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BookingAlpha Option Trading Advisory

Tuesday, January 29, 2019

Disadvantages of Covered Calls

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Despite the fact that a disciplined covered call strategy can out perform an equity index in the long run and do it with less volatility risks obviously exist as with any strategy.
  • When you sell a Call on a stock that you are holding, you are limiting your upside potential. It gets capped at the short strike price of the Call you sold, so you will not participate in an entire stock rally. However, you are still exposed to downside moves just as a regular shareholder.
  • When you are short Calls, you are also short volatility (Vega). A strong decline in the stock may actually make the Call more expensive or not lose that much value do to the expansion of volatility. Of course, this is irrelevant at expiration date when all that matters is whether the stock is above or below the strike price of the Call option.
  • Because it is an active strategy, profits are taxed at higher rates than say dividends or capital gains. This is something to take into account if you want to avoid active trading taxes. In that cases it is better to apply the strategy in tax sheltered accounts such an IRA.
  • Also, because it is an active strategy you will incur more trading costs than a pure passive Buy&Hold Investor. It is important for this reason to use a broker than charges reasonable commissions of less than $1 per contract and no Order Ticket charge.
All that said, Covered Calls help you mitigate your equity losses and can also provide regular cash flow. Evidence shows that a systematic Covered Call approach on the S&P500, selling the 30 delta Out of the Money Call every month while holding the underlying instrument, beats the index handsomely and with less volatility. Read this article about CBOE’s BXY index.
The disciplined investor will simply have to fight the frustration of missing huge rallies, knowing that for each one of those, there will be dozens of stocks doing nothing, sometimes for years. So, things tend to even out in the end and turn out a little better for the Covered Call seller.

Go to the bottom of this page in order to see the Legal Stuff

Tuesday, January 22, 2019

A Short Put Investment on SJM

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Last week I finally closed a Short Put position on JM Smucker Co. (SJM) after a 42-day battle.
On November 30, the company closed at 104.51. My analysis told me that it was slightly undervalued and I decided to sell a January 95 Put for which I obtained a credit of $91. The broker froze a Buying Power of $1,335.65 for me to carry this short position.
After that, the market went to s**t, and SJM was no exception.

Friday, January 18, 2019

March SPX Elephant

Trade Details:

4 Mar SPX 2375/2385 Credit Put spread @0.60 credit each
2 Mar SPX 2830/2840 Credit Call spread @1.00 credit each

2 Mar SPY 284 Long Calls @0.56 debit each

Wednesday, January 16, 2019

Out of the Money Covered Calls (BXY) – outperforming CBOE’s BXM Buy Write Index

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With the introduction of the BXM and PUT indexes by the CBOE in 2003, it became apparent to many investors that selling Options around equity positions could indeed become a smarter way to invest for better returns in the long run and less volatility. Based on the interest provoked by the launch of these indexes, it was only a matter of time before investors started inquiring about other potential approaches to options selling.

Monday, January 14, 2019

Analysis of the CBOE CNDR Index - an Iron Condors benchmark

The CBOE’s CNDR index is a benchmark that tracks the hypothetical performance of a monthly SPX Iron Condor with short options at ~20 deltas, and long options at ~5 deltas. No trade adjustments/defense of any sort.

Let's have a look at its historical performance, illustrated on the CBOE website at

Saturday, January 12, 2019

Credit Spreads on Indexes - the failure of 2018. Lessons and moving forward

2018 was a disastrous year for what I call LTOptions (Credit Spreads, Iron Condors, Elephants) at -45%. There is no other way to put it, and although there were many issues at the personal level that affected me deeply, I don’t like to be complaining and using excuses. Time is more effectively used looking at the problems objectively and defining the proper course of action going forward.

These were the main problems in 2018:

Thursday, January 10, 2019

Outperformance of a Put selling Strategy

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One of the cons often mentioned about Put selling strategies is that you miss out on the larger gains that a stock rally would have provided.

It is true, that in the event of a strong rally (be it a stock or an index), holding shares directly lets you participate in potentially larger gains. However, not all stocks or indexes for that matter are constantly rallying. In many instances they face long periods of sideways back and forth, sometimes even years.
The S&P500 Put write index (symbol PUT) was created by the CBOE years ago and it aims to simulate a permanent Short Put strategy on the S&P500. Taken from the CBOE site:

Tuesday, January 8, 2019

February RUT Elephant

Trade Details:

4 Feb RUT 1240/1250 Credit Put spread @0.60 credit each
3 Feb RUT 1530/1540 Credit Call spread @0.95 credit each

6 Feb IWM 154 Long Calls @0.28 debit each

Saturday, January 5, 2019

Automated Forex Strategies - 2018 Results

The year was a success with positive returns across the board. Not as great as past years, but decent above average returns nonetheless that easily beat the benchmark. The Barclay's Currency Traders Index shows a +4.76% return among audited Forex Trading firms in 2018. That's the bench-mark I use for my FX Trading activity, which is all automated.

Friday, January 4, 2019

Leveraged Investing - 2018 results

This is my small account inspired by the Volatility and Leveraged Instruments to Lazily beat the Markets series.

Clearly "Lazily" does not mean "Stably" as the small account was down 22.3% in 2018, its first year in action. But the wild volatility of this approach was a known factor from the very beginning:

Thursday, January 3, 2019

Investing - 2018 results

This is my TFSA account (Canadian equivalent to a ROTH IRA in the US).
Results from previous years, both outperforming the TSX index, can be checked in the following links:
2017 Results   +7.96%
2016 Results   +24.53%

In 2018 the Canadian TSX index sucked. What a dog it has been for so many years now!
The index's performance was a pathetic -11.6%. That doesn't count dividends though. There is no ETF that tracks the TSX index. I usually go with XIU.TO as my benchmark which is the iShares S&P/TSX 60 ETF. With dividends included, XIU resulted in a -7.82% performance.

Tuesday, January 1, 2019

Enhanced Investing - 2018 Results

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Happy New Year!

$20,000 was the starting capital at the beginning of 2018 for the “Enhanced Investing” portfolio. At the end of the year a net gain after commissions of +$3867.81 had been realized, for a +19.3% performance. No equity exposure existed at the end of the year. In other words, no stock positions.
Breaking down the activity into the three main groups (Short Puts, Covered Calls and Dividends):