As a first interviewee on the option trader series, I am happy to talk to Investment Hunting. Lets’s go:
Can you introduce yourself?
Hi, I’m Nathan from Investment Hunting. I’m a dividend growth investor who also writes option contracts. I write a handful of option contracts every month. I only write (sell) options. This means I sell covered calls (contracts that use my existing shares as collateral), or cash secured puts (contracts that use cash in my brokerage account as collateral). I’ve made $6,000 dollar the past year selling Options. There have been up and down months throughout the past year. My best positive month I earned $1,790, and my worst month I’ve lost $1,710. The positive came from expired contracts. The negative is caused by me buying my options to close a contract. Overall though, I’m positive $6,000. Considering I spend minutes a day evaluating options, I consider this to be a good amount of positive income.
How did you get an interest in option trading?
I never considered option trading until I started posting articles on Seeking Alpha. Many commenters suggested that I could get a better entry price on stocks if I sold Puts. I began researching from there and the rest is history. Here’s the first Options Post I ever wrote.
What actions did you take to learn on option trading?
First I searched online for bloggers trading options. I couldn’t find many, so I bought a few books. I’ve read the following:
All About Dividend Investing, by Don Schreiber, JR., and Gary Stroik.
This is a good entry level book that covers beginner to intermediate options strategies.
Generate Thousands In Cash On Your Stocks Before Buying Or Selling Them, by Dr. Samir Elias
This book covers most popular options strategies.
Options as a Strategic Investment, By Lawrence G. McMillan
This is a serious book on Options. Honestly I only understood about 15% of this book. Th author covers every strategy and goes into deep detail.
What is your goal/ambition?
My goal is to increase the total return of any stock I own. I’m not looking to get rich with options, but I am interested in increasing my ROI slightly. My primary goal is to retire by living off of monthly dividend income. I see options as a way to capture a premium. The plan is for my option contracts to expire and provide me with premiums that I can use to buy more dividend paying stocks.
How do you describe your style?
Passive is the best description of my options style. I don’t do anything fancy or time consuming. I spend 10 minutes a day, usually on my train ride to work, evaluating the stocks that I own and how they are trending. For stocks that are overvalued I sell covered calls out of the money.
Did this evolve over time?
Yes. When I first started options trading, I sold a lot of cash secured puts. However, over the past year I have put most of my liquid money into stocks, so I don’t have available cash to sell this type of put. The past few months all of my contracts have been covered calls.
How much time do you spend on trading options?
10 – 20 minutes a day
How do you deal with the risk that comes with option trading?
I only sell options on those stocks I am willing to sell or own. For example, I’ve been selling covered calls on Realty Income Corporation the past few months. The stock is about 20% overvalued right now. I’m selling slightly out of the money calls. If the stock goes up above the strike price, I’m fine having it called away. This is because my cost basis is much lower than the stock’s current price. If the stock is called away, I’ll hold earnings and wait for the next price dip to buy the stock again. Then I’ll sell more calls.
What tools/sites/blogs/podcasts do you read on option trading?
I read other bloggers sites, but I don’t use any tools. I read Dennis McCain and Amber Tree Leaves.
What is the size of your option trading account?
Since I don’t sell options on margin, the size of my account is a segment of my overall investment portfolio. This means, only those stocks that are in my portfolio that I own more than 100 shares of are eligible to be used. I haven’t added everything up, but I’d say $100,000 U.S is the amount I have in shares to use as collateral. Here’s a link to my stock portfolio. Any company that I own 100 shares of is eligible to be used for covered call contracts.
Where do you get inspiration for trades?
I look for minor to medium volatility stocks. This is because a very stable stock, AT&T for example is not a stock that will yield me enough income to make the contract worthwhile. An example of a good options stock is Gilead Sciences. This stock price is volatile enough that I can sell covered calls when the stock spikes and have confidence that during my options contract period, the stoke will drop several dollars. When this drop occurs, I will revisit the contract to determine if I should buy it back or let the contract expire.
How do you track your trades and P&L?
I track everything using Google Docs in a spreadsheet that I created.
Where can we follow your results?
Right now, nowhere. I used to write about my options transactions, but stopped last year because my readers were not interested. Here’s a link to the last Options Post I wrote. But this has changed. The past 6-months, I’ve noticed many more dividend investors have embraced options strategies. I’m going to start reporting monthly again soon, stay tuned :-).
What is the worst trade ever you did?
I sold a put on Copa Holdings last year at $85. At the time the stock was trading over $100. The stock fell quickly and on the day of expiration it fell below $85. I almost sold the stock the next day. If I had I would have turned a $600 profit, because that’s what my premium was. But I held in the hopes of a gain. Copa stock continued sliding and today it trades around $55. Ive sold a bunch of covered calls in an attempt to reduce my cost basis, but this stocks seems to be volatile enough to offset any gains. I haven’t given up, but I really want to have a few wins with covered calls, then sell at or near break even.
I just sold another covered call today. The trade details are: CALL COPA HOLDINGS SA $65 EXP 11/18/16. What does this mean? A call at a strike price of $65. I’m betting that this stock will not go above $65 by November 18th of this year. My commission for this contract is $290.28. If the option expires worthless, I’ll keep the commission.
What is the best trade ever you did?
I think Gilead Sciences is the best options stock I’ve traded. I’ve sold a bunch of covered calls over the past year, which has reduced my cost basis by more than $25 a share. Today the stock is undervalued at $83. Even at it current low price, my cost basis is $75.51 a share. This low price was all made possible thanks to covered calls.
Where/how can we follow your progress?
You can follow my dividend stock strategy and transactions at Investment Hunting. In the near future, I will add an options section, but for now, I have blog posts about my stock transactions and my monthly dividend income.