SPY Milking Our Cow on August 13 and 14

On Thursday, SPY started out the day on a moderate drop, so we immediately rolled our 338 straddle into a 335 straddle, at a tiny gain of $28 per straddle, or $0.28 cents per share. During the same day we bought and sold only the threatened call side for a $0.48 gain.

On Friday, SPY did not move much, but we rolled twice during the day to accomodate each $1.00 move. The reason for this is that on the last day of expiration there is a large reduction of theta loss in any strike but the strikes right at the money. So to maximize our option income, it is worth rolling frequently.

As you see below, we've ended the week in great shape, with another day of gains. Our long term leaps could be sold at a $5886 profit, and we've
realized $13,963 of gains. We've had this position on for 17 weeks. This come to a 41% return. Annualized, if this continues at this pace, this would produce $125%. Of course, we'll have to see how things develop.

size: 16 contracts
Launched April 4 2020
basis $48,535 or $28.56 / share
cash flow $15,043 or $9.40 / share
p&l $13,963 or $8.72 /share

IWM rolls 13 and 14 August

As seen in the graph above, IWM remained range bound in the last 2 days, fluctuating around 157. We optimized our positions for maximum theta decay by rolling every time the stock moved by $1.00. This sacrificed a bit of cash flow, but were brought in profits and optimized future profits.

On the 13th we closed off the puts and calls as separate elements, when pivot points were crossed. This was profitable, but is not something I would recommend to my viewers. It can be confusing, and easily lead to errors.

The next three trades were standard rolls. This requires careful attention to the securities price movements, and almost by definition requires the investor or trader to "live" in front of their computer or cell phone. But it adds a lot of additional income over a less frequently traded strategy.

The final and last trade taken today closed out the imminently expiring straddle, and sold a new straddle for the next closest expiry.

Status on August 12
size: 35 contracts Original Launch June 8
Long Term Hedge: $93,159 or $26.61 per share
Cash Flow to Date: $23,018 or $6.57 per share
P&L to date : $53,935 or $15.41 per share

Our long term LEAPS are worth a positive $2750 if closed today. This is a 60% return in 9 weeks time, a phenomenal result. If this continues, we could see a 346% yearly return, which would be simply mind-boggling. Of course, our results may deteriorate, over time, though we are confident they will continue to be quite good.

IWM rolls 05 AUG – 12 AUG

Here was the status at the end of August 5

I got a bit behind in my reporting, so I'm going to provide one graph and a brief recap for each day.

Aug 6
The price opened up $2 over our straddle centered on 152. So I rolled to 154.

bought to close AUG 07 152 call for $1.39 sold at $1.90 for loss of $0.51 per share
bought to close Aug 07 152 put for $0.40 sold at $1.16 for gain of $0.74 per share
overall gain of $0.17 per share

sold to open Aug 07 153 call for credit of $1.16
sold to open AUG 07 153 put for credit of $0.67

Status on Aug 6
size: 35 contracts
Long Term Hedge: $93,159 or $26.61 per share
Cash Flow to Date: $13,323 or $3.80 per share
P&L to date : $47,612 or $13.60 per share

August 7
bought to close AUG 07 153 call for $1.62 sold at $1.39 for loss of $0.23 per share
bought to close Aug 07 153 put for $0.12 sold at $0.67 for gain of $0.55 per share
overall gain of $0.32 per share

sold to open Aug 07 154 call for credit of $2.39
sold to open AUG 07 154 put for credit of $1.86

Status on Aug 7
size: 35 contracts
Long Term Hedge: $93,159 or $26.61 per share
Cash Flow to Date: $21,844 or $6.24 per share
P&L to date : $47,814 or $13.94 per share

August 10

gapped up to 156
bought to close AUG 07 154 call for $4.58 sold at $2.39 for loss of $2.19 per share
bought to close Aug 07 154 put for $0.92 sold at $1.86 for gain of $0.94 per share
overall loss of $1.25 per share

sold to open Aug 07 157 call for credit of $2.50
sold to open AUG 07 157 put for credit of $1.85

size: 35 contracts
Long Term Hedge: $93,159 or $26.61 per share
Cash Flow to Date: $22,195 or $6.34 per share
P&L to date : $43,374 or $12.39 per share

August 11

IWM opened at 157.50, close to where we anticipated it would finish the day, so we had no need to alter our positions.

Status on August 11
size: 35 contracts
Long Term Hedge: $93,159 or $26.61 per share
Cash Flow to Date: $22,195 or $6.34 per share
P&L to date : $43,374 or $12.39 per share

So we finished this period having sacrificed a bit of our rolling premium revenue. However, this has been more than offset by gains to our long term LEAPS which are unexpectedly showing a positive hoviering in the $3400 range. So we might even consider rolling those to lessen the cost of our long term insurance. But that is the subject matter of another post. Their are pros and cons to doing that and I want to address it with careful explanations.

SPY – 12 August Rolls

SPY continued to ride the Corona Express roller-coaster today, rising sharply after swooning 7 points in late trading yesterday. Looking
at the technicals, I was convinced SPY would rally to 334, but drop from there to around 332 by the end of the week, and possibly lower to $329.

Late on the 11th I believed the downturn was temporarily done and we were due for a dead-cat bounce up to 334. So I did not yet want to close my 337 deep-in-the-money put, hoping to buy it back cheaper as the price reached 334 again. But as the market was moving fast, I placed a buy order if SPY breached lower lows. That happened after hours, at a price of $4.12, resulting in a loss of $2.63 per share. I normally would have sold a 334 put at that time, to bring in additional premium. Oh well...

This morning, SPY had gapped up to 335, a little higher than I expected. Looking at the charts, I still expected it to hover around $334 for a day or so before dropping lower. So I collect my aug 12 337 calls to 334 bringing in $2.52 in premiums,

Of course, SPY did not care what I thought, and did its own thing. to my surprise, it reached all time highs at $337.47. So I had to roll with the punches, even though I'm still not convinced that we are not seeing a double top formation. I learned years ago to listen to what the market says, and not what I think it should do...

So I again rolled to the now higher centered point at $336. I could have centered at a strike of 337, but again, I felt that the runup was overdone, not being accompanied by any positive news on the political front regarding corona-support measures.

When the dust had settled at midday, I had a small loss overall of $511 or $3.19 per share, with a cash flow reduction of $2349 or $1.47 per share.

size: 16 contracts
basis $48,535 or $28.56 / share
cash flow $14,943 or $9.33 / share
p&l $12,318 or $7.69 /share

SPY – Summary of Rolls from 06 -11 August

The last few days have been a maelstrom of activity for me, recording new videos for the channel TradeJolt on Youtube, adding new credit card processing functionality to this website, and preparing the launch of a new blog dedicated to cryptocurrency finance, decryptofied.com.

We're also busy working away at an exciting new functionality to this site, which will add a marketplace for option deals between buyers and sellers of trade ideas. The idea is to allow publishers to post their best ideas, and to reveal enough about the idea for other viewers to wish to pay a small fee to reveal all the intricacies of the trade. We'll be adding rating functionality, and feedback. We think it will be a very powerful and popular feature.Expert option traders will have a new means of remunerating their research, while viewers of this site will have more of an opportunity to benefit from great trades.

So pardon the lack of detail as to the rationale for the following trades. Overall the strategy continues to increase in profits over time. Our earnings per share from selling options have grown this week from an accummulated total of $6.63 per share to $8.01 per share.

By the way, today on August 11, we were assigned on our 335 in the money calls. As my readers know, I like to try to avoid assignment,
as it can temporarily add to the overall margin requirement of a position, until the position can be closed out. Other than that impact,
it is not something to be concerned about, as we are covered by our outer LEAP options hedges.

A list of the trades made on each day follows beneath the graph of SPY's movements.

SPY has continued to march higher.
aug 6
bought back 332 call for $2.04 sold for $1.78 loss of $0.26
bought back 330 put for $0.41 sold for #1.09 gain of $0.68
net gain $0.42 /share

sold a 333 call for $1.41 exp aug 7
sold a 333 put for $1.13 exp aug 7
cash flow -$2.45 + $2.64 = $0.19

size: 16 contracts
basis $48,535 or $28.56 / share
cash flow $13,219 or $8.26 / share
p&l $10,613 or $6.63 /share

aug 7
bought back 333 put/calls expiring tomorrow
bought back 333 put for $0.64 cent sold at $1.14 for gain of $0.59
bought back 333 call for $0.41 sold at $1.09 gain $0.68
adjustment made
bought new 333 put expiring aug 7 for $0.66
sold same 333 put exp aug 7 for $1.13 gain of $0.47

sold 334 aug 10 put for $1.37
sold 334 aug 10 call for $1.44
cash flow -$0.64 - $0.41 - $0.66 + 1.13 + $1.37 + 1.44 = $2.23 / share

size: 16 contracts
basis $48,535 or $28.56 / share
cash flow $14,780 or $9.23 / share
p&l $13,397 or $8.37 /share

aug 10
bought back 334 aug 10 calls at $1.47 sold for $1.37 for $0.10 loss
bought back 334 aug 10 put at $0.23 sold for $1.44 for $1.20 gain
sold 335 call / put for 0.48 put 0.74 call

335 aug 10 calls sold for $0.73
335 aug 10 puts sold for $0.48
ttl $1.21
cash flow 1.70 - 1.21 = 0.49 cents x 16 contracts

size: 16 contracts
basis $48,535 or $28.56 / share
cash flow $15,564 or $9.72 / share
p&l $15,117 or $9.44 /share

aug 11

assigned at 335
bought back at $336.93 on 1000 shares and 336.50 on 600 shares
loss of $1.93 and 1.50 respectively
loss overall:
10 x 100 x 1.50 = ($1,500)
+ 4 x 100 x 1.93 = ($ 772)
+ commissions = ($ 10)
total =($2282) or $1.43 per share

sold new 337 aug 12 calls and puts for 1.55 put+ 0.96 call or credit of 2.51
cash flow gain of 1.08 /share

size: 16 contracts
basis $48,535 or $28.56 / share
cash flow $17,292 or $10.80 / share
p&l $12,829 or $8.01 /share

IWM – Aug 5 Rolls

Contrarily to SPY, IWM had not moved up quite as much, and looked like it might correct back towards our 152 straddle center. So I chose not to change the center point. However, the position was profitable. Upon examining the theta decays on the Aug 21 that I had been holding versus the new Aug 7 straddle and the condition of my cash flow - quite positive , it made sense to me to sacrifice cash flow and gain more time decay.

In the graph below, the red arrows show you the comparative Theta values. The shorter term options lose around 0.33 theta more each day or around $0.33 cents per share.

size: 35 contracts
Long Term Hedge: $93,159 or $26.61 per share
Cash Flow to Date: $13,675 or $3.90 per share
P&L to date : $46,812 or $13.37 per share

SPY 05 AUG Rolls

Ok, this morning SPY had gapped up to 332, a hair length away from its all time high. I thought this was likely to happen, but I had still hedged out the risk of a big downside move, while sacrificing upside gains, because I was "unbalanced" in my sold option positions, being short puts but not calls. I described this in yesterday's post.

So of course my short stock position was losing money, and I quickly closed it, taking the expected loss. But my sold put was up by a bit more than that.

I wanted to center a new straddle on $332, so I bought back the 330 put, and sold a put expiring even earlier, on AUG 5. This gave me about a extra 10 cents of theta over the AUG 7 puts, too tempting to forego. Then I sold a $332 call. In this case the AUG 7 was more compelling.
Closing the puts at a gain then subtracting the loss on the short stock yielded a small net gain of $226 on 16 positions, or only $0.14 per share. That's not much, but I'm happy for the gain when I might have faced a $2000-$3000 loss if SPY had dropped.

Because I brought my time forward, I sacrificed cash flow, on my rolled put, but by selling a new call I brought in more than I took out, even after netting out the stock sales.

size: 16 contracts

basis $48,535 or $28.56 / share
cash flow $12,945 or $8.09 / share
p&l $9,971 or $6.23 /share

My long term options are profitable by $2029, but I will not close them out, nor roll them. I'm often asked why. I would only do so if I were very bearish on the market. I'm not. I think anything can happen. Rolling long term LEAPS usually incurs quite a bit of slippage as the bid/ask spreads are much larger. I'm content to give back some of these gains if stocks move lower, knowing I will sell a lot of short term premium to more than make up for it.

SPY – Aug 3 and Aug 4 Option Rolls

On Aug 3, SPY gapped up from $324 to $328, meaning we needed to recenter our straddle from its 324 strike level.

On the call side, now-in-the-money by $4.00, we reduced that exposure by buying back the 324 strikes. This cost us $2.48 per share of loss.
This was almost entirely offset by a $2.06 gain on buying back the now deep out of the money puts. The overall loss was $0.42 per share, or
$1378.71 on our 16 contracts.

We then sold the 330 calls and puts for the same date, expiring August 7, for $5.47/share. Having just spend $6.10 to buy back the previous straddle, this caused a reduction of cash flow of $0.63 / share or $1008 for all 16 contracts.

size: 16 contracts

basis $48,535 or $28.56 / share
cash flow $15,995 $10.00 / share
p&l $8,938.29 or $5.59 /share

The next day, Aug 5, SPY seemed to want to close the gap below, testing the day's lows on 2 occasion, but rallied in the afternoon to make new highs. We chose to do the rolls in stages, first closing the threatened put side, at 14:30 when it seemed the stock would move back to previous moves. Later, when SPY reversed to make higher highs, we bought back the call. In hindsight, it would have been better to buy back the entire straddle at the same time. You win some, you lose some...

We still made a profit, namely $809 or $0.50 cents per share. I then put a limit order to sell the SPY AUG 5 put (expiring tomorrow) at $1.37, which filled and one to sell the SPY 330 AUG 7 call (3 days out), also with a limit order. Unfortunately, my call did not fill, leaving me in a lopsided short, with a bullish bias. This will act against us if the stock prices move lower overnight. but in our favor if stocks move higher, as I expect.

This is not an ideal situation, and I would prefer it had not happened. I like to make this strategy market neutral, benefiting regardless of stocks moving up or down. In order to adjust this, I looked at how many shares I would need to short in order to make this position delta neutral. I appears that a short of 800 shares would accomplish this. So I will attempt to short that number of shares after market hours using limit orders.

size: 16 contracts

basis $48,535 or $28.56 / share
cash flow $10,299 $6.43 / share
p&l $9,745 or $6.09 /share

IWM – 03 Aug and 4 Aug Rolls

I got a bit behind in my postings so I will report the last 2 days of trading here.

On the morning of the 4th IWM was threatening to breach its high at 149.60. so we closed our 145 strike straddle and shorted a 149 strike straddle. We lost $1.75 per share on the Call side, and gains $1.57 on the put side, for a net loss of #0.23 after fees.
Since we kept the dates at the shortest time interval, expiring on the 7th, we took a cash flow hit of $2.16 per share, or $7557 for our 35 contracts. This brought our cash flow down to $16,405 overall, or $4.68 per share.

Altogether we have milked $13.03 per share from an original investment of $26.61 made a little over 2 months ago.

size: 35 contracts
Long Term Hedge: $93,159 or $26.61 per share
Cash Flow to Date: $16,405 or $4.68 per share
P&L to date : $45,601 or $13.03 per share

Today, the next day, IWM breached the recent high for a second time. My technical analysis suggests it is likely to move up into the 150.50 to 151 area by the end of this week. So we rolled out our last straddle at 149 to replace it with a 151 straddle. In this case, I chose to move the date of the call back to Aug 14 to bring in more cash flow. So this improved our cash flow by $3.33 per share

This was a small loss of $268 on 35 contracts or about $0.07 per share.

size: 35 contracts
Long Term Hedge: $93,159 or $26.61 per share
Cash Flow to Date: $28,063 or $8.02 per share
P&L to date : $45,333 or $12.95 per share

Overall this strategy is performing extremely well. In the picture below, you see that we could close our long positions for a loss of $7937 on 35 contracts. Subtracting that from our gains yields a gain of $37,396 or 40% of our basis investment in just a few months of milking our cow.
Of course we will not close these positions but rather will continue to milk it for another 9 and 1/2 months.

GE – A New Financial Cow for Our Growing Herd

Well, our milk-the-cow strategy has been going strong this year, after developing the strategy and working out the kinks in paper-based and live trading over the last 3 years. So we've decided to add a new cow to our growing herd, namely General Electric (GE).

For my smaller investors, I needed to find a stock that did not require a lot of margin, that offered an attractive rate of retail/wholesale options cost, that offered high frequency of options contracts (weeklies, preferably), and equally important, that offered low bid/ask spreads. These are all criteria for choosing a good candidate to generate maximum income from a strategy based on rolling options.

At around $6.00 a share, I could establish a long term strangle (buying out of the money puts and calls) for $4.10 per share or $410 per contract.
This puts an outer limit at possible losses if I am careful not to lose money on my frequent option rolls (milking my cow).

I sold my first at the money puts and calls on the same day at a 6.00 strike. Later that day I had to buy them back at a loss to reset the straddle to $6.50. I did so by rolling from the original July 31 sold strikes to Aug 7 sold strikes. This created a $9.50 loss per contract but a positive cash flow of $15.41.

As I'm writing this, on the next day, the stock has not moved much, but the options positions have turned profitable. The currently have a positive value of $209 if I were to close them.

size: 41 contracts
Long Term Hedge: $4,510 or $1.10 per share
Cash Flow to Date: $650 or $0.07 per share
P&L to date : ($95) or ($0.02) per share