Well, I’m THREE!!!!! months in and things are… well read on and see how I did this last few month in 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 each month’s results at the following links:
Cash Secured Puts vs S&P 500 Challenge. Month 1, June 2023.
Cash Secured Puts vs S&P 500 Challenge. Month 2, July 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 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 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 $7,459.88.
Week 1 Recap Aug 1 – 5 Recap, just a partial week.
In the last report I had some open options at when the month ended. So, for the first week of this month I have some expiring. At the end of July, I had sold 2 calls on BYND, the stock I had been assigned and collected a total premium of $98.68. They expired worthless. I had also sold a call on MARA and collected a premium of $37.34 after fees. That covered the calls on the stocks that had been previously assigned.
I also sold a put on AFRM at the $18 strike price, so I had to keep $1,800 in cash to cover it. For this transaction I collected a premium of $56.34. By the end of the week Affirm had dropped in price so on the 4th I was assigned the stock.
Here’s a copy of the trades:
Week 2 Recap, August 6 – 12
This week was rough. The 3 stock I had been assigned all were declining. I had purchased BYND at $16 per share, MARA at $18 per share and most recently AFRM at $18 per share. When the market opened on the 7th BYND was trading at $15.65 , MARA was trading at $15.85, and AFRM was trading at $16.61. All were lower than the purchase price, but this is part of the plan, right/ Now I could sell calls until they were called out and hopefully make a little extra along the way.
First I sols a call on AFRM. My goal was to not lose money so I chose the $18 call. I was only able to collect a premium of $0.05 per share, less the fee of $0.66, which made the total only $4.34. Not what I was hoping for. Next I sold the 2 calls on BYND. Again wanting to break even if called out I sold the $16 call. On this one I was only able to collect a premium of $0.02 per share so after the fee the grand total on the BYND calls was $2.68. Nothing to write home about here either. Lastly this week I sold a call on MARA. Like the others I wanted to get to break even if called so I sold the $18 call which got me a net premium of $10.34.
The week ended with all options expiring worthless and the price for each of the stock continued to decline. Ouch! This was a hard week.
Here’s a copy of the trades:
Week 3 Recap August 13 – 19
The third week opened up with continued declines with BYND opening at $12.76, MARA at $14.65 and AFRM at $14.92. Again, I was looking to get to break even or at least close, so to do that with BYND didn’t even make sense to sell an option, so I didn’t. I purchased BYND at $16 and since it was trading below $13 I couldn’t collect a premium that made sense to do.
Next up was MARA. This was in decline too, but I still sold a call. I was only able to sell an $18 call for a $0.04 premium so I only collected $3.34 total on this trade.
Lastly I sold a call on AFRM. Like the others it was down too. I sold the $18 strike price call for only $0.03 with net the account $2.34 after fees.
After this week I’m on the other side of what things were looking like after the first couple of months of this test. Here’s a couple of things to consider. When you sell the calls you limit your upside potential when the stock moves. However when you sell the puts, you don’t limit the downside. Then if you are assigned and the stock continues to decline for a period of time, you are left selling calls that could get you called out for a loss or you might not be able to collect much premium during the downturn in the stock price. This is where it’s important that you have a plan. These are supposed to be stocks you want to own and it may be a while to recover. Or if you’re plan is to always maximize the premium collected you may have to sell the options with a strike price closer to the current market price of the stock which, if the stock had taken a sharp decline in price, could result in selling the stock at a loss if your option was called.
Here are the trades for week 3:
Week 4 Recap August 20 – 26
Here we go again. The market (at least for the 3 stocks I currently own) is down. BYND continues to slide opening the week at $12.02. MARA joined the slide and opened at $11.37 and AFRM at $14.56.
My goal of not selling at a loss is getting frustrating. The premium prices for BYND and MARA were so low it didn’t make sense to sell calls on either of them. I wanted to have some premium income this week so I relented and sold a call on AFRM at a strike price for less than the purchase price. The rationale was that with the premiums already collected this would still be a win, so I sold the $17.50 call on AFRM. Remember, my original cost was $18 per share, but I had collected premiums for the past few weeks that totaled about $0.64 per share effectively making my cost about $17.36. I collected the premium of $0.45 for a net of $44.34.
Of course, as soon as I make a change to the plan the stock changes direction. It went up enough that I was called out at $17.50 so the stock was sold. That was it for this week.
Here’s a copy of the trade.
Week 5 Recap August 27 – 31 Partial Week
Another week with little activity. Both BYND and MARA started out low still. BYND opened the week at $11.66 and MARA opened the week at 10.62. Neither were worth selling options on. This makes up a large portion of the account that is not producing premiums while waiting for the stock to recover in price. The problem is, who knows how long this could take and each week I don’t collect a premium the harder it is to keep up with the S&P 500. The other side of that is if I sell the calls and get called out, I’d be required to sell at a loss if I was collecting a decent premium. Gives me some things to think about moving forward.
On the other hand, since I was called out of AFRM last week I now have an additional $1,750 to use to start again. The premium was still pretty good so this week I sold a put on AFRM at $17.00 and collected $0.45 to end the week. This net me $44.34 or about 2.5% on this one.
Over all this has been a pretty rough month. I started off at a high, beating the S&P 500 significantly, but throughout the month, watching prices decline as well as not selling calls on those declining stocks made the month end up with a decline in value.
S&P 500 (VOO) Summary Activity and Results
This month wasn’t the rosiest for the S&P fund either. At the end of July the VOO was at $420.68. By the end of August it was down to $413.83. This represents a decline of $6.83 per share for the month or a 1.628% loss for the month.
In August there were no dividend or other cash activities coming from VOO so there’s nothing else to report.
With my 15.678 shares and the closing price of $413.83, this brings the hypothetical S&P 500 account value to a total of $6,488.15. This represents a total decrease of 1.63% for the month, but the account is still up 8.14% from the starting $6,000.
Month End Results on Live Account
Another month in and here’s the results. I only placed 7 trades this month due to being assigned a couple of stocks that continued to decline throughout the month. I had also decided to try and only sell calls if the stock would get called at a breakeven or close to it price and because of the quick declines in prices there were no feasible options to sell. Last month I had collected over $1,000 in premiums and was feeling pretty good. I knew it wouldn’t keep up like that, but didn’t imagine it would take a turn for what seemed like the opposite extreme. This month I only collected a total of $39.70 when you take into account the buying and selling of AFRM. If you remove that transaction and just look at the premiums you’ll still have less than $100 for the month. Starting with over $7,450 that makes the month less than 1%, which still wouldn’t be bad overall if the rest of the account had maintained its value.
Unfortunately the other stocks did not maintain their value and the account declined to end the month with a total balance of $6,132.29. I also have to note that this includes the whopping interest of $0.17 for the month as well. I guess the one positive for the month is that I’m still ahead of the starting point of $6,000 even though the S&P 500 account is now outpacing me.
Final Comparison
The VOO S&P 500 ETF account ended at $6,488.15 which is down 3.29% for the month and a cumulative change of 8.14% since the beginning of the challenge on June 1, 2023. Even with the decline, that’s a great result for a 3 month period. So far averaging about 2.35% per month isn’t bad. In fact it’s really good. If you could do that all year you’d have well over 25%. It’s not keeping with the long term average though, but doing better than me.
My cash secured puts and covered call options strategy was doing good for the first 2 months and then tanked this month. Going from $7,459 to $6,132 was a 17.8% decline. That’s huge! This leaves me with just a 2.2% return from the start through August. This is almost one quarter of the return the S&P 500 fund did in the same time period. Next month is another month though, so we’ll see where it goes from here.
Ending Thoughts
Here are a few things to think about. Even though you have a plan you still have to be prepared for the ups and downs in the market. If this is something that is going to make you lose sleep over, don’t do it.
When selling puts, be ready to own the stock. Also keep in mind the old risk reward saying and remember if the premium is high(reward) there will be risk. In the case of selling puts, the risk is the continued decline of the stock price after you are put or assigned the stock. On the other hand, in the case of a call, the risk is missing out on the upside. So if you are called out and the stock runs up quickly don’t get caught up in the FOMO mentality and leave the plan. Analyze the goal and if it still fits in you could sell another put, otherwise, you might be better off looking for another stock that better suits the plan.