$10/day for $3,600! Option Writing Challenge: Failed.

Back around January 2015 when I first started using Option Writing; my friend spoke about wanting to earn an extra $10 per day or more simply: $3,600 a year. Based on my (at that time) successful Option Writing I told my friend it was entirely possibly to achieve this goal.

Calculation
$10 x ~30 days x 12 months = $3,600.
$3,600 per year additional income / 12 months = $300 per month.

Options Closed
Number of Traded: 57
Losses: -$311.41
Number of Trades: 131
Trade Commission: $1,615.04

Options Expired
Number of Traded: 9
Gains: $592.25
Number of Trades: 10
Trade Commission: $133.75

Totals
Total Number of Traded: 66
Total Gains: $280.84
Total Number of Trades: 141
Total Trade Commission: $1,748.79

Total Revenues: $2,029.63

*Not including FX conversions and Option Assignments.

Surprisingly, coming out of 2016, despite some massive losses, I eked out out a gain of $280.84. Breaking it down further that turned out to be $0.7694/day or ~$23.4033/month.

Tallying up the commissions for the 141 trades, shows that the cost of making $280.84 was astronomical, hitting $1,748.79 or 622.6997% of the year's gains.

Despite my goal of using Options to earn money and to generate lower average purchase costs for stocks I want to own; a lot of the resulting trades was the result of inexperience:

1. Making dumb moves from writing and lucking out on expiry or short term turn around for Stocks that I ended up not being that certain or keep on holding for the long term.
2. Over-extending myself and writing too many options at once. This resulted in me needing to take opportunities pull back.
3. General market uncertainty; causing me to want to reduce exposure.
4. Impatience with waiting for the Expiry Date for Assignment or Option Expiry.

One might think that it was not worth the time and worry that I put into using this new strategy in my toolbox, but it really showed me the potential of being more active and from writing Options. This coming year I definitely want to continue Option Writing, but hopefully can put to use my 2015 experiences to be more careful with my targets; focus more on what I currently have in holdings; and be more patient. In addition to Option Writing, I want to get back into the buy side and work on using other Option Strategies.

Options Expiry Day: Premium is Mine! $X TMX Group +904.5662% (November 20, 2015)

I guess we should be grateful for the small wins.  Though lately I have been losing a lot more than I've been gaining.

Back in August 21, 2015 I picked up 100 shares of TMX Group (X) via Put option assignment .  Average price per share ended up $49.509, but the underlying stock was whipped down to $45.89; giving me an instant paper loss of $3.619/share.

Unexpectedly, back on October 8th the stock price continued recovering and closed up to $48.95. The following day October 9th it resumed its decline and I saw an opportunity as the premium for November 20th's Call expiry went gone up. (In retrospect, I probably should have sold X, but I don't mind holding this stock.) I took the opportunity to write a Call @ $1.10 with a net premium after commission of $0.9905.

Date

Symbol

Type

Expiry

Strike

Quantity

Price

Gross

Commission

Net Price

Net Amount

Exposure

Status

Type

Net Revenue

% Gain/Loss

2015-10-09

X

Call

11/20/15

50

1

$1.1000

$110.0000

$10.95

$0.9905

$99.05

$0.00

Expired

Covered

$99.05

904.5662%

I had gone on vacation not long after writing and returned before October 26. The price had declined to the $46's and I saw another opportunity. This time to write a Put to allow myself the potential to average down. The premium was juicy taking in average $1.1405.

The stock floated around the strike of $46 and by November 9 recovered upwards to $49, but again began to decline again. With less than 10 days to go until expiry, and the need to maintain reserves due to other investments, I decided to close out the position.  I still felt it would not likely go into the money and decline below $46 by Nov 20th.

In any case, this trade netted me a gain of $88.10, +77.2468%.

Calculation formula: (Net Sell Premium ($114.05) - Net Buy Back Premium ($25.95)) / Net Sell Premium ($114.05)
= 77.2468%

Date	Symbol	Type	Expiry	Strike	Quantity	Avg Share Price	Gross	Commission	Net Return	Net Amount	Exposure	Status	Type	Net Revenue	% Gain/Loss
2015-10-26	X	Put	11/20/15	46	1	$1.2500	$125.0000	$10.95	$1.1405	$114.05	$4,600.00	Closed	Covered
2015-11-09	X	Put	11/20/15	46	1	$0.1500	$15.0000	$10.95	$0.0405	$25.95	$4,600.00	Closed	Covered	$88.10	77.2468%

Option expiry was Friday November 20th and sure enough X closed at $46.69.

a) I was right that my previous Put would not have been assigned.

and

b) as I didn't mind whether X was sold or held, I didn't bother buying it back to close and could afford to wait for the expiry date.

Date

Symbol

Type

Expiry

Strike

Quantity

Price

Gross

Commission

Net Price

Net Amount

Exposure

Status

Type

Net Revenue

% Gain/Loss

2015-10-09

X

Call

11/20/15

50

1

$1.1000

$110.0000

$10.95

$0.9905

$99.05

$0.00

Expired

Covered

$99.05

904.5662%

A small gain, but I'll take it: $99.05, +904.5662%

Calculation:

Net Sell Premium ($99.05) / Commission ($10.95)

= 904.5662%

With the Call and Put Premiums collected $88.10 + $99.05 = $187.15 my gross break even price is now $ 49.509 - $1.8715 = $47.6375.  Now that I think about it, knowing my new break even; I have more flexibility to either sell the stock above that point or to write another Call at a lower strike price. In addition, a $0.40 dividend was declared, which will give me $40. All things being equal, bumping break even to $48.0375. This will require some more thinking and waiting for the next swing in prices.

Note: Questrade will have a Transaction entry to show the expiry, but it will not show until my next statement.  I do have an example of expiry for some $G Goldcorp Put options expired back on February 20, 2015.

What Put Option Assignment looks like via Questrade. $X TMX Group + $CWB Canadian Western Bank (August 21, 2015)

On August 21, 2015, I was assigned two different stocks via Put Options I wrote on them.  The prices of these two on August 21, 2015 were well below the strike prices:
$50 TMX Group, Closing Price: $45.89. $4.11/share loss.
$28 Canadian Western Bank, Closing Price: $22.25. $5.75/share loss.

While there was an automatic paper loss upon assignment; the loss was cushioned to an extent when looking at the premium.

My choice to avoid assignment would have been to Buy to Close (buy back) the Puts I wrote.  Even so, looking at the cost of buying back it would have been a greater loss than the assignment; not including the commission.  Also, I would end up with no share ownership.  One reason why you might want to buy it back is if you cannot afford to cover the total cost of the shares.

*Take the Ask Price because this is the first available price that someone is offering to sell back the Puts.

Historical X 50 Put information:

$50-$4.25=$45.75,

Month / Strike	Bid price	Ask price	Last price	Impl. vol.	Open int.	Vol.

15 AUG 50.000

3.850

4.250

4.250

--

1

0

Historical CWB 28 Put information:

$28-$5.90=$22.10

Month / Strike	Bid price	Ask price	Last price	Impl. vol.	Open int.	Vol.

15 AUG 28.000

5.750

5.900

5.900

--

30

0

Calculations:
$X TMX Group
Strike Price: $50
Premium: $0.85 (x100 shares)
Option Commission: $10.95 ($9.95, +$1/contract)
Option Assignment: $24.95

Total Cost: $5,000-$85.00-$10.95+$24.95= $49.509
Average Price: $49.509


$CWB Canadian Western Bank
Strike Price: $28
Premium: $0.45 (x300 shares)
Option Commission: $12.95  ($9.95, +$1/contract)
Option Assignment: $24.95

Total Cost: $8,400-$135.00-$12.95+$24.95= $8,277
Average Price: $27.59

Date	Symbol	Type	Expiry	Strike	Quantity	Avg Share Price	Gross	Commission	Net Return	Net Amount	Exposure	Status	Type
2015-07-21	X	Put	08/21/15	50	1	$0.8500	$85.0000	$10.95	$0.7405	$74.05	$0.00	Assigned	Covered
2015-06-26	CWB	Put	08/21/15	28	3	$0.4500	$135.0000	$12.95	$0.4068	$122.05	$0.00	Assigned	Covered

This is what it looks like in the Questrade Account Statement:

Entry 1: Assignment of the Put(s)

Entry 2: Purchase of the underlying shares.

In the trade screen, which I did not take a screenshot of, the option is removed from your holdings the next day.  With my other brokerage BMO Investorline there is a couple day delay; I assume as the trade clearing is completed.