Cash Secured Puts vs S&P 500 Challenge. Month 5, October 2023

Welcome back for Month 5 of the challenge. If this is your first time stopping by, here’s the quick version of 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 people this is 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:

• Cash Secured Puts vs S&P 500 Challenge. Month 1, June 2023.
• Cash Secured Puts vs S&P 500 Challenge. Month 2, July 2023
• Cash Secured Puts vs S&P 500 Challenge, Month 3, August 2023
• Cash Secured Puts vs S&P 500 Challenge. Month 4, September 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!

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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 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 $5,496.47. That was already down quite a bit from the high point of $7,459 back in July, and honestly it was already starting to feel like a bit of a grind. Little did I know October had a few more surprises in store.

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Week 1, Oct 2 – 6

Coming into October I still had the same situation from last month — 100 shares of Marathon Digital (MARA) and 200 shares of Beyond Meat (BYND) sitting in my account, both well below my cost basis. The Affirm (AFRM) put from September had expired worthless, which was a small win, and I had some free cash to put to work.

To kick off the month I sold three options on October 2nd:

• AFRM Oct 6, $20 Put @ $0.37 — collected $36.34
• MARA Oct 6, $10 Call @ $0.13 — collected $12.34
• BYND Oct 6, $10 Call @ $0.12 (2 contracts) — collected $22.68

Week 1 Total Premiums: $71.36

So here’s where the fun began. The BYND and MARA calls both expired worthless again — not exactly a surprise given where those stocks were. But the AFRM put at $20? That one got assigned. On October 6th I was the proud new owner of 100 shares of Affirm Holdings at $20 per share, or $2,000 total.

Why was AFRM such a rough assignment? Affirm is a Buy Now, Pay Later (BNPL) company — their entire business model depends on the spread between what they charge borrowers and what it costs them to fund those loans. And in October 2023, the 10-year U.S. Treasury yield was doing something it hadn’t done since 2007: it crossed 5%. When borrowing costs surge like that, BNPL companies like Affirm face serious headwinds, because their funding costs go up while consumers get squeezed. The stock had been drifting lower heading into October, and the put didn’t stand a chance. So just like that, I was holding three underwater stocks instead of two. Progress!

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Week 2, Oct 9 – 13

With AFRM now sitting in my account at a cost of $20 per share, the plan was the same as with BYND and MARA — sell covered calls and collect what I can while I wait for the stocks to recover. The BYND and MARA calls expired worthless on October 6th, so I had fresh opportunity to sell new ones for the upcoming week.

On October 9th I sold three more covered calls:

• AFRM Oct 13, $20 Call @ $0.13 — collected $12.34
• MARA Oct 13, $9 Call @ $0.09 — collected $8.34
• BYND Oct 13, $9 Call @ $0.04 (2 contracts) — collected $6.68

Week 2 Total Premiums: $27.36

I realize I need to pause here and acknowledge that $6.68 for two contracts on BYND is… not great. That’s $3.34 per contract for the privilege of hoping Beyond Meat climbs back above $9. For context, Beyond Meat had spent much of 2023 watching major restaurant chains quietly distance themselves from plant-based meat. McDonald’s ended its McPlant test in the U.S. Consumers tightening their belts weren’t exactly reaching for premium meatless options. The stock had gone from a pandemic-era high of nearly $200 to trading in the single digits. So yes — $6.68. I’m out here making it work.

All three calls expired worthless again on October 13th. On to week 3.

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Week 3, Oct 16 – 20

The market was getting choppier by mid-October. The 10-year Treasury yield touched 5% for the first time in 16 years during this week, spooking investors across the board. The Israel-Hamas war had also erupted on October 7th, adding geopolitical uncertainty to an already jittery market. Growth stocks — which includes all three of my holdings — were getting hit especially hard as investors rotated toward safer assets yielding actual competitive returns.

On October 16th I sold another round of covered calls:

• AFRM Oct 20, $19.50 Call @ $0.27 — collected $26.34
• BYND Oct 20, $9.50 Call @ $0.09 (2 contracts) — collected $16.68
• MARA Oct 20, $9.50 Call @ $0.24 — collected $23.34

Week 3 Total Premiums: $66.36

This was actually the best week of the month for premiums — $66.36 total, which isn’t too bad on its own. MARA had a bit more life in it this week, likely tracking some movement in Bitcoin prices (Marathon Digital is a Bitcoin mining company, so its fortunes closely follow crypto). All three calls expired worthless on October 20th. Same story, different week.

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Week 4, Oct 23 – 27

By week four I was well aware that the account was in rough shape. The premiums being collected were small, the stocks were well below their cost basis, and the market wasn’t giving me any favors. Looking back on it now, I was essentially rearranging deck chairs on the Titanic, except the deck chairs were $2.68 BYND call contracts. But hey — you work with what you’ve got.

On October 23rd I sold three more covered calls:

• MARA Oct 27, $10 Call @ $0.05 — collected $4.34
• BYND Oct 27, $8 Call @ $0.02 (2 contracts) — collected $2.68
• AFRM Oct 27, $20 Call @ $0.21 — collected $20.34

Week 4 Total Premiums: $27.36

I need to acknowledge the BYND strike price for a second: $8. We started the month with a $10 call strike on BYND, went to $9 in week 2, $9.50 in week 3, and now we’re down to $8. The strike prices were telling the story. Beyond Meat just kept declining. To be fair, $2.68 for two contracts is almost more insulting than collecting nothing — it barely covers the commission, let alone the pain. But all three expired worthless again on October 27th. Another week, another round of expirations.

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Week 5, Oct 30 – 31

To close out the month I sold one final round of covered calls on October 31st — these expire on November 3rd, so they’ll carry over into next month’s report, but they were sold in October so they count here.

• MARA Nov 3, $9.50 Call @ $0.16 — collected $15.34
• BYND Nov 3, $6.50 Call @ $0.09 (2 contracts) — collected $16.68
• AFRM Nov 3, $19.50 Call @ $0.06 — collected $5.34

In addition, there was $0.17 in interest earned from the IDA.

Week 5 Total Premiums + Interest: $37.53

I want to call your attention to two things here. First, the BYND strike has dropped to $6.50. That’s not a typo. From $10 in week 1 to $6.50 by the end of October. Second, the AFRM call premium of $0.06 per share netted me a whopping $5.34 after fees. I’ve spent more than that on a cup of coffee. But every dollar counts when you’re trying to claw back from underwater positions, so we keep going.

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S&P 500 (VOO) Summary Activity and Results

Another month, another look at how VOO is doing. VOO opened October right around $392.70 (the September 29th close) and finished the month at $384.17 — a decline of about -2.17% for the month. That might sound modest, but let’s keep in mind this came on top of September’s -4.75% drop. The S&P 500 was now in correction territory, down over 10% from its July peak.

The culprit? A perfect storm. The 10-year U.S. Treasury yield crossed 5% for the first time since 2007. The Fed’s “higher for longer” message was firmly entrenched. Geopolitical risk spiked with the start of the Israel-Hamas conflict. And Q3 GDP came in surprisingly hot, which — counterintuitively — spooked investors because it made future rate cuts seem even less likely.

All 10 of 11 S&P 500 sectors ended October in the red. This wasn’t a sector rotation problem. Everything was down. Small caps had it worst. Growth stocks (like, say, a BNPL company and a plant-based meat producer) had it worse than that.

There were no VOO dividends paid in October (VOO pays quarterly, typically in December, March, June, and September). So the share count remains at 15.738 shares, and the total VOO account value at October 31st was approximately $6,046.07.

VOO is down for the month but still positive overall from the start of the challenge, sitting at a total gain of about +0.77% since June 1st. That’s not great for a 5-month holding period, but at least it’s on the right side of zero. My live account, meanwhile, has a different story to tell.

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Month End Results on Live Account

Oh boy. Here we go.

I’ll level with you: October 2023 was the worst month of this challenge so far, and it wasn’t particularly close. The account ended October at $4,751.35, down from the September end of $5,496.47. That’s a decline of $745.12, or -13.55% in a single month. For reference, the S&P 500 dropped 2.2% in October. I managed to do about six times worse. I’m not saying I have a gift for this, but I might have a gift for this — just in the wrong direction.

Now to be fair, the premium income collected during October was $229.97 — not nothing. That’s a 4.18% return on premiums relative to the starting account value. The problem, obviously, is that the stocks themselves declined far more than the premiums could offset. The $229.97 in premium is like putting a band-aid on a broken arm. The unrealized losses at month end stood at -$2,962.64 against a cost basis of $6,798.64 — that’s a nearly 44% loss on the underlying stock positions. BYND going from $14+ (cost basis) to roughly $6-7, MARA being stuck below its original assignment price, and now AFRM sitting below its $20 cost with interest rates making its whole business model more difficult — it was a rough crew to be carrying.

Here’s the full October trade summary:

October 2023 Trades

The total premium collected of $229.97 represented about 4.18% of the starting account value, which in isolation sounds decent enough. But when you factor in the market values of the stocks being held, the overall account value dropped to $4,751.35. That’s a 13.55% decline for the month.

Absolutely brutal. But I’m still here.

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Final Comparison

Here’s the updated scoreboard through October:

Looking at that table is a bit like watching a slow-motion replay of something you’d rather forget. Five months in, VOO is up a modest 0.77% — not great, but positive. My live account? Down 20.81% from the starting $6,000. The VOO account is now $1,294.72 ahead of me. That’s a gap that’s going to take some serious work to close.

Now, to put this in some context: the S&P 500 itself had one of its worst stretches of 2023 during August through October. Even the index investor was not having fun. The difference is the index investor had only that -2.17% October decline to deal with. I had that, plus three stocks that were each underwater by significant amounts. The premium income helped cushion the blow somewhat, but it was like putting a pillow under a falling piano.

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Ending Thoughts

I’d be lying if I said October wasn’t discouraging. It was. Really discouraging. Going from a high of $7,459 in July to $4,751 at the end of October is a $2,708 swing in the wrong direction, and not something you just shrug off. When you’re staring at three stocks that are down 30-60% from your cost basis, selling $2.68 in BYND call premiums starts to feel a little absurd.

But here’s the thing: the only way to actually lose is to sell the stocks at a loss and lock it in permanently. As long as I’m holding and collecting premiums, there’s still a path back. The wheel strategy only breaks permanently if the stocks go to zero. Beyond Meat probably isn’t going to zero (emphasis on probably). Neither is Affirm, which has a real business even if interest rates have made life difficult for them. Marathon Digital is essentially a Bitcoin price bet — and stranger things have happened than Bitcoin going on a run.

So I’ll keep going. I’ll keep selling covered calls every week, collecting what I can, and hoping for either a market recovery or a pop in one of these beaten-down stocks. The challenge continues.

I need to look more carefully at the stocks I’m choosing and think about position sizing. Having three heavily underwater positions at once, all at about the same time, isn’t a great situation. That’s something to think through heading into November.

We’ll see how month 6 goes. It has to get better… right?