Happy weekend!
Today's trade update is a bit of a long one, covering selling a cash-secured put, getting assigned and eventually selling covered calls to get out of a position with $681 realized profit at the end of it.
This week:
$681 profit in Clorox (CLX)
$681 profit in CLX
In March, I entered a trade in CLX, selling the $145 cash-secured put for $72.
Unfortunately, the stock started dropping and I had to roll the position twice, including a roll down to the $140 strike, effectively lowering my risk by $500.
In total I collected $294 from selling and rolling these put options.
It was about to get worse though - in May I got assigned 100 shares of CLX at $140 per share.
No cause for panic, I held tight and waited for a rally, and then sold a $140 covered call for another $102 in premium.
A covered call is more or less the opposite of a cash-secured put, except this time instead of having to buy 100 shares at $140, I have the obligation to sell 100 shares at $140.
The initial covered call didn't get called away, so that got rolled to another month as well, for an additional $285 in premium.
This past week the covered call did get called away, and I sold 100 shares of CLX for $140 (the exact price I bought them for).
So if I bought shares for $140 and sold them for $140, that means all the profit comes from selling options:
Selling puts to get assigned 100 shares of stock: $294 realized profit
Selling covered calls to sell 100 shares of stock: $387 realized profit
That's a total of $681 in realized profit, despite buying and selling shares at the same price.
You might also know this as the “wheel” strategy, where you sort of “rent” stocks while selling puts & calls to generate cashflow.
This is why options strategies are so useful, because you aren't buying and selling at market prices, you're creating your own entry and exit points for the stock - and most importantly, generating cashflow before buying and before selling the stock!
If you annualize these returns, it comes up to about 12% ROI. Keeping in mind that a trade going against you and getting assigned is generally the worst possible outcome for a trade - I think a 12% return is pretty darn good.
If this trade sounds familiar, it might be because I had a similar trade in JNJ last year which got assigned and eventually exited with $1,033 in realized profits.
You can read about that trade at the link below.
As always, this trade (and all trades I post here) are real trades with real money in my own portfolio and shared with my private community and updated in close to real time.
Even though this was a “problematic” trade that we had to carry for 5 months, the eventual returns of $681 more than paid for the 5 months subscription fee of $245 ($49/month).
And that's just on one trade! Meaning all other trades were pure profit.
You can find out more about the Bread Crumb subscription at the link below.
Closing thoughts & useful links
Whatever happened in the market last Monday seems to be well and truly forgotten (at least for now).
My portfolio went from having 0 positions 3 weeks ago, to 11 positions and now back down to 3 positions (obviously the 8 that were closed were profitable).
This is why it's important not to feel the pressure to place trades when conditions aren't right. All that will do is cause problems down the line - I've learnt this the hard way!
Have a good weekend!
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This article is for educational purposes only. This is my own portfolio which is being managed according to my goals and risk tolerance. Your situation is likely different and you should do your own due diligence before investing in stocks or options.