Well, I’m two months in and things are sill going well for my Cash Secured Puts vs S&P 500 Challenge. For those of you who haven’t followed along 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, using 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 the first month’s results at: Cash Secured Puts vs S&P 500 Challenge. Month 1, June 2023.
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 and it wouldn’t to copy the trades anyway. 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 started with a $6,000 deposit into a Roth IRA account and am 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 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 let’s get started.
To start the month I am beginning from an account value $6,457.71.
Week 1 Recap July 2 – 8 (July 1 was a Saturday so no activity)
After having some success with the stocks the prior week I decided to sell 2 puts on Beyond Meat, BYND and 2 puts on Rivian. Both had good premiums. For BYND, I sold the 13 put for a 33 cent premium. To sell 2 contracts I had to have $2,600 set aside and the net premium collected was $64.68, which is a 2.49% premium. I then sold 2 contracts on RIVN the electric auto manufacturer. Mostly, I see their trucks on the road. I don’t even know if they have other vehicles in production. Anyway I sold the 2 contracts with a strike price of $19 so I had to have $3800 in cash in the event they get assigned. I collected a $0.67 premium so on the 2 cash secured puts I collected a net of $132.68 which equates to a 3.49% premium on the cash.
In all I sold 4 puts using $6,400 of the available $6,457, which is as good a utilization of the available cash that is possible. By selling the 4 puts I was able to collect a total of $197.36 in premiums for the week, which ended up being pretty quiet as far as the possibility of getting assigned these 2 stocks were concerned. Rivian did have a pretty good uptick in price though.
All of the options expired worthless at the end of the week. You’ll see them removed in the transactions of the next week because they expire at the close on Fridays so they are removed or assigned on Mondays.
Here’s a copy of the trades:
Week 2 Recap July 9 – 15
Although I collected a great premium on RIVN in the prior week the quick increase in price made me think twice about selling another put near the current price. Sometimes it seems after a quick run up there could be a quick move in the opposite direction. I didn’t want to get assigned more than half of my account so I only sold 1 put instead of 2. This week I sold a put with a strike price of $23 and collected a premium of $0.79, which net a total of $78.34 or 3.40% on the $2,300. This one trade used more than 1/3 of of the available cash. I should mention for anyone who is new to selling cash secured puts when I say used up, it really just means that amount of cash is reserved, securing the potential cost to purchase the stock. When the option expires, the cash is available again if I don’t end up getting assigned, or in other words, required to buy the stock.
Since the prior week I was able to maximize the utilization of the cash in the account my goal was to do it again. I next sold a put on AFRM with a strike price of $13.50 and collected a $0.47 premium which netted $46.34, or 3.43% on the $1,350 required to place the trade.
The next trade for this week was to sell 1 more put on BYND. Notice that last week the strike price was 13 and this week it was 14. Like RIVN the stock increased in price too. I collected a premium of $0.48 for a net of $47.34. This equates to a premium of 3.38% for the $1,400 cash requirement.
The last trade of the week was selling a put on MARA with the strike price of $15.50 for a premium of $0.70 which netted another $69.34. This ends up being a 4.47% premium collected on the $1,550 cash secured price.
Here’s a copy of the trades:
This week I collected a total of $241.36. The total cash required to have in the account was $6,600, which just about utilized all of the cash available. This equates to a 3.66% premium on the total. I should mention that these premiums are pretty high. One thing I’ve learned is that risk and reward thing you’ve probably heard before. In this case the reward is high so I expect the risk to be high as well.
The risk is being assigned the stock, which I expected to happen with such high premiums this week, but again they all expired worthless. What that means though is that none of the stocks moved to the strike price or in other words they went up. It makes me stop and think, “what if I just bought the stock and didn’t worry about it?” I may have done better, but where’s the fun in that and that would be the end of this little experiment, so I’ll keep on going.
Week 3 Recap July 16 – 22
Again at the beginning of the week I started all in cash. So far this month I haven’t been assigned. First I decided to sell a couple of puts on BYND again. Notice the strike price is up again. When I started selling puts on BYND the strike price was $13, but this week I sold the 2 puts with a strike price of $16 and collected a premium of $0.45 which net a total of $88.68. Again a premium of almost 3% on the $3200 cash.
next I sold a put on MARA with the strike price of $18 collecting a $0.77 premium, netting a total of $76.34 on the $1,800. This equates to a 4.24% premium. Again, this seems higher than normal.
The last trade this week was to sell another put on AFRM, like the others, this stock is rising in price too. For this one I sold the $16 strike price for $0.43 collecting a net of $42.34.
Here’s a copy of the trades:
With these high premiums and fast moving stock prices, I was bound to get assigned sooner or later and this was the week. At the end of the week both Beyond Meat (BYND) and Affirm Holdings (AFRM) had declined in price and I was assigned. The total I ended up using to purchase the stocks was $5,000, which is a significant amount of the cash in the account. So next week, I’ll be switching to selling covered calls on those two stocks.
The trades this week ended up generating $207.36 in premiums with a cash requirement of $6,600. This ends up being a 3.1% return or premium collected for selling cash secured puts for the week.
Week 4 Recap July 23 – 29
This is pretty much the last week of the month and I’ve been traveling so I didn’t spend a lot of time watching the stock market. On Monday, after being assigned the 200 shares of BYND and the 100 shares of MARA, I immediately sold calls.
First since I was required to purchase BYND for $16 per share, my thought was that I wanted to at least break even if I was called out, so I sold the $16 strike price. This way if I was called out, I’d basically be purchasing the stock and selling the stock at $16, which nets $0, but I would get to collect the premiums. I sold 2 covered calls at the $16 strike price on BYND for $0.43 which netted a total of $84.68 on the $3,200 worth of stock (200 shares at $16). Unlike a cash secured put you don’t have to reserve cash, rather you have to own the stock. I’m still using the $3,200 as the amount since that was the cost basis in purchasing the stock. If BYND goes up or down and I continue to sell covered calls, I’ll continue to use the $3,200 number for reference when calculating the premium percentage, which in this case would be 2.65%
Next I needed to sell a covered call on MARA since I was assigned and purchased the stock for $18 per share or $1,800. Using the same reasoning as with BYND I needed to set the strike price at $18, so I sold the call for $0.33 netting a total of $32.34, or 1.79%. That’s way lower! It’s primarily because MARA not only went below $18 when I was assigned, but on Monday morning it was clear down to around $16, so I was selling a call that was $2.00 away from the strike price. It doesn’t sound like much, but for a $16 stock to get back to $18 it has to go up over 12%, which doesn’t sound very likely to happen in a week. It’s a volatile stock though, after all it just went down that much in a few days.
Although the MARA premium sounds low compared the the 2 weeks prior, a 1.79% return on a weekly basis would be great! If you could average that for a year you’d get a simple return of 93% and that doesn’t include the effect compounding would have, so I’d be happy with that.
After purchasing the stocks due to my cash secured puts being assigned, I didn’t have a lot of cash to work with, but was still able to sell one more put. I sold 1 on AFRM with a strike price of $17 and collected a premium of $0.61 for a net of $60.34 or a 3.3% yield if you want to look at it that way.
Here’s a copy of the trades:
As the week came to an end all of the options expired worthless, both the calls and puts. I ended up collecting $177.36. It seems like a trend is forming. Three weeks in a row the total premium collected is decreasing. It is really coming back down to where it is closer to realistic. The premiums in the prior 2 weeks were really good. That said, on the cash and cost total of $6,700 collecting $177.36 is still a 2.65% return on the cost. Not bad.
Last couple of days – July 30 and 31
At this point the month is pretty much over, but there’s one more day to sell options during the month. With all of the covered calls expiring worthless, meaning neither of the stock prices were above the strike price at expiration, I could turn around and sell calls again. So that’s the plan.
First I sold a covered call on MARA again with the strike price of $18 and collected the premium of $0.38 for a total of $37.34.
Here’s a copy of the trades:
S&P 500 (VOO) Summary Activity and Results
The Vanguard S&P 500 ETF, or VOO ended the month up at $420.68. It started the month at $407.28. This is an increase of $13.40 per share. Not bad. This is a 3.29% increase for the month.
During the month there were no other activities in VOO like dividends, distributions or splits, so there’s nothing else to report here.
With my 15.678 shares and the closing price of $420.68, this brings the hypothetical S&P 500 account value to a total of $6,595.55. This represents a total increase of 3.29%.
Month end Results on Live Account
Here’s are the totals for the month. I placed 15 trades this month, not including the purchase of stocks on assignment. There were 11 cash secured puts and 4 covered calls. During the month I collected a total of $1,015.80 on the beginning balance of $6,457.71. That was a great month. Imagine collecting $1,000 a month on a $6,000 account every month! That would be awesome, but most likely impossible.
I also need to mention that the account did earn some interest this month. It wasn’t a lot, but need to be accounted for, so I get to add a grand total of $1.33 to the account. The ending balance including all trades, interest and the current price of the stocks that I’m currently holding was $7,459.88.
Final Comparison
The VOO S&P 500 ETF account ended at $6,595.55 which is up 3.29% for the month and a cumulative change of 9.93% since the beginning of the challenge on June 1, 2023. That’s a great result for a 2 month period. Most people would take that on an annual basis, which is close to the average annual return of the S&P 500 over the long term.
My live account did better though. I ended the month with an account balance of $7,459.88 which is an increase of 15.52% above the prior month and brings my total return from inception to 24.33%. Woohoo, I beat the S&P 500 for 2 consecutive months! It’s nothing to really celebrate though, 2 months doesn’t make anyone an expert. The real test is can this strategy continue to outperform over a long period of time. I guess we’ll have to keep on going and see.
Ending Thoughts
I thought I’d add a few more thoughts this month. First, the numbers are slightly skewed. Just like June when there was a quick one day weekend to get started, there was a couple of days at the end of July that allowed me to sell a couple of more cash secured puts and covered calls. The extra income this month will probably end up reflecting a decrease in the August total.
As I’m choosing stocks to sell options on, I am also looking at the earnings date. This is right in the middle of earnings season, and sometimes adds a lot of volatility to the price of the stocks. It’s good for the premiums which seem to increase around the same time, but I’d rather avoid having a put option on a stock during the week it reports earnings.
I’ve been the holder of a put when earnings came out and the market didn’t like it. The stock tanked, and I was assigned the stock at a price way higher than the market. Not a good feeling. I don’t like it, even though the stock eventually recovered. I didn’t get much premium selling covered calls over the following weeks until the stock had come back closer to the put price I paid. It’s something to watch for. It doesn’t mean you can’t trade during that week, just understand the risk and be ok with it one way or the other. Right now for me, I’d like to avoid some of that.
One final thought, I have to ask, YMIDoingThis, right? Well for me, I would love to just invest in something like the S&P 500 or a total stock market fund and just let it compound over time. Unfortunately, I’m not in my twenties or even thirties and don’t have as much time on my side to save for retirement. So I want to look for opportunities that will help me get there a little faster. We’ll see how that goes.
Another reason I’m doing this is for my own education. Writing all this stuff down helps me take a step back and think about how things are going and what I can do to make a change.
Lastly, I hope that these types of posts can help some others learn something too. It might be to never trade options, I don’t know, but we’ll see.
I guess if I was more like all of the people out there who tell you how to build a following, the lastly part should have been the number 1 priority. Either way. I hope it helps somewhere. Let me know!