Smooth Sailing With Options

I like to experiment by trading one contract on something and logging the activity for months to see just what happens when I try some new thing. Today I took a look at my Disney, my most unsuccessful trade in the last few years. I have been selling puts on DIS since November 2020, thinking that covid was going to resolve and people would be going back to the parks and the cruise ships. Well, that didn’t hold. After a nice climb it sank again. I was assigned back and forth but it dropped too fast and I ended up owning it at $144. It’s in the toilet now, at $103. But DIS has some volatility which means premium and so I just kept selling calls on it, week after week. Since it was so crazy far down I was forced to sell calls underwater, so I used the 85% rule and just sold there every week.  Didn’t seem like I was making much and I did get assigned underwater at least once, so I promptly bought it right back the next trading day. Today I downloaded my Fidelity history as a spreadsheet and totaled all the option premium from January 1 2022 to March 31 2022. The answer was better than I expected. The grand total, taking everything into account, is 5.1% return over the three months.  And that’s with a stock that is down 34% in the same time frame.  So I’m down 29% instead of 34%.  Another way to look at it is, at 5.1% every quarter, I’m making 20.4% annualized return on a stock that is in the toilet. If/when DIS recovers I’ll be in good shape. I don’t plan on selling it until it is back above $144, and even then all I’m really after is the cash flow. 20% a year is not bad!

Happy trading!

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