T, XOM: Feb Expiration Followup On Put Selling Or Long Stock
Seeking Alpha Analyst Since 2020
I work full time in IT. Like many other people, I had been contributing to my 401k for years, using various passive index mutual funds, and was 100% invested. Everything was great, until it wasn't, because virus. I got clobbered, waited for a rebound of about 50% of the February/March loss, and pulled half of what was left out in May. Seemed sensible enough at the time. "There must be a better way," I thought, and began my journey. There are 2 parts to my strategy. Follow me here as I explain where I am, how I got here, and how I'm doing.
Summary
- 3 different strategies compared over the course of the year.
OK, Friday, February 19 was the first expiration in our strategy comparison of long stock versus short put (held to expiration) versus short put (managed at 50% of max profit). To recap, I learned from the guys at Tastytrade that unless you're 100% sure you always want 100% long exposure to a stock, it's better to enter or to stay exposed via short put.
AT&T ($T):
I started the experiment on 1/4 with 100 hypothetical shares of T purchased for 29.16 (costing $2916), and a Feb 29 put sold for 1.23 (requiring cash security of $2900 - $123 = $2767).
The result? On Feb 19, T closed at 29.00 even. Therefore the stock trade netted $-16, more or less a scratch. There was a small amount of risk in assuming the option would expire worthless at the close, so in my hypothetical account I was able to buy it back for a penny, netting $122 on my $2767 investment over 45 days (approx). Since I was able to cover the put for 61 cents on Jan 26, I could have taken a profit of $62 on $2767, but done so in 22 days, reducing risk accordingly.
So which was the right trade? No one wants to take a loss, even if it's $16. Either of the options trades reduced my risk via less capital required, and one of the strategies further reduced my risk by reducing my market exposure by 21 days. I personally prefer the strategy of managing at 50%. This is textbook Tastytrade short put management.
ExxonMobil ($XOM):
A slightly different story here. When you're hot, you're hot.
On Feb 19, XOM closed at 52.37, and the stock bought on Jan 4 for 42.07 returned $1030 on the investment. My 40 put, sold for 1.59, easily expired worthless, but I planned on a penny to cover, so netted $158 on my cash security of $3841 over 45 days. But our strategy to manage to 50% resulted in a net of $79 on an investment of $3841 in 2 days.
Which was the right trade? Long XOM for sure, but so much changed in 25 days that couldn't have been known on January 4. The standout trade to me was a $79 payoff in 2 days on the short put. My computer had barely cooled down from the opening trade when it was time to close it. And I had my $3800 back to use as security for another trade.
I'll be back on Mar 1 for our next trades in this strategy.
Good luck!
Analyst's Disclosure: I am/we are long T, XOM.
I trade T and XOM frequently using both shares and options.
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