When people ask me how much money I make trading options, it’s a question that is surprisingly difficult to answer and one that varies from day to day. This post is my attempt to be completely transparent about how much money I made (or didn’t) in 2019.
First, we’ll look at an ideal put option selling situation. This will give you an idea of how the system is supposed to work. Then we’ll look at a typical put option situation so that you understand how difficult it is to know at any given time how much money you’ve actually made or lost.
The Perfect World
In a perfect world, all of the put options I sell would expire “worthless” at the end of each week. I would keep the premiums without having to buy the stock. Each Monday, I would have all of my capital available plus the premiums I was paid. There would be a small two-cent fee for each transaction (FINRA Trading Activity Fee). The perfect world scenario does happen in real life, but it is the exception to the rule.
Example Perfect World Scenario (Actual Week of Trading in April 2019)
Total Collateral= $8,750.00
Premiums =$204.00 less .08 FINRA Trading Activity Fees= $203.92
Rate of Return=2.33%
In this ideal trading scenario, you could take that same $8750.00 worth of collateral and repeat your results every Monday for 52 weeks of the year. That means that over the course of one year, your return would have been 121%!!
Your original investment of less than 10K would turn into nearly 20K in one year. Not bad for passive income. With sufficient collateral, it is easy to see how you could earn enough income to live without being tied to a job.
It is also easy to determine how much money you made because you do not own stock that can fluctuate wildly from day to day.
Example Typical Trading Situation (Actual Week of Trading July 2019)
FINRA Fees to date=$.28
Acquired and sold 200 shares for additional income=$60.04
Acquired and sold call options on 200 shares for additional income=$375.00
Total Profit to date=$940.76
Rate of Return to date=3.28%
Notice that in this more typical week of trading that I do not yet know whether I have made or lost money! This is because I am still holding 200 shares of stock I acquired through selling put options. The options were exercised in this case and I haven’t been able to sell them because of low market prices. There are multiple possibilities for this week:
I continue to sell call options and make money on the stock I’ve acquired until I sell the stock for a profit.
The prices on the acquired stock drops and I sell for a loss.
The prices on the acquired stock rises and I sell for a profit.
Until I actually sell all of the stock acquired during this week, my realized profits are up in the air. Market fluctuations can make hundreds or thousands of dollars difference in the total value of my portfolio day to day. When you ask me how much money I’ve made, it’s difficult to say.
It’s probably easiest to look at the total worth of my portfolio on any given day to get an idea of how I’m doing. Keep in mind, however, that portfolio value does not tell you how much income you have generated. Your profits and losses are not “realized” until you sell your stock.
Overview of 2019
Net Gain/Loss (put and call premiums,dividends, sell of stock, FINRA fees)=$9709.35
Average Weekly Rate of Return=.81%
Portfolio Balance on January 1, 2019=$12,028.35
Portfolio Balance on January 1, 2020=$27,827.17
My stock portfolio was worth about $15,000.00 more at the beginning of 2020 than it was at the beginning of 2019. Almost $10,000.00 of the increase was due to my trading activity and the remainder was due to increase in stock value.
In all, 2019 was much more successful than 2018 (my first partial trading year). I learned some important lessons the hard way in 2018 and didn’t begin leveraging the power of selling call options on my acquired stock until August of 2019. I expect that call options will continue to play a significant role in my income-generation for the coming year.
I hope you found this post helpful. Stay tuned for additional posts on trading put and call options.