First Quarter 2021 Option Trades - The End Of The Great Times

Summary

• High volatility produced some outsized ROIs when selling options during the past 12 months. Unless things change, that train has left the station.
• Low volatility means writers have choices: Stop writing; Accept lower ROIs; Take more risk. There is a 4th choice that I picked: combining low ROI trades with higher risk trades.
• I will cover why I write options, review my first quarter trade results, and give readers what I see for the second quarter, including trades already open.

Photo by remco86/iStock via Getty Images

Introduction

Data by YCharts

They say a picture is worth a thousand words. The above chart explains why today many stock options provide returns that are a mere shadow of what was available last spring and into the fall of 2020. Yes, many companies heavily effected by COVID19 lockdowns continued to sport higher volatility scores up to the 2020 US elections, but with the release of the vaccines, most of those risk premiums have dried up. REITS and special situations were the rare exceptions by the end of the first quarter.

Why I trade options

Different investors use options for one or more purposes, such as trading with leverage, trying to buy below the current market price, downside protection, or like me, to generate income. While I will write Covered Calls occasionally, most of what I own do not have active option contracts to execute against. I use a very conservative Put writing strategy that should allow me to earn a ROI of 6-8%. While I am retired and enjoy the safety of cash, I also do not want it sitting there earning next to nothing.

Regardless of why you trade options, either as a buying or a seller, have a plan in place and be willing to stick to it even when you have a trade that does not work out. Here is my plan:

• Keep learning what the option data points mean, represented by various Greek letters.

• For writing Puts, have enough cash to cover each trade in case I am required to buy the stock. I have strategies in mind when Put to.

• Write Covered Calls only at a strike price I am willing to have the stock Called at.

• Write Puts on stocks I am okay owning at the strike price chosen. Violate this only if the potential ROI is large enough and the risks are apparent.

• Use a conservative approach by selecting strike prices that are 10-15% OTM. While this reduces the ROI, it increases the odds of not being exercised against - that's the trade-off.

• As much as possible, stagger the expiration dates so I am not scrambling to write lots of options the following week. With some stocks now having weekly options, this has become somewhat easier to accomplish.

All these points and a few others were covered in more detail in my 10 Rules for Option Traders article.

Option Trade Summary

I can divide my trades into several strategies: Income Generation Focused or Income/Ownership Focused. The first are designed to generate return on the cash I want to hold in each account I write options with. The second are assets I am either trying to add to an existing position or for establishing a new position.

• Income Generation tickers-Puts: IRM, HBAN, WH, SLB, WBA, PNC, OKE

• Income Generation tickers-Covered Calls: NHI

• Income/ Current Ownership tickers: IAU, PMT, ARCC, ANGL, PBA, VTV

• Income/ New Ownership tickers: ABBV

I have added another group that I am okay owning but are higher risk/return stocks. This list currently includes: CC, GDRX. When a merger opportunity option trade exists with a decent risk/return outlook, I will consider it. Currently I have one open: WLTW.

1st Quarter option activity

To allow comparison between each trade, the ROIs are annualized. The shorter the time the contract is open, the harder it would be to constantly write new contracts and maintaining the same ROI for a full year.

Iron Mountain (IRM): One of my favorite REITS to write Puts against as the risk/reward is still favorable. IRM is trying to add digital record storage to its product mix and that has some investors nervous which helps elevate its volatility. I wrote 5 Jan $22.50 Puts when IRM sold for $26. At expiration it rose to $30 and the trade earned a 10.57% ROI. I then wrote another set, Mar $27.50, selling 4 Puts when IRM traded at $30.30. These expired OTM and earned 15.86%.

iShares Gold ETF (IAU): As mentioned, I will write Puts on tickers I already own as a means of possibly adding to my position but at a price below the current market price - this is one of them. I usually write 3-month options on IAU because they are difficult to trade (low volume/wide spread). Being an ETF, the ROI is usually low, even using a strike price close to the actual market price. Here I wrote 5 Jan $17 Puts when IAU was at $18.25. It fell from that point but was OTM at expiration, earning me 5.12%.

PennyMac Mortgage Trust (PMT): Because this REIT focuses on mortgages, it often has higher volatility, resulting in decent returns. On the downside, the large dividend payments mean avoiding those ex-dates when selecting which expiration date to use. This time I wrote 4 Jan $12.50 Puts when PMT was selling for $16.60. It closed slightly higher. ROI on this trade was 9.73%

Ares Capital Corp (ARCC): This is another one I regularly write against and a BDC I do own. Like PMT, its high yield again means avoiding the ex-dates. I wrote 5 Jan $13 Puts when ARCC sold for $13.98. Being one of the tighter writes for the quarter, it had the second highest ROI at 16.05%. I replaced these with 5 Mar $15 Puts while ARCC was at $17.20. This trade shows the effect a drop in volatility can have as it earned only a 5.9% ROI.

VanEck Vectors Fallen Angel (ANGL): This is another ETF that is hard to write Puts against so I again use longer-date contracts. Here I wrote 2 Jan $29 while ANGL traded at $30.02. ETFs usually have low ROIs as was the case even with another tight write: 7.05%. This another one I am trying add shares to an existing position.

One thing the above three tickers have in common is their price movements will be influenced by the rise and fall of interest rates and perceived strength of the economy. Using IAU helps offset that risk as Gold usually does better in that environment.

Huntington Bancshares (HBAN): These were written to offset the Covered Calls I wrote on HBAN and worked as planned. They offset some of the loss I incurred in December when my shares were called early. While HBAN options are also tough to trade, the Puts always had excellent returns. My 3 Jan $9 Puts, executed when HBAN was at $9.95, earned 22.99%.

National Health Investors (NHI): NHI was the only Covered Call I opened in 2020 that was not called. The stock has rallied from the mid-$30 to above $70 before drifting back some when the Options expired. My Jan $75 Calls, written when NHI was trading at $62, return 5.76%, almost like adding a 5th dividend even with the high OTM percent used. Surprisingly these options are lightly traded and I haven't written a new set as the return is too low for the risk taken.

Wyndham Hotels (WH): This sell was initiated in early October as news of possible vaccines being available by year-end started circulating. Like most stocks effected by lock-downs, the premiums were generous as the volatility levels were still elevated. I wrote 3 Feb $40 Puts when WH was selling for $50. A cautious trade just in case things did not improve. They did and WH closed above $60 at expiration. Even with using a 20% downside trade, I earned a 9.44% ROI.

AbbVie (ABBV): ABBV has a great track record and nice yield (4.9%), so this one is on my buy list. Even so, I stayed conservative with the election still in the future at the time of execution. I sold 2 Feb $77.50 while ABBV was at $84. ABBV rallied with the other drug stocks and overall market to close near $105 at expiration. One risk of using Puts to purchase is the stock runs away from you. That said, the trade yielded a 12.37% ROI.

Pembina Pipeline (PBA): I did buy 100 shares to add to those already owned. I also sold 5 Feb $22.50 Puts when PBA was at $26. One issue with selling options on lower priced stocks is the standard $2.50 between most strike prices can force you down farther than desired to avoid a strike price a little too close for comfort, in this case the $25s. PBA close slightly higher at $27.23, netting a 12.50% ROI.

Schlumberger (SLB): With the "greenies" running wild, premiums on most fossil fuel stocks are above what is available on many stocks. SLB has been a stock I have been writing Puts against for almost a year now. This time it was 5 Feb $16 Puts while SLB traded for $18.54. The elevated volatility shows in the high 20.5% ROI this trade earned as SLB closed over $27 on expiration.

Walgreens Boot Alliance (WBA): I had all my shares called last quarter that prior Put trades resulted in my becoming an owner. With premiums better than CVS, I decided to stick with WBA for my drug store stock. I also like the fact they have weekly options, allowing me to stagger their expiration away from 3rd Fridays. This time I wrote 3 Feb $34 Puts when the stock was at $38.50. With vaccines being available via drug chains, the stock rose to $48 at expiration. This option trade earned a 9.44% ROI. I then wrote some Apr $42.50 Puts to replace them.

PNC Financial (PNC): PNC had a good write-up on Seeking Alpha in January. Being from the East, I was aware of this bank for a long time. I wrote 2 Mar $142 Puts when stocks were looking weak and PNC was trading at $157 after trading as low as $143 the weeks before selling the Puts. PNC never looked back and closed at $181 on expiration, netting me a 9.54% ROI on the trade. Another reason I like PNC options is they have weekly ones available.

iShares Frontier Markets ETF (FM): FM moved sideways most of the quarter, remaining well above the conservative strike used. My 4 Mar $25 Puts earned 5.76%. These are also tough options to write due low interest as reflected in the fact I owned 80% of the open contracts at expiration.

Main Street Capital (MAIN): MAIN is one of the BDC I like writing options against but the price now makes it tougher finding a strike to use as the gaps over $30 are $5 on most expiration dates. This caused me to go deeper OTM with this set, writing 6 Mar $25s when MAIN sold for $31. MAIN now is over $38. ROI on this trade was 6.6%.

Extra Storage Space (EXR): One of the few REITS with options with any volume, and these are slim too. There were only 78 open at expiration. I wrote 1 Mar $100 while EXR was at $114. EXR was $128 at expiration, earning this trade an 8.36% ROI. This was the first time I sold Puts on this ticker.

Cracker Barrel Old Country Store (CBRL): This set was sold as the vaccine roll-out was underway. I wrote 2 Mar $110 while CBRL was at $135. The wide spread reflected concern it might have already reflected better times, but it hadn't as at expiration it sold for $171. Even so, the 10% ROI was one of the better ones for those expiring in March.

iShares Russell 2000 ETF (IWM): For an ETF, this one has good volume and a decent volatility score. I also like it as it has quarter-end dated options. This is my second time using them. I wrote 2 Mar $155 even before the December set expired to capture two extra weeks of time premium. IWM was at $190 at the time and I was convinced (wrongly) a correction was near, figuring all good news was already reflected in the market. That pessimism resulted in a low 4.74% ROI.

Kodak (KODK): Last August, I sold 5 Jun21 $2.50 Puts during the great debate over whether the recently announced deal with the government was legal or not. Since then, KODK has bounced between $5-$12 a share. Even though KODK was only down to $8.33 in late March, I decided to close out my contracts for $.07, which allowed me to capture over 90% of the premium and close out 3 months sooner. ROI on this trade was 41.13%. Would they all be so profitable! I calculated my ROI at 32% if held to expiration.

No trades were Put to me in the quarter nor Calls exercised against me. I earned $5307.86 for the quarter, amounting to an annualized ROI of 8.5% on the average cash or stocks securing the trades.

Open Option Positions (all short Puts) at Quarter-End

Source: Author

This will give you a good idea of the OTM depth I use and the typical contract length used, though all do not expire on the 3rd Friday. With more stocks having weekly options available, I am able to spread the expirations throughout the month. Every Friday in April has at least one option expiring.

Portfolio Strategy

First off, a reminder that option trading is not for everyone. If you have never traded options before, please read up on the various strategies and my articles on the Greeks and Trading Rules mentioned earlier in this article.

Despite lower volatility, my goal for 2021 is still to earn a 6-8% ROI. To achieve that ROI this year, I need to earn $3750-5000/quarter. I believe, while achievable, it definitely will be more challenging at current volatility levels. My currently open contracts for the 2nd quarter will generated $3700 if all goes as planned.

My 2021 Outlook and Option Strategy

To help me achieve my income goal from option writing, I will focus on:

• Adding to my possible optionable stocks some that still have elevated risk premiums which will help.
• Keeping a better eye on having all the cash available to be Put against covered by open Put contracts.
• For stocks I want to own, write options less OTM, thus adding trades with higher ROI potential.
• Consider executing Buy/Write trades on stocks that would also generate dividend income as part of the trade's ROI.

You might have noticed I seldom report trades where I am the Buyer. Those trades require you to be right on both direction and amount of price movement to profit and I do not feel that is in my knowledge bank at this time. I also currently don't use Put options for Bear market protection; I know other option players do. Instead, I have chosen to maintain a low equity ratio as my means of protection. Of course, having open Put contracts, as I had in the spring of 2020, will prove costly. As they say, there is no free lunch.

Closing Thoughts for other Option traders

• Know why you are trading options, either as the seller or buyer. The three linked articles above are some of the reasons investors trade options.
• Remember to use stocks and strike prices you are comfortable with. Even though you are option trading, due diligence of the underlying asset should still be done.
• Do not have more open contracts than what you can actively monitor. The best trade sometimes means pocketing your profit before the option expires.
• Finally, if you are not having fun, stop trading options! It is not worth the heartburn.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I have an short positions in every option listed under Open Contracts.

Comments

[malka]

Love your strategies and executions!
Thanks for sharing.

[Retired Investor]

@malka Thanks for reading. It is getting harder to find good returns without taking in more risk than I want to have.

[malka]

@Retired Investor
It is getting harder and harder to find anything low to mid risk to trade. I had several long term trades called away from me ($IRM, $KNOP to mention a couple) My $GEVO and $PBI have appreciated where it does not pay to sell a put right now..
I think the market is telling me to take a little vacation:-)
Nothing wrong with going swimming (our outdoor swimming pool is reopening!!! It was closed because of Covid last year, so we missed a whole summer. At my age, that is a LOSS.
I also took profits and sold many of my CEF and BDC's. Raising cash feels safe.

[Retired Investor]

@malka That’s where I am at currently. Took some risk and wrote Jun $35 GDRX at $39. Collapsed to near $26 before bouncing back. Have about $60k in cash to use writing Puts against that I not in a rush to employ.

[Ephmen85]

You can also take advantage of low vol buy buying LEAPs and paying very little extrinsic premium. I just bought Ford Jan 23 7 calls for 6.50 and I think I paid .78 extrinsic. I just sold an OTM option expiring in less than a month for .30. It'll be easy to get all the extrinsic out, and vol picks up, I might be able to make back the whole 6.50 in a year or so and then I'm free-rolling.

All those non-dividend stocks that have great long-term prospects: buy LEAP calls and then sell options again them down the road like you would against stock. Get the leverage and the premium.

[Retired Investor]

@Ephmen85 Others have suggested using LEAPS as the basis to write Calls against. Thanks for sharing. Do you have other LEAPS you are writing Calls against?

[Ephmen85]

@Retired Investor LEAPs I own are GLW, F, PLTR and maybe a couple of others (not at my computer). One trade that I'm managing purely for option premium is a double diagonal on SPY...I own 3 LEAP Puts and 3 LEAP calls and weeklies against it. Low vol is actually good for this trade because it's easier to manage, but I try to keep at least one long uncovered on each side to stay out of trouble.

[Retired Investor]

@Ephmen85 Thanks for sharing. GLW is on my potential list for writing Puts.

[sliman21]

I sell a lot of covered calls each week (AMZN, MSFT, AAPL, etc.). I go for small hits and stick with short expirations. I find lots of time premium erosion in short dated options. What is your experience?

[Retired Investor]

@sliman21 Data shows most time premiums indeed evaporates during the last two weeks. I used short-term options while I held Delta stock but don't have many investments that I can write Calls against. Most Puts I write are for 2-3 months as that time is needed when you go 10% OTM. Thanks for sharing.

[Retired Investor]

Thanks to the great response to this review. I thought I provide the 4th QTR link to see what the prior quarter trades looked like. seekingalpha.com/...

To check out my EQ/FI 1Q trades: seekingalpha.com/...

[Mrnomad]

Some of the tickers u suggest have a bid/ask wide enough to drive a truck thru. Others have limited OI. I do much of the same trading as you, but I focus on tickers where the bookie (aka: the market maker), isn't buying a new Porsche with the spread. Always manage intrinsic effectively & make time decay work for you. If the market isn't generating enough Volatility, catch up on Honey Doos and wait till it does. You don't have to trade every day, only when opportune.

[Retired Investor]

@Mrnomad Agree, that why I use a estimator to tell me what a good bid is and willing to wait or don’t trade. Most of those are on stocks I want to own.

[julienperville]

@Retired Investor thank you for this great article, you got a new follower from France.

I like to make income selling puts and (covered calls). My current targets are: NLY, HST, PK,.CLNY, LADR and MAC (huge premiums on that last one).

I noticed that I do a lot better selling cash covered puts and covered calls then buying plain calls or puts (time works against the buyer). Recently I tried to sell 1 month out ITM puts on CLNY (eg. May $7 strike) covered by a lower strike put ($5 put January 22) to limit my losses if things go wrong (only want to collect premiums on CLNY not go long the stock).

On stocks that I really like (LADR and HST for example) I have done very well going synthetic long, that is selling cash covered put to finance a call for same expiration date.

[Retired Investor]

@julienperville While I haven’t done spreads, others have mentioned the benefits of that strategy. Thanks for becoming a follower.

[PeterLinNash]

@julienperville can you expand on last with a detailed example,...

[julienperville]

@PeterLinNash when I see a stock that I like which is undervalued such as LADR when it was in the low 10s at the start of the year I would sell the $10 puts and buy the $10 call with the proceeds for a maturity as long as I'm comfortable with(such as the May 2021 expiration).

This is called synthetic long because the profile of those 2 option trades together is same as owning the stock.

The difference with straight owning the stock is that I put almost nothing from my own money or made a net credit (still using margin).

If the stock rises then I will doubly profit, because the call that I sold can be bought back on the cheap and that the call that I bought will also appreciate. If the stock rises fast enough then I buy back the sold put on the cheap and keep the call. If I get a chance (dip back to interesting price) then I will sell the same puts again.

This should only be done with stocks that you are comfortable owning because you are sure to get the stock at expiration or even before. Having good estimates of what a stock is worth also helps (I consider LADR to be very similar to GPMT so I use "the reit forum" estimates for GPMT as a proxy for LADR fair value).

[malka]

Great summary!!!
Many thanks.

[Retired Investor]

@malka Appreciate you reading. I see from some other comments, you like writing options too so glad to find another player. Do you have a preferred strategy?

[malka]

@Retired Investor
I like to sell cash covered puts on mostly dividend paying stocks as a way to enhance the income. If I can find special situations with a low priced stock (e.g. $PBI, $GEVO recently) where I can sell 10 contracts - I play for income by selling and expecting to buy back the put at much lower levels, rather than be put the stock. On utilities and BDC's I don't mind being put the stock, as I am trying to enter at cheaper than current market prices. I often, then, turn around and write covered calls on same after some price appreciation (hopefully:-)

[HootieTreads]

It was a wonderful 2021 Q1 for me; I am up 45% YTD (pre-tax). I was long GameStop since the summer and cashed in some nice gains from that. Last month was mostly short puts and March 2021 was +8.37%! I am using a mid $200k account.

Currently have the following positions for 05/21 expiry:

AMC $5p for $0.39 credit (cr)

BB $7p for $0.43cr

FNKO $12.5p for $0.62cr

LL $22p for $1.43cr

MAC $11p for $0.76cr

RKT $19p for $0.89cr

SKT $14p for $0.98cr

VFF $12p for $1.29cr

VIAC $40p for $2.22cr

VST $17p for $0.78cr

I have some other positions I am looking at, but overall am anticipating a 5% return to the May expiry. I can't predict the future, but at this rate I can pick and choose my plays and am aiming for an 80% return by year end.

[Retired Investor]

@HootieTreads Just glancing at a few of your tickers, looks like a lot of high risk/high premiums trades. D9 you usually enter near ATM trades or what?

[HootieTreads]

@Retired Investor Which ones are ATM? Which ones are high risk? Answer: none of them are.. I am bullish on these stocks so am happy to sell .2 -.3 delta puts at 10-20% OTM is assigned.

[Theta84]

@HootieTreads VST at $17 is a great value. Great stock to sell options on.

[Shamanski]

Been a great year so far for me selling premium, very active! The past month I have been selling Puts 2 weeks out on TSLA and AMZN on all the dips. 410ish and 2750-2720 Strikes, sell them for $2.2-$3, take em off at $0.3-.6. Easy money. Now the market looks like it is going bullish again and I will go back to selling calls, my favorite !

[Retired Investor]

@Shamanski Did you mean buying Calls since the market looks Bullish? If not, readers would love to know why. Thanks.

[Shamanski]

@Retired Investor
Nope, I sell calls when stocks rip up. I only sell naked calls on certain types of stocks, but I wait for the extrinsic value to get extremely over stated, then sell way OTM calls for about $1.3 depending on the stock price.

Sounds crazy but it is EXTREMELY effective. I have been doing it for years with very very little problems. (just don't sell calls on TSLA)

An example would be on ROKU from 1/11 to 2/16 range. I was selling short dated (2 weeks out) naked calls at strikes up at 560-600. With the short time the premiums die in about 1 week, then and I can take them off at $0.3-.2 and put it back on in the following week expiration, essentially rolling it to pick up credits. You have to be highly selective with your entry, premiums are real volatile in those situations, and you use that to your advantage.

The key thing is waiting for your entry to make sure you get a good strike with a good premium. Also when using shirt dated options you get very very good rolls should you get in danger, which rarely happens if you use discipline.

[Retired Investor]

@Shamanski Got it. Thanks.

[Ephmen85]

ABBV is my largest individual holding and it came to me via a 90 Put sell. Stock was about 86 at the time, but I made $4.50 in premium so I had a slight gain on the option and now a nice gain on the stock. I had a small starter position beforehand, but now it's a core dividend growth stock.

[Retired Investor]

@Ephmen85 Are you trying to enhance your income by writing Calls against your ABBV shares?

[Ephmen85]

@Retired Investor For all my trades I think in terms of total return and/or hedging since everything is being reinvested in my portfolio and not spent at this point (I'm 58). For this ABBV trade, on March 16th, when the stock was 110, I sold a Jan 140 for $2.10. Counting the dividend, I still get about 30% upside in 9 months before it goes ITM. Given everything we know about the company and the markets, this seemed like a reasonable way to earn $209.

[Retired Investor]

@Ephmen85 Sounds like a good trade.

[Ekanova]

Thank you very much for this article, very detailed research.

[Retired Investor]

@Ekanova I appreciate you reading. Do you trade options?

[Ekanova]

@Retired Investor Yes, I just started on MOEX (Moscow Stock Exchange). But we have only futures-style options, they carry much higher risk.They are not completely suitable for income generating. I am planning to start trading options on US stocks, just need to choose the right broker for options. So, your material is very educational.

[Retired Investor]

@Ekanova Good to know as much as possible. I assume you saw my published option articles but I have an Intro blog one: seekingalpha.com/...

[JackCr]

Do you ever roll your options when the underlying stock moves against you?
Do you ever buy back options at a loss to avoid being called or put?

[Retired Investor]

@JackCr I haven’t rolled options yet. I have either bought them back at a loss if my opinion on the stock changed or take possession and then do Covered Calls. By writing deep OTMs, that has been infrequent.

[surfgeezer]

@JackCr I like rolling options- but understand I also believe in only writing what you are happy fulfilling. That sounds counterproductive, but it is just nuanced.
IE- I write a 10$ strike Put on a stock yielding 5% for a ROI of 10%.
Since I like 6 month time frames the math is .50c Premium, net GAAP buy @ $9.5.
SO.....stock goes to $9.25 and we are about a month or so out from strike date.
I would probably roll- again I listen to every earnings and am assuming I still ok with the stocks cash flow/ability to pay me-despite the market move.

I would demand ( GTC order ) a greater than .60c ( probably much higher, but lets look worst case) Premium to roll another 6 months. That means I am still "synthetically long" the stock- at a much higher yield than if I did own.

Math for now 1 year duration is 1.10$ in NET Premiums ( +.50+ NET .60) =higher than owning stock outright AND my new GAAP net buy price would be MUCH lower! That means ( and I LOVE this ) I get a tax loss on the first contract and a BETTER ( higher yielding) new stock price on both a cash flow and GAAP basis- which I love.

Again- I know my companies and WANT to buy them cheaper, so just because the market has given me a BETTER entry price I won't necessarily turn that away.

My MAIN decision is -Am I now going to miss buying it @ 9.5$ "just" to collect 1.10$ in a year? why I would probably demand/GTC something much higher on the NET roll- but I honestly don't give a damn on how big a "loss" that first one is.

I LIKE that "losing" because it offsets my much higher % that are Gains in taxes and the higher NEXT premium would get buried in the buy price as far as taxes and my ONLY goal with owning stocks is high ROC/Income which a lower price from rolling accomplishes. Math wise it could easily be something like Initial sale +.5, then buyback at (-.60+1.20=.60). ROI calcs for 1 year= 1.10/(10-1.10)=12.36% and net GAAP buy is at 10-1.2=8.8$ Yielding now 1/8.8=11.36% on a taxable basis-which IS my main goal. I also keep a continuing cash flow basis "cost" once I start rolling and that is 1.10 ( the two NET Premiums) "cost" is 10-1.1=8.9$-oh well. That simply means ( if I still think it will stay under 10) I may roll AGAIN. I have done some rolls ( including the authors IRM ) for literally YEARS! at higher ROI's than owning the stock outright!
To me, there is not much difference in "owning" a stock ( except tax consequences of the payments and more security in the payment) and being "synthetically" long by selling a Put.
I personally am more about adjusting the portfolio % of Income by sector of economy, % per company, and % synthetic vs long the stocks themselves.
Just saying, that's how I do it- to each their own.
Currently my options ( realized and unrealized)/(margin and cash $ securing) is at 23.93%.
While my long stocks ( including non optionable CEF's) is at 71 with GAAP YOIC ( bought cost ) @9.41%.
The ratio of Secured options to Long stock cost is at .75

[Ephmen85]

@JackCr Ease of rolling is one of the reason to use good option trading software like thinkorswim as opposed to Vanguard. In fact, I just transferred my retirement accounts to TOS for just that reason.

Rolling is a great way to kick the can down the road. If you made a mistake (sold a put on a company you don't want anymore at that price), you can often roll down/out for credit. If you sold a call and want to keep the stock, you can roll up/out for a credit. Options give you options...use them to your advantage.

Most of my money is in retirement accounts which doesn't allow margin so I'm limited to covered calls and cash secured puts (although, unlike Vanguard, I think TOS allows Verticals), but I recently opened a NQ account just for trading options. It's actually more tax-efficient for me to be selling puts than collecting dividends since I'm still working off tax losses from the great financial crisis.

[jointheDivytrain]

I just started trading covered calls and selling puts. So far I like the strategy, gives me confidence and cash flow while I wait for stocks to do what I want. Only buy at prices I like and sell at prices I like. Thanks for writing this I appreciate reading more.

[Retired Investor]

@jointheDivytrain Be sure to read the suggested articles for ideas on how to employ options. Welcome to the options experience.