SPY

6/26/20….Purchased SPY stock at 301.00…..STO 8/7/20 305 Call at 10.25…..BTO 7/17/20 280 Put at 3.10…
#coveredcalls #suecollar

Question about stop orders for…

Question about stop orders for long stock positions.

Do you use any stop orders for long stock positions?
Some recommend 5-10% below purchase price.
I tend to hold for too long…

#suecollar

#SueCollar new TGT I needed…

#SueCollar new TGT

I needed a new position in one of my accounts and went back to the well on TGT. The vols and spreads are bumping around big time this morning on TGT, I probably should have waited before locking this in. But I saw favorable vol spreads so grabbed it. Jan 3rd opened up on TGT, but the spreads and liquidity were really poor, so I went with a Dec 27/Dec 13 starting setup.
I’m spending a lot of time now looking at the volatilities on the chain for the setup, and comparing them to realized volatility. The most expensive part of this strategy is buying puts, if you can buy puts “cheap” relative to realized volatility it should help the overall success (that’s also why I’m now comparing put vol to the call vol being sold–trying to eek out a bit more edge). As you know, OTM puts have a higher volatility, and that vol drops as you approach ATM. It’s typically opposite on the call side of the chain (except for tickers with upside danger like Vix and Gold)–ITM calls have a higher vol than OTM calls. It dawned on me recently that tightening the vol spread between the short call/long put strikes would further tighten risk on these. It does in fact lower the delta even more, which is great risk control, but further restrains the upside in grind-or-melt up conditions. That’s the trade off. I’m looking to keep the vol spread now at 3 or less points. The put buy continues to be a balancing act though between volatility and price….since in normal market conditions it’s throw-away insurance. So I don’t want to overpay on price just to get a lower volatility.

If you use TOS, you’ll see the option chain has a different vol than the analyze tab. I keep wanting to ask the trade desk for an explanation on that, but I’ve chosen to use the analyze tab volatility for my record keeping.

TGT Entry: Starting P/L in this account for TGT is zero

BOT 300 shares @ 127.08
BOT 3 Dec 13 121 put @ .95, at the time of purchase vol was 22.37%, 90-day realized vol is 43.1%
SOLD 3 Dec 12 126 call @ 4.00, vol was 24.16%
This was a vol inversion that I grabbed, usually the put vol is higher than the call vol
You can see I’ve sold well in the money calls to get a higher volatility.
Max risk at the onset is $909.00

#SueCollar TGT One of the…

#SueCollar TGT

One of the collars I had set up was on TGT, which of course had earnings today. The original stock purchase was at $111.84, and after a roll last week, was protected down to around $96. It’s really run away to the upside. There is plenty of premium in the position still, especially since the Dec13 short 96 puts have become very illiquid. It looks to me that the 300 share position will net out around $503 in profit (including the dividend) by the Dec 13 expiration, a hold of about 2 months. This would equate to roughly an 8% annualized return….right in my target. The ROR is huge given the risk controls in this strategy.

A couple comments on this:
1. TGT is an interesting hold for this strategy due to their dividend timing. Since the ex div is the day before earnings, it is really hard to lose shares to someone wanting to take the dividend—since the short calls retain such high premium the day before earnings.
2. This is a perfect example of having to stay focused on a low-risk/low-return strategy. If the loss of the put premium is too much to bear, it’s the wrong strategy for you (you might be saying “coulda woulda shoulda made $4600 just holding shares vs $503 on the collar”). I get it, it’s valid. But I really appreciate the controlled risk on these things, the easy sleep at night.

On a side note, since I’ve been training intensely on vol for a couple years at Option Pit, I decided there needs to be more vol strategy folded into the collars. I’m now trying to keep the vol spread at less than 3 points between the calls being sold and the puts being bought. To accomplish this the calls need to be sold ITM, vs ATM. ITM calls have a higher vol to counter the higher vol of OTM puts.

Let me know if there’s any interest in this going forward–I get if it’s too boring 🙂

Sue

@smasty Sue, what is your…

@smasty

Sue, what is your plan for TGT #suecollar trade?
With the earning coming up, puts are very expensive.

#SueCollar CMCSA Adjustment Here is…

#SueCollar CMCSA Adjustment

Here is the opening trade I did on Oct 11:
1. Bought 600 shares @ 45.02
2. Sold Nov 22 45 call @1.46 x6
3. Bought Nov 1 43 put @ .46 x 6
Net delta is 145 on 600 shares

Here is the adjustment:
1. Underlying price is 44.25 right now
2. Nov 1 43 puts: bid is 0.00, expiration at full loss is expected (-276)
3. Bot 6 Nov 22 43 put @.42
4. Bot 6 Nov 22 45 call @ .52, to close ($564 profit)
5. Sold 6 Dec 13 44 call @1.35

Net options trades $846 credit / 600 = 1.41 cost basis adjustment to $43.61. As before, not fully realized.

Thought process:
1. On Oct 11th the position delta was 145 on 600 shares. This morning the position delta was 350 on 600 shares….quite a bit more risk in the position (due to short-delta decay). I like to keep deltas below 30% of the underlying share delta (600 in this case).
2. Rolling calls and puts, instead of just puts) can be an effective way to reset the delta, I had 65% decay in the calls, so decided to take the profit and roll them out. My delta is now 77 instead of 350.
3. I had been planning on doing this adjustment tomorrow after NFP, with the thought that volatility would decrease. However vol has been steadily rising in CMCSA, and with that high position delta I wanted to get some better risk control on.
4. There are no divs left in CMCSA this year, so not a consideration
5. Crash protection with 43 puts

#SueCollar TGT adjustment Here’s the…

#SueCollar TGT adjustment

Here’s the opening trade I did on Oct 15:
TGT
Bought 300 shares @ 111.84
Bought 3 Nov 8 110 put @ 1.65
Sold 3 Nov 29 112 Call @ 4.70

Whenever the puts are over a double, I look to adjust and take that profit, lowering cost basis.

Here’s my adjustment:
1. Sold 3 Nov 8 110 puts @ $3.84 ($657 profit)
2. Bot 3 Nov 29 112 Call @ 1.71 ($897 profit)
3. Bot 3 Nov 15 105 puts @ 1.31
4. Sold 3 Dec 13 106 calls @ 4.45

Thought process:
–Puts had more than doubled, calls had decayed over 60%. That’s what I like about this structure, the gamma in the short-dated puts can really cause a big move, yet the long dated calls still have really nice decay.
–Normally I would have bought Nov 22 puts, but that is earnings week and the puts are too expensive for me that week
–TGT dividend is the day before earnings, my short calls should have very adequate premium in them to be able to sustain a move up into earnings but still collect the dividend (.66).
–The math on this can be simple or complicated. Doing the simple math, my net debits and credits now across all options trades is $2496 credit, divided by 300 shares = $8.32 in cost basis reduction. That takes me to 103.52 for cost basis on shares purchased at 111.84. Obviously all of that cost basis reduction is not yet realized, and will change with the next adjustment—so $103.52 is “blue sky” at this point.
–I chose the Dec 13 calls to sell based on the dollar-strikes, I like to get right ATM
–I’m crash protected with the 105 puts.

#suecollar HP Trying this collar…

#suecollar HP

Trying this collar strategy on HP. It only has monthlys so can’t follow the time frame as accurately.
Bought 100 shares at 39.67 (at the bell yesterday), sold Dec. 40 call for 1.87, today bought a 35 puts for .35 . Ex-div Nov. 7, roughly .70 dividend. Earnings Nov. 14.

#SueCollar Here’s a new one…

#SueCollar

Here’s a new one I just added, this one has less than zero risk at the onset–it’s hard to get this design but I really like it, call premium is elevated due to earnings the week before. Notice the tight put, less than $2 away from stock purchase price, at close to 1/3rd the call premium. Good risk control here. The put roll might be tricky though with earnings looming in the new roll cycle, but we’ll deal with that the week of Nov 8, if not sooner.

TGT
Bought 300 shares @ 111.84
Bought 3 Nov 8 110 put @ 1.65
Sold 3 Nov 29 112 Call @ 4.70

Initial max risk is -$363, meaning I make $363 on a crash in the initial timeframe (Nov 8 expiration).
Earnings 11/20, Ex div 11/19
update: one thing though, the delta on this is only 36 on 300 shares, that’s usually lower than I like, I like around 25-30% delta. I can always sell some put spreads to bump up the delta if I want.

#SueCollar Good morning lovlies, TGIF!…

#SueCollar
Good morning lovlies, TGIF! I thought I’d start posting a little again on my collar strategy. Life has been hectic, March 1 I executed on a move to Iowa, regretted the house purchase from the first minute I took possession. Regretted being in Iowa at all. Desperately missed the mountains. Aug 30 executed a move back to Colo, without selling the Iowa house. I’m finally settled back in Colo, though still trying to sell Iowa. I am SO HAPPY to breathe Colorado air again.

So…re trading. I started doing 13-week Tbills over a year ago. The T-bills made me realize that as I’m older, I have less appetite for risk. They also taught me patience. I would make (risk free and state-tax free) as much in 13 weeks as a 1-week Jade Lizard can turn over. But, with a ladder, the risk-free money was rolling in every week. The T-bill rate hit a high last December then started dropping. Once it got close to 2% I realized I needed a new low risk strategy.

So I went back to the #collars . This is a slow, steady, low volatility, limited risk strategy. My goal is to net out about 3-to-6 times the Tbill rate. So 6 to 12% a year. The return-on-risk is much higher, around 50-100% due to risk being so controlled.

I have a very specific process I follow that seems to be working well, that’s why I’ll call it #SueCollars
I use the term “collar” pretty generically. Some would call this “married puts.” I also call it a “rev con” (Reverse Conversion). To me they are all interchangeable. The premise being that there is a stock position, a short call, and a protective put.

My process is 1. Buy stock (I have a tight list of high yielding stocks with good balance sheets—I’m limiting buys right now to PEP, WMT, VZ, CMCSA, CSCO, EBAY, AMD, INTC, BX, MSFT, TGT, UPS, JPM, TGT). I also size every buy for the same amount of stock risk, i.e. all of them around $30K in stock for example. That way capital allocation across tickers is roughly equal.
2. Sell ATM calls around 45 days out. Collect the max you can
3. Buy OTM put 22 days out, targeting 1/3rd of the premium collected on the calls for the buy-price. The thought being that the calls can finance a couple rounds of puts, with enough left over on calls for net profit.

Here is a trade I put on today in CMCSA:
1. Bought 600 shares @ 45.02
2. Sold Nov 22 45 call @1.46 x6
3. Bought Nov 1 43 put @ .46 x 6
Net delta is 145 on 600 shares….so it’s still a bullish trade, but look at all that risk control! Risk is reduced by 75% (obviously any time risk is reduced, profitability is reduced, but remember my benchmark is the 13 week t-bills).

At the outset my max risk on this trade is $612 if there’s a crash. I calculate max risk this way: (600 * 45.02)-(43*600)+(.46*600)-(1.46*600). Basically (stock risk) less (put protection) plus (put cost) less (call premium). Max gain on this trade is $590.88. Roughly with dividends this can yield about 10% a year with pretty good risk control.

There’s a lot of nuance with this trade that I’ll try to capture
–Most people do shorter dated short calls and longer dated puts, I found the opposite works well to finance the puts. On a down swing, the shorter dated puts are a gamma play, they can just explode in value, and longer dated calls very quickly decay, so it’s very nice for collecting realized gains.
–When the protective puts at least double in value (sometimes I can get 7x on them) then I’ll roll everything down. I’ll take profits on the puts and short calls, roll calls to a new 45 DTE ATM and buy new puts. On a big downdraft it’s hard to get new puts at 1/3rd the call value, since these are strong companies I’ll do a very wide put spread to reach the price target. On a bounce it’s easy to buy back the short put and re-establish the full put protection. These rolldowns really do a lot to keep pace with the stock decline.
–A lot of these stocks run up into ex-div and it can be hard to hold the shares. The big thing to always remember with ex div approaching…you CAN be ITM on short calls into ex-div as long as EXTRINSIC IS MORE THAN THE DIV. People tend to freak about ex div and ITM short calls, but it’s an easy rule to remember. I’ve found placing the short calls a couple weeks later than ex div can really help with holding the shares through ex div to collect the dividend. VZ has always been tricky to hold into ex div.
–Once the extrinsic is all gone on short calls I used to self-assign on these to avoid assignment fees….but all that is gone now w/ TDA, no more assignment fees!
–On ITM short calls with no remaining extrinsic, sometimes I’ll roll them up (debit roll) but mostly I take the profits and wait for a down day to re-establish positions.
–I love Fuzzie’s approach of using short puts to re-establish after losing a covered call position but mostly I just re-establish with new stock positions since I’m all about risk control on these.

I’ll keep posting updates on this, and when new positions are established.
Everyone have a safe weekend.

Sue