A Couple Weeks Ago We Issued A Handful of Option Write Recommendations
Today they all expired, so let’s take a look at where they ended up and see what new option write opportunities await us!
Here’s our pick list from last time just in case you forgot:
Sell CCL $16P 2022/04/14 for $25 which is a 1.56% ROI PE: -2.03 PB: 1.66
Sell PENN $38P 2022/04/14 for $52 which is a 1.37% ROI PE: 17.89 PB: 2.16
Sell PVH $65P 2022/04/14 for $80 which is a 1.23% ROI PE: 10.43 PB: 1.49
Sell SWKS $123P 2022/04/14 for $116 which is a 0.94% ROI PE: 15.32 PB: 4.78
Sell ALK $47.5P 2022/04/14 for $45 which is a 0.95% ROI PE: 13.34 PB: 1.73
Out of all of these recommendations PENN and SWKS were the only two expired ITM. This was enough however, to put us in the red for this month. PENN lost us $21 and SWKS lost us $411. This put us at 0.97% loss for the month. However, this actually outperformed the market, over the same period SPY lost 1.35%.
What To Correct For Next Time:
This is something that should have been addressed last time, but currently the strategy suffers from a price weighting. Stocks that have a higher stock price will have a higher weight in the portfolio unless we sell more contracts of a lower priced stock.
In fact, if we had done this last month (with each stock allocation being equal) we would have smoothed our losses with a net -$49 for the month (1/10th of one percent loss).
Also, keep in mind that this is an income strategy. During bull run markets we will see a definite underperformance by this strategy. However, during a flat market or bear market is where this strategy really shines due to its reliable nature.
Recommendations For Next Month:
Sell 2x FANG $115P 2022/05/20 for $185 which is a 1.61% ROI PE: 11.25 PB: 1.58
Sell 5x FCX $42P 2022/05/20 for $61 which is a 1.45% ROI PE: 17.57 PB: 4.35
Sell 1x FB $175P 2022/05/20 for $227 which is a 1.3% ROI PE: 16.33 PB: 7.38
Sell 2x COF $115P 2022/05/20 for $149 which is a 1.3% ROI PE: 4.86 PB: 1.07
Sell 6x CFG $35P 2022/05/20 for $45 which is a 1.29% ROI PE: 8.56 PB: 0.93
This totals a max $1470 return for this month on $105,500 of capital which is a 1.39% ROI (16.68% annualized).
If you are looking to do so, this is the perfect strategy to lever up your leverage a bit with margin. 1.2x leverage can magnify your gains up to 1.67% (20.01% annualized). The reason being, is that selling puts is far less volatile than owning the S&P 500 index, and as you may know, volatility is the enemy of leverage because it can cause a margin call, even if your strategy is great over the long term.
This is an interesting projecting that I think we will maintain. From the backtests I’ve seen it appears that a put writing strategy on an index has less volatility, I figured if we put a spin on that strategy by picking good value stocks within the index and concentrating our holdings we might be able to even further outperform.
Anyway, that’s all for this letter.
If you have any comments or questions don’t hesitate to drop one below. I will be answering all of them.
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Disclaimer:
All content is for discussion, entertainment, and illustrative purposes only and should not be construed as professional financial advice, solicitation, or recommendation to buy or sell any securities, notwithstanding anything stated.
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