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



  • 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.

Call and put option trading signs
Photo by remco86/iStock via Getty Images


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

This article was written by

Retired Investor profile picture

Retired Investor has been investing since the 1980s and has a background in data analysis and pension fund management. He writes articles to help others prepare for retirement by investing in CEFs, ETFs, BDCs, and REITs. He is a long only investor and shares strategies for trading options with a focus on cash-secured-puts.

He is a contributing author to the investing group Hoya Capital Income Builder. Hoya specializes in the portfolio management of publicly traded real estate securities and dividend ETFs. Learn more.

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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (50)

Love your strategies and executions!
Thanks for sharing.
Retired Investor profile picture
@malka Thanks for reading. It is getting harder to find good returns without taking in more risk than I want to have.
@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 profile picture
@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.
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 profile picture
@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?
@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 profile picture
@Ephmen85 Thanks for sharing. GLW is on my potential list for writing Puts.
sliman21 profile picture
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 profile picture
@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 profile picture
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 profile picture
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 profile picture
@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 profile picture
@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 profile picture
@julienperville While I haven’t done spreads, others have mentioned the benefits of that strategy. Thanks for becoming a follower.
PeterLinNash profile picture
@julienperville can you expand on last with a detailed example,...
julienperville profile picture
@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).
Great summary!!!
Many thanks.
Retired Investor profile picture
@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?
@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 profile picture
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 profile picture
@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 profile picture
@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.
@HootieTreads VST at $17 is a great value. Great stock to sell options on.
Shamanski profile picture
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 profile picture
@Shamanski Did you mean buying Calls since the market looks Bullish? If not, readers would love to know why. Thanks.
Shamanski profile picture
@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.
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 profile picture
@Ephmen85 Are you trying to enhance your income by writing Calls against your ABBV shares?
@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 $209.
Retired Investor profile picture
@Ephmen85 Sounds like a good trade.
Ekanova profile picture
Thank you very much for this article, very detailed research.
Retired Investor profile picture
@Ekanova I appreciate you reading. Do you trade options?
Ekanova profile picture
@Retired Investor Yes, I just started on MOEX (Moscow Stock Exchange). But we have only futures-style options, they carry much higher risk.They are not completely suitable for income generating. I am planning to start trading options on US stocks, just need to choose the right broker for options. So, your material is very educational.
Retired Investor profile picture
@Ekanova Good to know as much as possible. I assume you saw my published option articles but I have an Intro blog one: seekingalpha.com/...
Do you ever roll your options when the underlying stock moves against you?
Do you ever buy back options at a loss to avoid being called or put?
Retired Investor profile picture
@JackCr I haven’t rolled options yet. I have either bought them back at a loss if my opinion on the stock changed or take possession and then do Covered Calls. By writing deep OTMs, that has been infrequent.
surfgeezer profile picture
@JackCr I like rolling options- but understand I also believe in only writing what you are happy fulfilling. That sounds counterproductive, but it is just nuanced.
IE- I write a 10$ 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
@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 profile picture
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 profile picture
@jointheDivytrain Be sure to read the suggested articles for ideas on how to employ options. Welcome to the options experience.
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