Cash Secured Puts vs S&P 500 Challenge. Month 11, April 2024

The month I bought the dip and the dip kept dipping

Here we go, month 11 of trying to beat the S&P 500 with cash secured puts and covered calls. If this happens to be the first post you’ve seen on this here’s what’s going on: I started a personal challenge to see if I could beat the results of investing in the S&P 500 using Vanguard’s S&P 500 ETF, ticker VOO, by selling cash secured puts and covered calls. For some it’s called a wheel strategy. You can read how I set everything up in my post: Cash Secured Puts and Covered Calls Sales, Can it Beat the S&P 500 and then see each month’s results at the following links:

• Month 1, June 2023
• Month 2, July 2023
• Month 3, August 2023
• Month 4, September 2023
• Month 5, October 2023
• Month 6, November 2023
• Month 7, December 2023
• Month 8, January 2024
• Month 9, February 2024
• Month 10, March 2024

Also, before we get started, I should give a disclaimer, you know the one you always hear when people are talking about investments. I need to let you know I’m not a financial advisor and these posts are not meant as investment advice. You’d be a month behind schedule anyway and it wouldn’t help to copy the trades. Especially since they’ve mostly all expired. These are for educational and entertainment purposes only. By the way if you are one of the ones who considers this entertaining you’re kind of a money nerd, like me. Sorry!

Here’s a really quick recap of how this personal challenge got going. I kicked off the challenge back at the beginning of June with a $6,000 deposit into a Roth IRA account and I’m selling cash secured puts or covered calls to collect the premiums and measure that against the performance of what I could have purchased in shares of the VOO. I’ll post all of the trades I made each week along with an image of the account value at the end of the month. Each month I’ll compare it to the performance of the shares in VOO and keep track of the cumulative value of both accounts. So here we go again.

To start the month I am beginning from an account value of $6,262.28. After a decent little bounce back in March, I felt like maybe the tide was finally turning. Spoiler: it was not.

Week 1, April 1 – 6

Fresh month, fresh optimism. I sold a cash secured put on Hut 8 (ticker HUT) with a strike price of $10.50 expiring on the 5th and collected a premium of $48.34 after the fee. If you’re new here, a cash secured put means I’m agreeing to buy 100 shares of a stock at the strike price if it drops there, and I set aside the cash to cover it, collecting a premium for making that promise. As long as the stock stays above the strike, the put expires worthless and I keep the premium free and clear.

That’s not what happened. HUT closed the week below $10.50, so on Friday the 5th the put was assigned and I bought 100 shares at $10.50 for $1,050.00. Assignment just means the other side exercised their right and I had to make good on my promise to buy. HUT is a bitcoin miner, and this was the run-up to the bitcoin “halving” later in the month, an event that cuts the reward miners earn for each block roughly in half. That’s a direct hit to miner revenue, and the whole group had been sliding lower as traders priced it in. So I now owned 100 shares of a company heading into a headwind, at a price the market had already decided was too high. Off to a great start.

Week 2, April 7 – 13

Now that I owned the HUT shares, it was time to flip into covered call mode. A covered call is the other half of the wheel: since I own 100 shares, I sell someone the right to buy them from me at a set strike, collect a premium, and if the stock climbs above that strike I get “called away” and sell at the strike. Because I actually own the shares, it’s “covered” and there’s no additional risk beyond having to sell stock I already own.

I sold the $10.50 call expiring the 12th and collected a grand total of $11.34 after the fee. Not exactly a windfall. With HUT trading below my $10.50 cost, I couldn’t sell a call any higher than $10.50 without basically guaranteeing myself a loss if it got called, so I sold right at my cost basis and took the pennies that were on offer. The stock stayed weak and the call expired worthless on the 12th, which at least meant I kept the shares and the small premium. When your best-case outcome for the week is eleven bucks, you take a breath and remind yourself this is a long game.

Week 3, April 14 – 20

This was a quiet week on the trading front and a loud one on the market front. My leftover Vodafone (ticker VOD) $9.00 call from a prior month expired worthless on the 19th, which is fine by me, that just means I keep my VOD shares and the premium I’d already collected. The only other line item was $0.34 of bank interest on the idle cash. Riveting stuff.

Meanwhile the broader market was having its worst stretch in months. A hotter than expected inflation report earlier in April had investors giving up on the idea of early interest rate cuts from the Federal Reserve, and 10-year Treasury yields pushed up toward 4.6%. Add in some geopolitical nerves in the Middle East mid-month and stocks sold off across the board. Bitcoin’s halving also landed right around the 20th, and while the event itself came and went without fireworks, my newly assigned HUT shares weren’t getting any help from it.

Week 4, April 21 – 27

With a few positions now sitting on shares, I spent this week writing covered calls on what I owned to squeeze out some premium. I sold a HUT $10.50 call expiring May 3rd for $19.34, an Affirm (ticker AFRM) $48.00 call expiring May 10th for $25.34, and another Vodafone $9.00 call expiring May 17th for $13.34. All told that’s $58.02 collected in a single week, which after the month I’d been having felt almost respectable.

The theme here is the same one that’s been dogging me: when the stocks you’re holding are underwater, the calls you can safely sell are the low-strike, low-premium kind. Affirm, a buy-now-pay-later company, is about as rate-sensitive as they come, so the same rising-yield story that hit the market hit it harder, and my $48 call was comfortably out of the money. I’m collecting rent on positions I’d rather be climbing, but rent is rent.

Week 5, April 28 – 30

Two trading days to close out the month and I sat on my hands. Everything I’d sold the week before was still open and working, so there was nothing to do but watch April finish the way it spent most of the month, in the red.

S&P 500 (VOO) Summary Activity and Results

Another down month, so let’s see how we fared against the S&P 500. VOO opened April at $481.44 and closed the month at $461.43, a decline of about 4.16% for the month. That was the market’s worst month since last September, driven by that hot inflation print, the Fed pushing rate cuts further out on the calendar, and yields climbing. There was no VOO dividend in April, so my share count stayed put at 15.854 shares carried over from the March reinvestment.

At month end the S&P 500 ETF fund had a total value of $7,315.55, a decline of about 4.01% from the March close. Even after that drop, the VOO account is still up a cumulative 21.93% since inception on June 1, 2023. That’s the frustrating part. The index had a genuinely bad month, and it’s still sitting on a very healthy gain.

Month End Results on Live Account

Alright, the part I’ve been putting off. I started the month at $6,262.28 and ended it at $5,512.90, a drop of $749.38, or about 11.97% for the month. Ouch.

Now, the premiums themselves were actually fine given how little I was working with. I placed six option trades and collected $117.70 in premiums on the month, plus $0.34 of bank interest. That’s more than 1.8% on the starting balance in pure premium, which in a vacuum isn’t bad at all. The problem, as always, isn’t the premium, it’s the stock underneath it. Getting assigned 100 shares of HUT right as the whole bitcoin mining group was sliding meant I bought $1,050 worth of stock that promptly lost value, and the same rising-rate selloff that hit Affirm and the rest of the market dragged the other shares I’m holding down with it. The premiums are the drips filling the bucket, and the stock declines are the hole in the bottom.

Heading into May I’m still holding my HUT, Affirm, and Vodafone shares, each with a covered call sold against it and expiring in early-to-mid May. So the wheel keeps turning, I’ll either collect and keep the shares or get called away, and we’ll do it all again.

April 2024 Trades

Final Comparison

The VOO S&P 500 ETF account ended at $7,315.55, down 4.01% for the month but still up a cumulative 21.93% since the challenge began on June 1, 2023. My live account ended at $5,512.90, down 11.97% for the month and now sitting at a cumulative −8.12% from the start.

So after clawing back to within shouting distance in March, April knocked me right back down. The gap between the two accounts is now about $1,802.65, and it’s all going the wrong direction. VOO had a bad month and lost around four percent. I had a bad month and lost twelve. When the market falls, my basket of volatile, beaten-down single stocks falls harder, and the premiums I collect aren’t nearly enough to cushion it. That’s the whole story of this challenge in one month.

Ending Thoughts

Eleven months in, and April was a punch in the gut. The index dipped and shrugged it off; my account dipped and face-planted. It’s discouraging to be back underwater cumulatively after finally seeing daylight in March, and there’s a version of me that wants to torch the whole strategy and just buy VOO like a normal person.

But here’s the thing I keep coming back to. The trades this month mostly did what they were supposed to do, I collected premium every week and nothing blew up. The damage came from the stocks I’m holding, and specifically from a rough patch of picking volatile, beaten-down names and then getting assigned right as they fell further. That’s a stock-selection problem more than a strategy problem, and it’s fixable. I need to be more disciplined about which underlyings I’m willing to own, because owning them is the whole risk of this game.

Heading into May I’m holding HUT, Affirm, and Vodafone with covered calls sold against each of them, so the wheel keeps spinning. I’m going to stick with it, tighten up the stock picks, and see if May can be the month the bucket finally starts to hold water. Time will tell.