’ve netted $702.82 on our covered-call positions but, if our current short call option position were to distribute our shares, we’d be down about $500 on our long position in NET shares.
I think I wrote the call to roll out the position to soon. Usually I wait for an up day to write a call option contract but today I wrote next week’s contract immediately, in the midst of a down day. We may be fortunate to have sold the contract (strike: $77; expiration: 12MAR2021), but only time will tell. Who knows how NET will perform in the next 9 trading days.
2021.03.01 Closed a RDFN Put Option Contract
Yesterday, Monday, March first, our Redfin (RDFN) put option contract (strike: $60; expiration: 19MAR2021) short position was closed on the initial standing limit order. The position was initiated on 25FEB2021 for $104.30 as the broader market fell due, in part, to rising interest rates. RDFN has rebounded yesterday and our limit order to close was filled for $50.69. We turned a quick 0.9% profit, $53.61, in five days.
I was glad to have the position closed with the recent volatility we’ve seen in the market. Our collateral for the RDFN trade was only $6,000 but I am happy to have the liquidity. At today’s open our available cash was 12% of the portfolio and I’d like to write more put option contracts if we the market correction continues.
2021.02.23 Our Last Active Covered-Call Closed
Yesterday, Tuesday February 23rd, saw our last active covered call option contract closed on a standing limit order. We had sold a Square (SQ) call option contract (strike: $320; expiration: 5MAR2021) on February 4th for $149.30. On our date of initiation, SQ traded for $237.57. When our contract closed 19 days later SQ had appreciated three percent to $245 but were tumbling from recent highs with only two weeks to expiration. In hindsight I should have adjusted the standing limit order due to the contract’s proximity to expiration.
SQ has been a very successful position for us since shares were assigned due to a cash-covered short position that expired in-the-money on 13MAR2020. From our cost basis of $59 per share we have significant unrealized capital gain. Ideally, I’d like to realize a portion of the gain and redistribute some of the funds to other opportunities. Selling covered calls will force the liquidation of the position while earning a premium and effecting an execution price above the market. Once liquidated I plan to move our exposure to SQ to my wife’s tax-advantaged accounts while also selling more cash-covered puts on SQ (if contracts for strike prices below $150 are sufficiently valued by the market).