Expiration Report for Fri 08/28/20

The following Cash Secured Put (CSP) positions expired. All prices include TD commissions.

Stock	Price	Opt	Strike	OTM	ProbOTM	ExpDate	Days	Margin	Premium	ROI	AROI
DIA	$279.94	P	$265.00	-5.34%	85%	8/28/2020	16	$26,500.00	$109.30	0.41%	9.41%
SPY	$338.18	P	$320.00	-5.38%	88%	8/28/2020	16	$32,000.00	$99.30	0.31%	7.08%
XLB	$62.72	P	$60.00	-4.34%	81%	8/28/2020	14	$6,000.00	$33.32	0.56%	14.48%
XLI	$77.74	P	$74.00	-4.81%	83%	8/28/2020	14	$7,400.00	$36.32	0.49%	12.80%
XLV	$105.96	P	$102.00	-3.74%	80%	8/28/2020	17	$10,200.00	$62.32	0.61%	13.12%

The following Bullish Seagull positions were exercised/assigned today for the maximum profit. All prices include TD commissions.

Stock	Strikes	ExpDate	Days	ProbITM	Margin	P/L	ROI	AROI
XLK	107/113/114	8/28/2020	17	38%	$10,700.00	$144.69	1.35%	29.03%
QQQ	258/272/274	8/28/2020	16	38%	$25,800.00	$300.33	1.16%	26.56%

New Trades

The following Cash Secured Put (CSP) positions were established today. All prices include TD commissions.

Stock	Price	Opt	Strike	OTM	ProbOTM	ExpDate	Days	Margin	Premium	ROI	AROI
DIA	$285.79	P	$273.00	-4.48%	90%	9/11/2020	15	$27,300.00	$126.47	0.46%	11.27%
QQQ	$292.64	P	$266.00	-9.10%	90%	9/11/2020	15	$26,600.00	$116.47	0.44%	10.65%
SPY	$349.56	P	$333.00	-4.74%	85%	9/11/2020	15	$33,300.00	$146.47	0.44%	10.70%
XLK	$122.67	P	$111.00	-9.51%	90%	9/11/2020	15	$22,200.00	$102.96	0.46%	11.29%

The following Bullish Seagull (Short Put + Long Call + Short Call) positions were established today. All prices include TD commissions.

Minimum profit if all options are OTM at expiration (i.e above the short put and below the long call).

Stock	Strikes	ExpDate	Days	ProbOTM	Margin	P/L	ROI	AROI
QQQ	272/293/294	9/11/2020	15	87%	$27,200.00	$116.42	0.43%	10.42%

Maximum profit if both call options are ITM at expiration (i.e above the short call).

Stock	Strikes	ExpDate	Days	ProbITM	Margin	P/L	ROI	AROI
QQQ	272/293/294	9/11/2020	15	47%	$27,200.00	$216.42	0.80%	19.36%

Expiration Report for Fri 08/21/20

The following Covered Call (CC) positions were called away. All prices include TD commissions.

Stock	Opened	Closed	Days	Bought	Sold	Gain	Income	P/L	ROI	AROI
CARR	2/12/2020	8/21/2020	191	$2,900.00	$2,900.00	$0.00	$138.89	$138.89	4.79%	9.15%

The following Cash Secured Put (CSP) positions were closed. All prices include TD commissions.

Stock	Price	Opt	Strike	OTM	ExpDate	Closed	Days	Margin	Premium	ROI	AROI
XLK	$112.64	P	$104.00	-7.67%	8/28/2020	8/21/2020	10	$10,400.00	$50.30	0.48%	17.65%

New Trades

The following Bullish Seagull (Short Put + Long Call + Short Call) positions were established today. All prices include TD commissions.

Minimum profit if all options are OTM at expiration (i.e above the short put and below the long call).

Stock	Strikes	ExpDate	Days	ProbOTM	Margin	P/L	ROI	AROI
DIA	268/279/280	9/4/2020	16	80%	$26,800.00	$108.42	0.40%	9.23%
QQQ	264/279/280	9/4/2020	16	81%	$26,400.00	$128.42	0.49%	11.10%
SPY	107/113/114	9/4/2020	16	80%	$32,700.00	$108.42	0.33%	7.56%

Maximum profit if both call options are ITM at expiration (i.e above the short call).

Stock	Strikes	ExpDate	Days	ProbITM	Margin	P/L	ROI	AROI
DIA	268/279/280	9/4/2020	16	43%	$26,800.00	$208.42	0.78%	17.74%
QQQ	264/279/280	9/4/2020	16	45%	$26,400.00	$228.42	0.87%	19.74%
SPY	107/113/114	9/4/2020	16	44%	$32,700.00	$208.42	0.64%	14.54%

Covered Calls, Cash Secured Puts, and Bullish Seagulls

In this article I will show how to create Covered Call, Cash Secured Put, and Bullish Seagull positions.

Each example will use XLK options expiring on 9/11/20, with prices as of 8/14/20

Standard Covered Call

Formula = Long Stock + Short Call

First let's look at a risk graph for a Long Stock position. Here you can see that there is unlimited downside risk and unlimited upside potential. 

Selling an OTM call will create a Covered Call position, since the call is covered by the stock position. Here the downside risk remains the same, however the upside potential is capped by the strike price of the sold call. So for the benefit of the premium collected on the call, which reduces your cost basis, you give up some upside potential. 

Synthetic Covered Call

Formula = Synthetic Long Stock (Long Call + Short Put) + Short Call

Using options only, you can create a Synthetic Long Stock position by buying a call and selling a put at the same strike. This has the same risk profile as Long Stock, but at a lower cost, and in some cases at no cost or a net credit. 

Selling an OTM call will create a Synthetic Covered Call position, since the short call is covered by the long call (i.e Bull Call Spread). Again, downside risk remains the same, and upside potential is capped. However, this trade is less capital intensive than a Standard Covered Call. 

Cash Secured Put

Formula = Short Put

Instead of creating either variation of Covered Calls, you could just sell an OTM Cash Secured Put to replicate the risk profile. This is the simplest option (pun intended).

Bullish Seagull

Formula = Short Put + Long Call + Short Call

Formula = Synthetic Long Stock Split Strike (Long Call + Short Put) + Short Call

Formula = Cash Secured Put (Short Put) + Bull Call Spread (Long Call + Short Call)

In the Synthetic Long Stock position example above, the call/put were bought/sold at the same strike. However, you can buy/sell at different strikes, which creates a Synthetic Long Stock Split Strike position. This position is less aggressive and has more downside protection, but at a cost (i.e. net debit vs net credit). 

Selling an OTM call will create a Bullish Seagull, which I described here. 

Conclusion

There are many ways of combining options to create positions with similar risk profiles. I encourage you to try this for yourself and see what you can come up with.

I hope you found this useful.

Expiration Report for Fri 08/14/20

The following Covered Call (CC) positions were called away. All prices include IB commissions.

Stock	Opened	Closed	Days	Bought	Sold	Gain	Income	P/L	ROI	AROI
EMR	1/31/2020	8/14/2020	186	$6,750.00	$6,800.00	$50.00	$323.69	$373.69	5.54%	10.86%

New Trades

The following Cash Secured Put (CSP) positions were established today. All prices include TD commissions.

Stock	Price	Opt	Strike	OTM	ProbOTM	ExpDate	Days	Margin	Premium	ROI	AROI
XLB	$62.72	P	$60.00	-4.34%	81%	8/28/2020	14	$6,000.00	$33.32	0.56%	14.48%
XLI	$77.74	P	$74.00	-4.81%	83%	8/28/2020	14	$7,400.00	$36.32	0.49%	12.80%

New Trades

The following Cash Secured Put (CSP) positions were established today. All prices include TD commissions.

Stock	Price	Opt	Strike	OTM	ProbOTM	ExpDate	Days	Margin	Premium	ROI	AROI
DIA	$279.94	P	$265.00	-5.34%	85%	8/28/2020	16	$26,500.00	$113.32	0.43%	9.76%
SPY	$338.18	P	$320.00	-5.38%	88%	8/28/2020	16	$32,000.00	$102.32	0.32%	7.29%

QQQ Seagull Analysis

Today I established a Bullish Seagull position on QQQ. Here's the analysis using Thinkorswim (TOS).

This Bullish Seagull (Short Put + Long Call + Short Call) position has two possible outcomes as follows:

Minimum profit if all options are OTM at expiration (i.e above the short put and below the long call).

Stock	Strikes	ExpDate	Days	ProbOTM	Margin	P/L	ROI	AROI
QQQ	258/272/274	8/28/2020	16	78%	$25,800.00	$102.97	0.40%	9.10%

Maximum profit if both call options are ITM at expiration (i.e above the short call).

Stock	Strikes	ExpDate	Days	ProbITM	Margin	P/L	ROI	AROI
QQQ	258/272/274	8/28/2020	16	43%	$25,800.00	$302.97	1.17%	26.79%

The following chart show QQQ in a solid uptrend. I've drawn price lines at the short put and short call levels. Any price above the short call ($274) will result in max profit, and any price below the short put ($258) will result in the min profit. 

 

The risk graph shows the profit zones, upper and lower strikes, and breakeven level. Above are probabilities of being within those areas. The vertical line is the Aug 28 expiration. 

 

The risk graph shows the profit zones, upper and lower strikes, and breakeven level. At the top are the probabilities of being within those ranges (22.03% below $258, 34.97% between $258 and $274, and 42.99% being above $274). As you can see, it's also a lopsided seagull, with more room between strikes to the downside, where all the risk is. This is by design.

I hope this has been helpful.

XLK Seagull Analysis

Today I established a Bullish Seagull position on XLK. Since this is the first Seagull I've posted here, I thought it would be a good idea to go over the analysis using Thinkorswim (TOS).

This Bullish Seagull (Short Put + Long Call + Short Call) position has the following possible outcomes for minimum and maximum profit:

Minimum profit if all options are OTM at expiration (i.e above the short put and below the long call).

Stock	Strikes	ExpDate	Days	ProbOTM	Margin	P/L	ROI	AROI
XLV	107/113/114	8/28/2020	17	72%	$10,700.00	$47.97	0.45%	9.63%

Maximum profit if both call options are ITM at expiration (i.e above the short call).

Stock	Strikes	ExpDate	Days	ProbITM	Margin	P/L	ROI	AROI
XLV	107/113/114	8/28/2020	17	38%	$10,700.00	$147.97	1.38%	29.69%

The following Ichimoku daily chart shows XLK in a solid uptrend above the cloud. I've drawn price lines at the short put and short call levels. Any price above the short call ($114) will result in max profit, and any price above the short put ($107) and below the long call ($113) will result in the min profit. The vertical line is the Aug 28 expiration.

The risk graph shows the profit zones, upper and lower strikes, and breakeven level. At the top are the probabilities of being within those ranges (27.35% below $107, 33.93% between $107 and $114, and 38.72% being above $114). As you can see, it's also a lopsided seagull, with more room between strikes to the downside, where all the risk is. This is by design.

The short put had a 72% probability of being OTM, which is below my goal of 80%, but still acceptable for the premium received and the short duration (17 days).

I hope this has been helpful.

New Trades

I placed my first trades at TD Ameritrade on their Thinkorswim platform today.

The following Cash Secured Put (CSP) positions were established today. All prices include TD commissions.

Stock	Price	Opt	Strike	OTM	ProbOTM	ExpDate	Days	Margin	Premium	ROI	AROI
XLK	$112.64	P	$104.00	-7.67%	84%	8/28/2020	17	$10,400.00	$55.32	0.53%	11.42%
XLV	$105.96	P	$102.00	-3.74%	80%	8/28/2020	17	$10,200.00	$62.32	0.61%	13.12%

The following Bullish Seagull (Short Put + Long Call + Short Call) positions were established today. All prices include TD commissions.

Minimum profit if all options are OTM at expiration (i.e above the short put and below the long call).

Stock	Strikes	ExpDate	Days	ProbOTM	Margin	P/L	ROI	AROI
XLV	107/113/114	8/28/2020	17	72%	$10,700.00	$47.97	0.45%	9.63%

Maximum profit if both call options are ITM at expiration (i.e above the short call).

Stock	Strikes	ExpDate	Days	ProbITM	Margin	P/L	ROI	AROI
XLV	107/113/114	8/28/2020	17	38%	$10,700.00	$147.97	1.38%	29.69%

Bullish Seagulls - Giving Your Cash Secured Put Wings

For the past month I've been experimenting with a new variation of the Cash Secured Put strategy by combining it with a Bull Call Spread. This strategy is called a Bullish Seagull (named for the shape of the risk graph). 

A Cash Secured Put (Short Put) consists of selling an OTM put for a net credit. At expiration, if the stock remains above the put strike, it expires and the maximum profit is the premium received. If the stock is below the put strike, it can either be rolled out, rolled down and out, or assigned to purchase the stock at a discount. Selling a Cash Secured Put gives up any upside if the stock continues to rise.

A Bull Call Spread (Long Call + Short Call) consists of buying an ATM or slightly OTM call and selling an OTM call at a higher strike for a net debit. At expiration, if the stock is above both call strikes, they are automatically exercised/assigned for the maximum profit (difference in the strikes - the premium paid). If the stock is in between the call strikes, the ITM call can be sold, possibly for a profit, and the OTM call will expire. If the stock is below both call strikes, they expire and the maximum loss is the premium paid.

Combining both strategies creates a Bullish Seagull (Short Put + Long Call + Short Call). When this is sold for a net credit, it's similar to a Cash Secured Put but with the potential for additional profit on the upside. The credit received is less than just selling the put, but it also pays for the Bull Call Spread, making that a free trade. At expiration, if the stock remains above the put strike and below both call strikes, then all options expire and the maximum profit is the premium received. If the stock is in between the call strikes, the ITM call can be sold, possibly for a profit, and the OTM call and OTM put will expire. If the stock is above both call strikes, they are automatically exercised/assigned for the maximum profit (difference in the strikes + the premium received) and the OTM put will expire. So it's the best of both worlds.

My criteria for entering a Bullish Seagull.

1. Find a stock that's in a solid uptrend (e.g. XLK).
2. Look to sell an OTM put below a support level with an 80% probability of expiring OTM.
3. Look to buy an ATM/OTM call with a delta around 50.
4. Look to sell an OTM call 1-5 strikes above the call to buy. This determines the maximum profit to the upside.
5. The trade must result in a net credit to insure a minimum profit.

Trade management is similar to a Cash Secured Put.

1. If the put strike is in danger of being breached, roll the put for a net credit to the next expiration and possibly down in strike.
2. If the long call is ITM near expiration but the short call is OTM, buy back the short call for $.10 or less and let the long call run, then sell it on expiration day.
3. If both calls are ITM at expiration, the broker will automatically exercise the long call (buy stock) and assign the short call (sell stock). This results in the maximum profit.
4. If all options are OTM at expiration let them expire and keep the premium received. This results in the minimum profit.

Examples of closed Bullish Seagulls

XLK Seagull #1

If all options are OTM at expiration.

Stock	Strikes	ExpDate	Days	Margin	P/L	ROI	AROI
XLK	98/103/105	7/10/2020	14	$9,800.00	$33.06	0.34%	8.80%

If both call options are ITM at expiration.

Stock	Strikes	ExpDate	Days	Margin	P/L	ROI	AROI
XLK	98/103/105	7/10/2020	14	$9,800.00	$233.06	2.38%	62.00%

Result: Both calls were ITM and automatically exercised/assigned for max profit. Short put expired OTM.

XLK Seagull #2

If all options are OTM at expiration.

Stock	Strikes	ExpDate	Days	Margin	P/L	ROI	AROI
XLK	104/108/110	7/24/20	17	$20,800.00	$105.15	0.51%	10.85%

If both call options are ITM at expiration.

Stock	Strikes	ExpDate	Days	Margin	P/L	ROI	AROI
XLK	104/108/110	7/24/20	17	$20,800.00	$505.15	2.43%	52.14%

Result: All options expired OTM. Profit was credit received.

XLK Seagull #3

If all options are OTM at expiration.

Stock	Strikes	ExpDate	Days	Margin	P/L	ROI	AROI
XLK	102/107/109	7/31/20	15	$20,400.00	$112.97	0.55%	13.48%

If both call options are ITM at expiration.

Stock	Strikes	ExpDate	Days	Margin	P/L	ROI	AROI
XLK	102/107/109	7/31/20	15	$20,400.00	$512.97	2.51%	61.19%

Result: Both calls were ITM and automatically exercised/assigned for max profit. Short put expired OTM.

XLK Seagull #4

If all options are OTM at expiration.

Stock	Strikes	ExpDate	Days	Margin	P/L	ROI	AROI
XLK	103/107/108.5	8/7/2020	15	$20,600.00	$121.73	0.59%	14.38%

If both call options are ITM at expiration.

Stock	Strikes	ExpDate	Days	Margin	P/L	ROI	AROI
XLK	103/107/108.5	8/7/2020	15	$20,600.00	$421.73	2.05%	49.82%

Result: Both calls were ITM and automatically exercised/assigned for max profit. Short put expired OTM.

Total profit on all 4 trades was $1,272.91 in 42 days (6/26/20 - 8/7/20) vs $975.26 had I just sold CSP's at the same strike, an increase in profit of $297.65. Not bad!

Hope you find this new strategy useful.

Expiration Report for Fri 08/07/20

The following Cash Secured Put (CSP) positions expired. All prices include IB commissions.

Stock	Price	Opt	Strike	OTM	ProbOTM	ExpDate	Days	Margin	Premium	ROI	AROI
XLB	$61.96	P	$58.00	-6.39%	86%	8/7/2020	15	$11,600.00	$59.25	0.51%	12.43%
XLK	$108.02	P	$100.00	-7.42%	88%	8/7/2020	15	$20,000.00	$99.25	0.50%	12.08%
XLV	$107.23	P	$102.00	-4.88%	85%	8/7/2020	15	$20,400.00	$85.25	0.42%	10.17%

Goodbye Interactive Brokers! Hello TD Ameritrade!

After 15 years of trading options at Interactive Brokers (IB) I've decided to transfer my account to TD Ameritrade (TD). The primary reason I chose IB was due to their low commissions. However, TD lowered their commissions last year making them comparable to IB. TD's Thinkorswim (TOS) trading platform, which I prefer to IB's Trader Workstation, is the primary reason for the transfer.

I'm looking forward to trading on TOS and have already setup my charts and custom indicators. TOS also has an Excel Real-time Data (RTD) function, which I'm using to update my spreadsheets, and an API which I plan to use to write some custom code.

IB has been good to me over the years and saved me a ton of money on commissions, but it's time to move on.

Closed Trades

The following Bull Put Spread (BPS) positions were closed today. All prices include IB commissions.

Stock	Strikes	ExpDate	Days	Margin	Premium	ROI
QQQ	243/238 Put	8/14/2020	6	$1,000.00	$91.63	9.16%
XLK	102/97 Put	8/14/2020	6	$1,000.00	$95.05	9.51%

New Positions

The following Bull Put Spread (BPS) positions were established last week. All prices include IB commissions.

Stock	Price	Opt	Strikes	OTM	Delta	ProbOTM	ExpDate	Days	Margin	Premium	ROI
QQQ	$261.13	P	238.00/243.00	-6.94%	13	87%	8/14/2020	15	$1,000.00	$106.81	10.68%
XLK	$107.74	P	97.00/102.00	-5.33%	19	81%	8/14/2020	15	$1,000.00	$108.75	10.88%

Expiration Report for Fri 07/31/20

The following Cash Secured Put (CSP) positions expired. All prices include IB commissions.

Stock	Price	Opt	Strike	OTM	Delta	ProbOTM	ExpDate	Days	Invested	Premium	ROI	AROI
QQQ	$256.63	P	$227.00	-11.55%	8	92%	7/31/2020	15	$22,700.00	$97.90	0.43%	10.49%
XLK	$105.91	P	$95.00	-10.30%	9	91%	7/31/2020	15	$19,000.00	$88.09	0.46%	11.28%