2012 Year-end Options Results

My job allows me to be in front of a computer at work all day so I am able to keep an eye on the market in order to capitalize on large market movements.  I still plan to use options trades in 2013 to either lower my cost basis or get paid a premium to wait for better prices.  I will mainly only target companies I either already own or want to own in my DG portfolio at a better price.

First here are all of my trades for 2012:

Total Profit: $2719 (before commissions)

 12/27/12 Bought-to-Close 4 BBVA April 20 ’13 $8 Puts @ .45
 10/24/12 Sold 4 BBVA April 20 ’13 $8 Puts @ 1.05
 Profit:  $240

12/27/12 Bought-to-Close 1 VOD APR 20 ’13 $26 Put @ 1.41
11/15/12 Sold 1 VOD Apr 20 ’13 $26 Put @ 1.8
Profit: $39

12/23/12 Assigned 100 shares of INTC @ $23/share
09/10/12 Sold 1 INTC Dec 22 ’12 $23 Put @ 1.1
Cost Basis: $21.90 before commission

12/18/12 Bought-to-Close 1 DOW Jan 19 ’13 $28 Put @ .14
10/02/12 Sold 1 DOW Jan 19 ’13 $28 Put @ 1.33
Profit: $119

11/18/12 Assigned 100 shares of INTC @ $24/share
09/17/12 Sold 1 INTC Nov 17 ’12 $24 Put @ 1.44
Cost Basis: $22.56 before commission

11/02/12 Bought to Close 1 ADM Dec 22 ’12 $25 Put @ .25
08/10/12 Sold 1 ADM Dec 22 ’12 $25 Put @ 1.31
Profit: $106

09/13/12 Bought to Close 1 JCI Oct 20 ’12 $25 Put @ .10
07/19/12 Sold 1 JCI Oct 20 ’12 $25 Put @ 1.20
Profit: $110

08/20/12 Bought to Close 1 DOW Sept 22 ’12 $30 Put @ .74
07/06/12 Sold 1 DOW Sep 22 ’12 $30 Put @ 1.14
Profit:  $40

08/19/12 Expired – 1 COP Aug 18 ’12 $50 Put
05/09/12 Sold 1 COP Aug 18 ’12 $50 Put @ 1.96
Profit: $196

08/02/12 Bought to Close 4 BBVA Oct 20 ’12 $50 Puts @ .30
07/20/12 Sold 4 BBVA Oct 20 ’12 $5 Puts @ .40
Profit: $40

07/24/12 Bought to Close 2 WAG Oct 20 ’12 $28 Puts @ .25
06/20/12 Sold 2 WAG Oct 20 ’12 $28 Puts @ 1.20
Profit: $190 before brokerage fees.

07/20/12 Expired – 1 VOD July 21 ’12 $27 Put
04/09/12 Sold 1 VOD July 21 ’12 $27 Put @ 1.45
Profit: $145

07/20/12 Assigned 300 shares of BBVA @ $7/share
03/28/12 BBVA July 21 ’12 $7 Puts @.55
Cost Basis: $6.45/share before fees

07/12/12 Bought to Close 1 PG July 21 ’12 $62.50 Put @.83
04/30/12 Sold 1 PG July 21 ’12 $62.50 Put @1.42
Profit: $59

06/29/12 Bought to Close 1 AZN Oct 20 ’12 $45 Put @ 2.30
03/12/12 Sold 1 AZN Oct 20 ’12 $45 Put @ 3.00
Profit: $70

05/23/12 Bought to Close 1 KMI June 16 ’12 $30 Put @ .65
01/23/12 Sold 1 KMI June 16 ’12 $30 Put @ 2.25
Profit: $165

05/14/12 Bought to Close 1 CHK July 21 ’12 $16 Put @ 2.52
04/25/12 Sold 1 CHK July 21 ’12 $16 Put @ 1.13
Profit: -$139

04/12/12 Sold 1 JNJ Oct 20 ’12 $62.50 Put @ 2.60
04/30/12 Bought to Close 1 JNJ Oct 20 ’12 $62.50 Put @ 1.62
Profit: $98 (not bad for only waiting 18 days)

01/19/12 Sold 2 TSM July 21 ’12 $15 Puts @ 1.80
04/09/12 Bought to Close 2 TSM July 21 ’12 $15 Puts @ 1.03
Profit: $154

01/03 – Sold 1 RIG $35 May 19 ’12 PUT @ 2.11
03/12 – Bought to Close 1 RIG $35 May 19 ’12 Put @ .09
Profit: $202.00

01/06 Bought 10 SLV Jan 19 ’13 $45 Calls @ 1.05
01/26 – Sold to Close 5 SLV Jan 19 ’13 $45 Calls @ 1.85
02/28 – Sold to Close 5 SLV Jan 19 ’13 $45 Calls @ 2.03
Profit: $890

Definitions

For those of you not familiar with options trading, here are a couple of definitions:

A put option gives the holder the right to sell a specific stock at a set price, the “strike price” , on or before a specified date.

A call option gives the holder the right to buy a specific stock at a set price on or before a specific date.

The Trades

I made a total profit before commission of $2719.
I came up with total commissions of $469.26.  This ate up 17.3% of my profits.  However, I did include the 19.99 fee when shares get assigned for three different puts that were assigned to me.  Without this $59.97, the commissions would have eaten up just 15.1% of the profits.

My total profit after commissions was $2249.74.  I made more in options profit than I did in dividend income!  I don’t know if that will continue but I do plan to keep my strategy of selling naked puts on companies I want to own anyways.

As I mentioned, I was assigned shares 3 times at expiration due to selling puts.  Let’s look at how those turned out.  Since I’ve already counted the income from selling the puts and subtracted the commissions from my profit I won’t use an adjusted cost basis for a simple calculation of capital gains from these shares.

I was put the following shares spending $6800:

300 shares of BBVA @ $7/share
100 shares of INTC at $24/share
100 shares of INTC at $23/share

As of 01/02/13 the price of BBVA is $9.55/share and the price of INTC is 21.35.

The combined value of these companies are 7135.00, a profit of $335 if sold at the closing price.

Now this is of course an unrealized capital gain since I haven’t sold the stock.  I do have a call option expiring January that will likely call away 200 shares at a nice profit though.  I also believe in INTC long-term and that it will recover.

How to reduce commissions?

Going forward, I would like to reduce the % of profits lost through commissions.  I’ve outlined 6 ways in which I can accomplish this:

1.)  selling multiple puts at once –   While I could sell more than 1 put at a time, this one will be tough because I’m committing to 100 shares per contract that is sold.

2.) request better pricing – I’ve called E*trade and requested lower fees that are comparable to another brokerage firm.  This is in process and I will post the results when it happens.

3.) use another brokerage firm –  I’ve actually already signed up at sharebuilder and plan to start contributing by February using that account.  They do allow options and I’ll be looking into pricing.

4.) wait for puts to expire – If I sell less puts that are speculative in nature then I would be more willing to ride out the put until expiration.  When the put expires worthless there is no additional fee involving like when I have to buy back the put to close out the position.

5.) sell in-the-money puts – Basically this is selling a put priced around the current market value or less.  While this strategy has a much higher change of getting put shares, the premiums paid are also much higher.

6.) sell longer dated puts –  The longer until expiration, the higher the premiums you can earn.  I do plan on selling some longer dated puts.

Tax Consequences – applies only to the U.S.

Buying options is a little different and I won’t go into that now but if you are selling options, there are three things that can happen:

1. they expire worthless on the expiration date
2. they are exercised because they are “in the money”
3. they are bought back or sold prior to expiration to cancel out the option

From a smartmoney.com article located here: