Cash Secured Puts vs S&P 500 Challenge. Month 12, May 2024

The Month I Basically Broke Even and Called It a Win

Here we go, month 12 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.

• 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
• Month 11, April 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.

To start the month I am beginning from an account value of $5,512.90. After April took a sledgehammer to the account (down almost 12% in a single month, in case you missed it), my goal for May was embarrassingly low: just don’t make it worse.

Week 1, May 1 – 4, 2024

The month opened with a bit of housekeeping on Hut 8 (HUT), the bitcoin mining stock I’ve been stuck holding since an assignment back in April. I had a covered call sold against those shares (a covered call is when you sell someone the right to buy 100 shares you already own, at a set price, by a set date, in exchange for a small premium up front) expiring May 3rd at the $10.50 strike. With HUT still sitting below that level, I decided to roll it: I bought to close the May 3rd call for a small $2.01 debit, then immediately sold to open a new call two weeks further out, May 17th, same $10.50 strike, for a $21.34 credit. Net-net that’s about $19 in my pocket just for pushing the date out.

The timing lined up with the tail end of the bitcoin halving hangover. Bitcoin’s network halving happened in mid-April, permanently cutting the reward miners like HUT collect for verifying transactions, and the sector was still digesting what that meant for margins. Rolling the call kept the premium machine running while I waited to see if the stock would find its footing.

Week 2, May 5 – 11, 2024

Quiet week on the trading front, but a big one on the news front. Affirm (AFRM), the buy-now-pay-later company I got assigned 100 shares of back in January at a $48 cost basis, reported fiscal Q3 earnings after the close on May 8th. The numbers were good: a smaller-than-expected loss and revenue that beat estimates by almost 5%. The stock moved on the news, but not enough to climb back above my $48 strike by the Friday, May 10th expiration, so the covered call I’d sold against it back in April just expired worthless.

That’s a mixed bag emotionally. On one hand, a beat is a beat, and it’s nice to see the business doing better than Wall Street expected. On the other hand, those shares have been underwater since January and a good earnings report wasn’t enough to erase months of red. I’ll admit I didn’t get around to selling a fresh call on AFRM before the month got away from me, so those shares went into the next stretch of May uncovered. Lesson noted.

Week 3, May 12 – 18, 2024

This was the week that finally closed out a saga I’ve been dragging through this whole series: Vodafone (VOD). I got assigned those 100 shares back in December 2023 at a $9.00 cost basis (assignment is when the person who bought your option decides to use it, forcing you to either buy or sell the stock at the agreed price) and I’ve been writing a covered call against them almost every single cycle since, month after month, collecting small premiums while the stock just sat there under $9.

Vodafone reported full-year results on May 14th, and the market liked what it heard. The company has been in the middle of a multi-year restructuring, cutting costs and reshaping its European operations, and investors responded well to the update. The stock climbed enough that by expiration on Friday, May 17th, it was trading above my $9.00 strike, and the shares were finally called away.

I’m calling this a win, with an asterisk. The stock itself basically broke even, $900 in and $899.97 out, but I collected roughly $89 in option premiums across the five months I held it. So the position that spent most of its life looking like dead money quietly turned a small profit on the way out the door. Sometimes that’s the best you can hope for with a stock that just won’t move. The HUT call from the week before also expired worthless the same day, keeping that position rolling along.

Week 4, May 19 – 25, 2024

The broader market was busy taking a breather after the fireworks of the May 15th inflation report, when a cooler-than-expected reading on consumer prices sent the S&P 500, Dow, and Nasdaq all to fresh record highs on hopes the Fed might actually cut rates later in the year. HUT didn’t get invited to that party. It stayed put below my $10.50 strike, so I sold another weekly covered call on the 20th for $14.34, and it expired worthless on the 24th right on schedule. Not exciting, but a reliable little paycheck at this point.

Week 5, May 26 – 31, 2024

Closed out the month the same way I’ve been closing out most of them lately: rolling HUT forward again. Sold a new $10.50 call expiring June 7th for $21.34 and called it a month. No fireworks, no drama, just the same slow grind of collecting small premiums while I wait for either HUT or AFRM to give me a reason to feel better about owning them.

S&P 500 (VOO) Summary Activity and Results

VOO opened May where April left off, at $461.43, and closed the month at $484.62, a gain of 5.03%. The rally leaned heavily on that May 15th inflation report I mentioned above. April’s Consumer Price Index came in cooler than economists expected, and the market took it as a green light that the Federal Reserve might still cut interest rates before the year was out. Stocks ripped higher that day and mostly held the gains through the rest of the month.

No dividend fell in May (VOO pays quarterly, and the next one isn’t due until late June), so the running share count carries forward unchanged at 15.854 shares.

Month End Results on Live Account

Opening balance for May: $5,512.90. Closing balance: $5,477.00. That’s a loss of $35.90, or -0.65% for the month.

Here’s the thing though, after the month I actually had, I’ll take it. Between the option premiums (a little over $55 across the four contracts I sold or closed) and the $0.27 in bank interest, I collected around $55.28 in income for the month. The account still finished slightly in the red, which tells you the paper value of AFRM and HUT ticked down enough during May to eat that income and then some. But compared to April’s $749.38 gut-punch, a $35.90 dip barely registers. Sometimes “meh” is a perfectly good outcome.

Heading into June, I’m carrying 100 shares of HUT with a covered call sold against it (expiring June 7th at $10.50), and 100 shares of AFRM sitting there uncovered after I let that ball drop in May. VOD, at least, is off the books entirely, and it left with a small profit to show for the five months I spent babysitting it.

Final Comparison

Let’s not sugarcoat this one. VOO had a strong May, up 5.03% for the month and now sitting at 28.05% cumulative gain since this whole thing started. My live account, meanwhile, was basically flat at -0.65% for the month and is still down 8.72% since June 2023. The gap between the two accounts is now $2,206.17, and it’s not closing anytime soon at this rate.

If there’s a silver lining, it’s that May didn’t add much to that gap. April alone widened the spread by more than $700; May only added about $70 to it. The bleeding has mostly stopped, even if the account hasn’t started healing yet.

Ending Thoughts

May was the first month in a while where I didn’t dread writing this post. Nothing dramatic happened, which after April felt like a gift. VOD finally walked out the door after five months of me writing calls against a stock that refused to do anything, and it left a little richer than it came in, which is about the best outcome a “boring” position can give you.

AFRM is still the elephant in the room. It’s the biggest position in the account by far, it’s been underwater since January, and even a solid earnings report in May wasn’t enough to change that story. I need to get back in the habit of writing a fresh call against it every cycle instead of letting weeks slip by uncovered, because sitting on shares with no call working for me is the worst of both worlds.

HUT keeps doing what HUT does: sitting below my strike, letting me collect a little premium, and rolling forward again. It’s not glamorous, but it’s the one part of the portfolio that’s behaving predictably right now.

The bigger picture still isn’t pretty. VOO is up nearly 28% since this challenge started; I’m down almost 9%. That’s a wide gap and I’m not going to pretend otherwise. But May was the first month in this stretch where the account didn’t actively get worse, and after the year I’ve had, I’ll take small mercies where I can get them. On to June, where that AFRM call needs to actually get sold this time.