With 2017 behind us, it is time to look back and review what trading option thought me. I now trade options for 2,5 years and really geared up early 2017. Let’s start!
First, let us look at the december results
Option Income – 551,09€
In December, I realised in total 551,09€ euro of profit. This income comes from 19 stock.
For the first time, I also sold a put on a stock with a price well above my “mental” limit. I did this by setting up a put spread: I sold a put and bought a put with a lower strike. This way, I did a defined risk trade. I knew that my max loss would be limited to the difference between the 2 strikes. All other trades I do are “naked” puts. The max loss is there the strike of the put. This trade brought in nice money, compared to the “risk” I took. I consider doing more of these trades.
2017 In review
For the whole of 2017, My option income total 7100€. 1K less than our travel budget. That is a nice context to know!
A pure numbers results is not a useful info. It needs to be put in context: how much risk did I take and how much capital did I reserve for that.
On the risk side
I use 1,5 leverage. That means that I have for every 100€ open put position around 66€ of collateral in my account. I could go way higher than this. Brokers allow you to go up to 3-4 time of leverage. I decide not to do that. Why? I want to sleep well at night.
On the capital side
My return on capital comes in at 13,27% (USD converted each month to EUR – virtually). Note that my capital was not stable throughout the year 2017. I added in different steps capital to my portfolio and plan to keep it at this level.
Is 13,27% a lot?
Risk and return go hand in hand. Trading options is equal risk to owning stock. So, only a comparison to stock is honest. Comparing to a savings account with a 0,11% yield is not fair!
Some ETF performances
SPY – 19,6% when measured in USD, 6,5 when measured in EUR
IWDA (EUR) – 5,9%
EMIM (EUR) – Emerging markets went well in 2017 : 22,4%
On a personal level, I am happy with this return. It beats the return that I use in my FIRE calculation. And the cash flow from this would allow us to pay for holidays when the kids no longer want to join us. That is a nice perspective.
Will it last?
Trading mostly short put options in a bull market is easy. Why: a short put – or selling a put – is a strategy that makes money when the market goes up. Question is: how high can it go, how much longer can it go up? Will I be happy to have all my cash trapped in stock when the market goes south and I need to buy all these stock? Let us see the next year
amber tree leaves 
Ciao ATL,
Nice results! On the option trades return I have several difficulties in calculating a proper AROI result. Mostly because the capital that I allocated to option trades was always different and this doesn’t help in the calculus. I see you have the same issue, what calculation did you adopt to come up with 13%?
Ciao ciao
Stal
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Hey Stal, I note each month the amount of money that I block on my option trading accounts and then calculate the average over a year. It does not matter if I use this for margin or not. A sample: first six months I have 10k and then 6months 20k. This makes on average 15k on my account. I then calculate my realised results and divide that by the 15k.
2018 should be simpler as I have reached the amount that feels ok for me. I no longer plan to add to the options trading account.
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Ok I get it, you do averages like me. Makes sense. I am still trying to find “a better way” to calculate the investments… 🙂 Do you do covered calls too? How do you account for those?
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Covered calls are ignorable on my portfolio. What I do: when assigned stock, my money is assigned to that and no longer available for options. It stays counted towards my investments.
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Well done, my benchmark for option returns is the long term average returns of my home market which is around 8%.
My view is option trading allows you to make money in up,down and sideways markets. Last year market returns were much higher then historical averages.
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Good return for your leverage level! I should have included my leverage level in my overview too! I am moving towards 1,5 leverage this year also so expecting that my return will be less going forward.
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Well done and carry on for 2018.
>>>All other trades I do are “naked” puts. The max loss is there the strike of the put.
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>>Will I be happy to have all my cash trapped in stock when the market goes south and I need to buy all these stock? Let us see the next year
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Very nice income from options last year! Hope 2018 goes even higher!
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Thx… At this time, I find it hard to write puts. I need to dive into neutral strategies more…
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Nice work, AT. Congrats on wrapping up a successful year. 2017 was a great year to me too with record options income generated. Here’s to an even better 2018.
cheers
R2R
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Nice work on the options trading! I gave it a go a while back but not for me… I prefer being able to understand the value of a business I’m buying a piece of. Glad it’s working out for you! All the best for 2018!
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We all need to find out what works for us…
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Nice work ATL, you did really well, to pay for most of your travel with options is awesome. Nice work my friend, you made a great return this year 🙂
Mr DDU
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