After the fall in tech stocks over the last couple of months, I don’t mind telling you that I’ve had more than a few anxious moments. Would the tech sector continue to drop? Would it rebound, but I miss the opportunity to write covered calls at the prices I’d like?
Well, patience is paying off, and I’ve been able to make good headway minimizing losses and taking advantage of opportunities. Let’s check out my progress!
Results From Call Expiration
To recap from last month, my call strategy was to be patient and wait for the right balance of premium and strike price to minimize a loss or break even in each stock.
As a result, I wound up selling covered calls that expired April 16th, but also a few that won’t expire until May 21st. This allowed me to receive a higher premium, but also requires me to hold the option for an extra month.
Here are the results of the call options for April 16th:
Airbnb (ABNB)
My 100 shares of ABNB had a cost basis of $185.76, and the premium I received from my call was $10.76 per share for $1,076.
The call was not exercised, and my new cost basis is $175.00 per share. ABNB closed on the call date at $178.69.
Pinterest (PINS)
My 200 shares of PINS had a cost basis of $71.87 per share, and the premium received for 2 contracts was $3.00 per share for a total of $600.
These options were exercised at the $75 strike price for a profit of $625.28. With the addition of the premium, the total PINS profit was $1,223.82 after fees.
Skillz (SKLZ)
The 400 shares of SKLZ had a cost basis of $25.89 per share, and the 4 call options sold gave me $1.61 per share for $644 total premium.
The options were not exercised, and the new cost basis for this holding is $24.29 per share. SKLZ closed at $15.11 per share on the call date.
SKLZ dropped after a publication recommended shorting the stock, and I expect there to be a great deal of volatility. My opinion has not changed, and I’ll have no problem holding these shares as we see how this plays out.
Stitch Fix (SFIX)
My 300 shares of SFIX had a cost basis of $52.35 per share, and the 3 contracts sold resulted in a premium of $3.50 per share for $1,050.
The options were not exercised, and the new cost basis is $48.86 per share. SFIX closed at $46.58 on the call date.
Prudential (PRU)
My 300 shares of PRU had a cost basis of $86.49 per share, and the 3 call options gave me a premium of $3.16 per share for $948.
These options were exercised at the $92.50 strike price for a profit of $1,776. With the addition of the premium, the total PRU profit was $2,721.77 after fees.
Village Farms International (VFF)
My 700 shares of VFF had a cost basis of $$12.28 per share, and the 7 call options sold for $1.08 per share, giving me $756.
The options were not exercised, and the new cost basis for VFF is $11.21 per share. The stock closed at $11.32 on the call date.
The rest of the stocks in my covered call option strategy won’t expire until May 21st. They are: CRWD, IIPR, SQ, APPN, FVRR, and FSLY.
I decided not to sell a call option on either LMND or BAND because I was waiting for more of a rebound in each stock to get a better strike price and premium.
The total realized profit for April was $3,945.59, and my new cumulative profit is $27,807.62. This total does not include several positions that are still under water at this point.
Trading Notes And Strategy Changes
The option trading strategy this month had been about minimizing losses and being more conservative with my stock entry points. I am pleased with the results so far, but the May expiration will give much more clarity as to where I stand.
PINS has proven to be a winner time and time again, and PRU was a good choice since I would’ve been happy to hold it longer if the option hadn’t been exercised.
I feel my patience paid off and that writing May calls on some of the positions has worked out well. I’d rather hold the stock options longer than settle for a loss that could have been mitigated or even erased altogether.
Overall, my strategy is going to be the same going forward. I’ll continue to be patient and look for opportunities for profit and for minimizing losses on under water positions.
Whenever possible, I’ll sell May options, but if it makes sense to do so, I’ll look at the June expirations.
With that in mind, let’s look at the covered call options I’ve sold this month!
New Covered Call Options
All the call options I’ve sold this month are for the May 21st call date, and all of them were completed between April 19th and April 30th.
Airbnb (ABNB)
The new cost basis of ABNB is $175 per share, and I sold 1 contract for the $175 strike price at $10 per share for a premium of $1,000.
Lemonade (LMND)
My current investment in LMND is 300 shares with a current cost basis of $127 per share. The stock hasn’t rebounded significantly, but is trading at a price that I think is a good entry point.
So I purchased 200 more shares at $85.84 per share and sold 2 call options at the $87 strike price. The premium received was $6.83 per share for $1,366, which represents 8% of those shares value.
If the options are exercised, I’ll have a nice profit. If they’re not exercised, my new cost basis on the whole LMND investment will be brought down to $107.84 per share.
While the size of this investment is larger than I like to have for any one stock, I have confidence in its potential.
Bandwidth (BAND)
The 200 shares of BAND have a cost basis of $168.41 per share. I didn’t write a call on this stock last month, but I want to start bringing my cost basis down.
I wrote 2 contracts with a strike price of $155 and received a premium of $2.70 per share for $540. If this option is exercised, I’ll have to take a loss of about $2,150 after fees.
If I had only 1 or 2 positions that I was trying to minimize losses on, I would’ve waited for a bigger rebound in price before selling a covered call. I like the company and the prospects for future growth.
But at this time, if I have to take a loss, it’s much smaller than it could have been. Also, if the stock rises above the strike price by the call date, it’s likely that many of my other holdings will rise as well, so I’ll be looking OK overall.
Appian (APPN)
APPN is another company that I have confidence in and decided to purchase another 100 shares at a better entry point. I purchased them at $135.15 per share and sold a call at the $140 strike price for $9.74 per share. My initial option sold in March has a strike price of $165.
Again, if one or both options are exercised, I have a nice profit, and if not, then my cost basis will be lowered. After the premiums and fees are figured in, the new cost basis of my total APPN investment will go down to $145.55 per share.
Skillz (SKLZ)
My 400 shares of SKLZ has a new cost basis of $24.29, and I sold 4 contracts at the $23 strike price for $2.00 per share for $800.
This stock has been really volatile, and if the price goes back down, I’ll be adding to my position.
Village Farms International (VFF)
The new cost basis of my 700 shares of VFF is $10.70, and I sold 7 contracts at the $12 strike price at $.75 per share for a premium of $525.
Pinterest (PINS)
I purchased 300 shares of PINS this month in 2 separate transactions for a total cost basis of $72.86 per share. After the first 200 share purchase, I sold 2 call options at the $75 strike price at $5.99 per share for a premium of $1,198.
The second purchase was for 100 shares, and I sold 1 call option at the $73 strike price at $6.00 per share for $600.
OK, those are the new covered call options sold for the May 21st expiration date, along with the ones sold last month that are listed above.
Potential Monthly Profit
Since I’m still working down the cost basis of several holdings, there isn’t really any realistic way to calculate my potential monthly profit at this time. I have more than 50% of my portfolio allocated to this strategy, but I’m comfortable with the quality of my stock picks.
I think that there’s a very good chance that I’ll be holding several of these stocks for a while. There’s been a decent increase in the NASDAQ, but many investors rearrange their portfolios before taking summer breaks. This will probably lead to some more profit taking, which won’t help the price of some of the 2020 high-flyers.
The positive for me is that I’ll be able to add to positions that I have a lot of confidence in at much lower prices. That will bring my cost basis down considerably and enable me to take advantage of better option premiums and strike prices.
I learned a lot during the financial crisis a decade ago and was a lot smarter than when we lost almost everything after Y2k in 2000. Buying quality stocks and adding to those positions when they went on sale was my strategy in 2008-2009. It worked, and that’s what I’ll be looking at doing now.
The fact is that I won’t be able to earn cash for income until I can actually sell some of these holdings with minimal losses and free up capital in my account. Every month I’m working down the cost basis of declining stocks is a month I’m not making spendable income.
So we’ll see what results and opportunities the May expiration brings!
Option Updates
May 14th:
Tech stocks in general have taken another nosedive, and yesterday a couple of stocks hit a price target which is a viable entry point to add to my positions. One lesson I learned early on in my investing was that if I believed in a company, price dips were an opportunity.
Now this month I’m using that same process to help lower my cost basis on underwater positions. I added to both APPN and LMND, which will lower my costs considerably. Although they both have gone down since, I’m comfortable with the entry points.
I recently trimmed back and took some profits from 3 positions that had become oversized in my portfolio. That cash was being held for any opportunity to buy in lower and substantially decrease my cost basis on a couple other stocks.
The first one I bought was FVRR. The current cost basis was $261 per share, and I set an alert to notify me if it dropped $100 per share below that. Yesterday it did, and I purchased an additional 100 shares at $160.51 per share.
While that brought my total investment cost basis down to about $211 per share, that is still too high to sell any decent covered calls. So I sold 1 in-the-money May 21st call on the lower priced shares with the $155 strike price for $9 per share for $900.
I have no idea if stocks will continue to drop, rebound slightly, or go screaming back up. But I wrote this call with the intention of creating more downside protection than for profit. If the stock price continues to fall, I’ve made great headway reducing the cost basis to about $206.50 per share. If it goes up and the call is exercised, I’ve made a nice little profit in just a few days and am in the same position I was originally.
The second stock I doubled down on is SKLZ. It had significantly dropped again, so I purchased an additional 400 shares for $14.31 per share. The original 400 shares are at a cost basis of $24.29.
SKLZ is a stock that will be very volatile for awhile, in all likelihood. I wrote 4 covered call options for the June 18th call date to get a better premium of $1.42 per share for $568. If the stock continues down, my cost basis will be substantially reduced, and if these calls are exercised, I’ll have a profit of $844 before fees.
One other stock that I’ve been watching for awhile is ETSY. With the rest of the funds available, I decided to purchase 100 shares. I think that a price below $150 a share is a great entry point to write covered calls or start a long-term position.
The purchase price was $158.70 per share, and I sold an in-the-money $150 May 21st call at $10.65 a share for $1,065 before fees. The call was written with the expectation that there is further downside in the stock.
If the call expires worthless, I have a position in ETSY at $148 per share. If it’s exercised, I’ll have a small profit in just 8 days–win, win!
