monthly report

Options Trading Monthly Report September 2020

I am very excited to share the results of my September trades, which mostly consist of the Wheel strategy. After a few months of a steady increase in PNL,  September was the biggest of them all so far. It more than doubled from August!

Part of the reason it was such a huge jump is due to how I record PNL. I got assigned for different underlying stocks several months ago and have been selling Covered call on them. For a few of them, at last, the stock price returned to the exit point that would allow me to get out at break-even. For example, I would sell a $3 strike Naked Put, get assigned, hold the stock, and keep selling Covered Call strike price at $3. So essentially the Covered Call got assigned and I sold the stock. So the large jump in PNL is because I could finally close out these positions that I got assigned a few months ago and recorded the profit/loss in September.

Another point worth noting is that I sold some SPY Call credit spread. I opened a few such positions to hedge against the market drop using Beta weighting. I know I have mentioned in the previous monthly report that I am not good at trading spreads so I was not planning on trading them, but these SPY Credit Call spread trades are based on Beta weighting my account against SPX. More details can be found in the risk management video below so check it out.

 

Spread Type Month PNL
COVERED September  $                –
DIAGONAL September  $                –
SINGLE September  $          5,536
STRADDLE September  $                –
STRANGLE September  $                –
VERTICAL September  $             424

September 2020 Top Winners

Symbol Month PNL
GNW  $    3,443
AAL  $       444
SPY  $       424

GNW

Trading GNW options is my bread and butter right now. I have been following this stock for several years by now so I feel comfortable taking a larger risk on this stock. I know I break one of my own fundamental rules of “allocating only a limited amount of capital per underlying”, which is why I am getting such disproportionate profit compared to the other two top winners. The implied volatility also spiked a few times during September, which boosted option premium.

I know my allocation for GNW is way beyond ideal allocation size by any measure, but it reminds me of a chapter in The Psychology of Money by Morgan Housel that I recently read. The chapter talked about how Warren Buffett took a large position in Geico which went against his own advice in concentrating too much capital on one investment. However, that actually helped him to get where he is today.

I don’t think GNW is equivalent to Geico,  but the reason to allocate a large capital is just so compelling that it’s difficult not to do it!

GNW IV Sep 2020

AAL

AAL stock had a large dip below $12 in September followed by a gradual increase back to $13 in early October. I jumped in at the right time to profit from the dip. The strike price was chosen based on the support/resistance level. Nothing fancy. I like to keep it simple whenever possible.

AAL large drop Sep 2020

SPY

These were Credit Call spread opened to get some negative delta for the portfolio based on SPX beta weighting. As I mentioned in the Wheel risk management video above, my entire account has a net positive delta when beta weighted against the market (SPX) because of the Wheel strategy (Shorting PUT and Selling Covered Call). To counteract that in case the market drops, I sold some SPY Credit Call.

September 2020 Top Losers

There were no losers in September because the short PUT that I got assigned do not get counted as a loss until if they are sold (closed) below the entry point. In other words, there were some paper losses due to the stock price went below the Put strike price, so now I am holding stocks with a price that is lower than my entry point, but since they are not sold yet, they are not counted as a loss.

Cumulative PNL for 2020 (March to the first week of October)

Spread Type PNL Trade Count PNL / Trade
SINGLE  $        14,465 159  $             90.98
STRADDLE  $         (1,597) 6  $         (266.17)
DIAGONAL  $            (520) 7  $           (74.29)
COVERED  $              (15) 1  $           (15.00)
VERTICAL  $            (675) 10  $           (67.50)
STRANGLE  $            (238) 8  $           (29.75)

Win/Loss Ratio

Spread Type Win Loss % Win
SINGLE            142.00                 17.00 89%
STRADDLE                 3.00                   3.00 50%
DIAGONAL                 3.00                   4.00 43%
COVERED                     –                   1.00 0%
VERTICAL                 4.00                   6.00 40%
STRANGLE                 5.00                   3.00 63%

Thoughts for September Report

I asked on a Reddit forum about a typical return on the Wheel strategy. I was hoping to get an average number that I could benchmark. However, most people told me that it’s pointless to ask such a question because the answer people give would either be inflated by not counting actual loss, or even if the answer is a high return, everyone has their own trading style that it’s almost impossible to replicate.

I agree with that feedback and it is true that everyone has their own trading style. I think the key is to understand the principle of a strategy, then modify it according to your own personality and trading style. Maybe we, ourselves are the best benchmark. I from tomorrow should be a better version of me from today.

One pattern I started noticing is that the trades that I placed when there are no obvious opportunities, they tend to be losers. I tend to come up with some kind of fluffy reasonings to back up those trades without considering the hard numbers, trends, or signals.

I should stop trying so hard looking for trades and let them come to me instead. It seems the less work I do, the more profitable it becomes.

2 replies
  1. John
    John says:

    Hey Tony, I’ve just started reading your blog and saw that you were using the TTM Squeeze indicator on AAPL. Why’s that?
    Really appreciate your diligent reporting on the Wheel strat.
    Cheers

    Reply
    • tony
      tony says:

      Hi John, I use TTM Squeeze to see if the price is likely to break out or not. It also gives a sense of if the price would continue to go up or down. It’s one of the data points for me to see if I want to jump in and trade at that point in time for the stock.
      Check this post in case you are interested https://alphapursuits.com/what-is-trade-apgar-score/. My current set up/process is a little different now from what’s shown in the post, but the concept remains the same.

      Reply

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