Preparing for Options Expiration
This is a somewhat unusual post for me at this blog, but there is a reason for it. Some of you may know that I have been trading options since 1999 and have a site called Options Dude. Well, I decided that I will be letting that site expire in February. There are several reasons for this:
- I originally meant it to be a static site, and I am finding that I prefer a blogging type format for interaction and communication. I like to share information and teach. It is difficult to know if that information is being understood or to answer questions in a static format.
- It was my first attempt at my own site so I went with Weebly. It was a reaction to the initial Google algorithm change which I needed to do, but I was afraid of self-hosting and WordPress. I now know that to be foolish, but at the time, it seemed reasonable.
- Related to number two, I think the site is somewhat ugly and my options (no pun intended) are limited. Not that Cash Flow Mantra is great looking, but there are many more design options with this blog and many opportunities for improvement.
- It is losing money. It costs $40 for the name and hosting. With my current hosting at HostGator, I would only need to buy the domain name and can have many blogs over which to amortize that cost. It seems like a no-brainer to bring all sites under one umbrella.
So, instead of maintaining a totally separate site, I will be posting more about options and my trading techniques here. Now, on to the meat of the post.
Options Expiration
Options expire on the third Saturday of the month, but trading ends at 4 pm on the third Friday, so I need to modify my positions by that time. Most of you are probably unaware that I own put options on all of the stocks in my retirement accounts. I also will sell covered calls on many of those positions to pay for the puts. I know that it may be a little confusing now so feel free to ask questions in the comment section. I may address more of this in future posts.
I am trying to make a transition to holding more dividend paying stocks and will be making this transition. On those positions that look profitable, I will let those go. Otherwise, I will be holding and making the necessary adjustments to purchase puts, buy back and sell calls and set myself up for the December expiration cycle. Right now, it looks like I will be able to add some dividend stocks, but we will have to see what the day holds.
Silver Wheaton Trade
As one specific example, I will share what I have been doing with Silver Wheaton stock. This is a stock that I first purchased in December of 2009. I ended up selling out completely in February of this year and bought back shares. My initial purchase on February 22, 2011 was at $39.72 per share basis. Since that time by buying puts and selling calls, my basis has changed to be $38.99 as I write this. I try to leave some shares available to participate in any rally and although I am not exactly pleased with the results over the last 9 months, I must say that it is better than buy and hold.
I had thought about replacing Silver Wheaton (SLW) but with the recent change in dividend policy which will triple the dividends paid, I think I will continue to hold. The yield will only be about 1%, but the company plans to devote 20% of cash flow to paying dividends. I would expect that with continued strength in the silver market and weakness in paper currencies, dividends will be fairly safe so I will hold for now. This increase will help meet my goal of increased dividends. More on that later.
Downward Pressure
As I write this early Friday morning, the market took a big tumble yesterday. The gold and silver market was hit as well. I am not sure that any of my calls will be exercised although futures are up at the moment. It is hard to say what will happen since volatility is high. Be that as it may, I will simply see what sells and what doesn’t. Whatever is left, will have calls sold against them for December and thus begins another cycle. The key is being patient.
Readers: How are you investing in this volatile market? What are you buying and selling?
Is your option strategy called a Collar? Why are you using this particular option strategy in a volatile market?
In this market I’m long. My invest time frame is 40 years+
YFS recently posted..How to Save For A Child’s Higher Education
Very good, it is a collar. I am more interested in the protective puts but have to find a way to pay for them, hence the collar. I am of the belief that a big loss is of more consequence to long term results than a big gain. Warren Buffett’s first rule is “Don’t lose money”. In 2008, I only lost 18%. It was a lot easier to get back than those I know that lost 50%. I don’t believe we are out of the woods yet, so I use the collar.
I thought the long put gave you better protection in volatile market over the collar. Say the stock takes off.. you get the gains.. if it dips no biggie you only have to pay the net premium. What are your thoughts on this?
YFS recently posted..How to Save For A Child’s Higher Education
The put offers good protection, but the question is how to pay for it. That is the point of selling calls. Granted this market is volatile, but the bias is downward. So I am trying to protect capital at this point more than anything else.
I am new to investing. I have tried to get my hands on as much info as possible and your posts have kept my eyes open to so many options. Thanks!
Thanks. Feel free to ask any questions you may have.
This volatility is making me buy boring stocks! The speculator inside me is lying low!
MoneyCone recently posted..Don’t overlook these when finalizing a mortgage
LOL! Boring isn’t all bad, huh?
Options scare me! Maybe because I know nothing about them. I am dollar cost averaging into the market in my 403B. I am buying a small cap index. It is one of the few in Vanguard that I can buy.
krantcents recently posted..Friday Night Links: Old Guy Edition
That is certainly a reasonable strategy. Options aren’t all that hard once you get to understanding them. But like anything, you have to spend some time on it.
Sounds like a wise move to me
It seems like dividend stocks are all that I’m buying these days… I bet these constant swings in the market can be good for options though!
Money Reasons recently posted..Alternative Plans For Financial Independence
You can get some good premiums on the calls, but need a solid up day for those.
The only thing I have managed to figure out in all this mess is that whatever we buy should be for the long term – I like gambling but I know that I shouldn’t. My gut is telling me to buy ‘things’ rather then anything else.
Maria@moneyprinciple recently posted..The Money Principle Brain Teaser: what are the three most financially dumb things you’ve done?
Buying for the long term is always a good idea.
Option trading is too volatile. You can make 200% in day but then again you can lose almost everything in one day too. It is just too scary. I do think with careful trades, you could make a lot of money but it’s very hard to predict the market in short period. People who do this well makes tons of money.
UltimateSmartMoney recently posted..I Recently Entered Yakezie Challenge!
The prospect of dying in a plane crash is scary. Not all options techniques involve a lot of volatility.
CFM, which broker do you use for options trading?
I’m also continuing to hold SLW. I heard a couple of interviews with the former CEO and current CEO, and both stated that the dividend will continue to be increased.
101 Centavos recently posted..Dividend Paying European Oil Majors – ENI Spa vs. Total SA
That is good news for the dividend in SLW. I use Fidelity for my retirement accounts. Definitely not the cheapest, but I have full options levels with the exception of naked trading so I am hesitant to change. I have used ETrade in the past and Optionsxpress. I don’t have enough other funds to use those now since I am trying to pay off debt so I am only using Fidelity in the retirement accounts at the moment.
Sorry to see optionsdude go, but I totally understand your decision. Still foggy on options, but I enjoy reading about it. I was trying to focus on dividend paying stocks, but it seems the market is trending lower so haven’t added more. Good luck as you focus on cashflowmantra!
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Thanks, Buck. But don’t worry. I will be posting everything here that I would have on that site. Plus I still have optionsdudeatoz which will have the educational focus. Between the two sites, there won’t be any lost content. I just want to focus on this one until the end of the Yakezie Challenge, then I will probably add some more to optionsdudeatoz. Plus, if you have any topics you would like discussed here, just let me know since I will be sure to do it.