A €1,62 life lesson

A couple of weeks ago I started using a different investing strategy. I focused more on selling at-the-money put options to realize gains. This meant I was actually using money that I didn’t have available. This requires quite a lot of follow-up, possible rolling and manual work.

However the gains on these options can be very decent because you are working on margin and thus realizing profits on money you don’t have, I realized it was not my kind of investing strategy.

These options on a margin implied that my cash was blocked for a possible execution and I couldn’t buy much. I had plenty of cash but little room for buys of my own.

Cash-locked-in-chains

I bought between 10-15 options and hold onto them for a couple of days/weeks. With the recent panicking due to Trump I didn’t feel comfortable being on margin AND having my cash blocked.

However I could still handle the margin thing, the blocked cash is a killer. This meant I would not be able to buy into a stock if a real opportunity represented itself.

“There’s no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it.” – Warren Buffett

534987664

This quote is most applicable to my situation. I like to buy big into a stock when I think the market is too pessimistic about it. This can be very profitable. Working on margin would yield an additional 0,8% YoY (around $900), but for me the opportunity cost is bigger of not having cash available when opportunities represent themselves. By buying at a good moment, the amount of cash that would be blocked by options, could turn out to bear bigger fruits than the $900.

However the option strategy is certainly not a bad one, it’s not my core business. I really like dividends and passive income without lifting a finger. This gives me more peace at mind and doesn’t require me to check on every stock every day.

Regarding the pros/cons, I decided to close 75% of the options. I had some winners and some losers. Eventually I ended up with a €1,62 loss. I’m glad I tried the strategy and that it didn’t cost me a leg. It was a valuable lesson.

I still do have options in my portfolio, but I will be more careful and decisive about which ones I sell in the future. The expiry date should be in the near future for me. I prefer having plenty of cash available.

Other than this €1,62 loss, I realized €1050 YTD with other option plays. Most of this money is thanks to my bold AB Inbev put. These kind of options are the ones I will focus on in the future, instead of selling plenty ATM options and hoping they don’t decrease until my strike price.

A beer to that!

AB-InBev-topmerken

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5 thoughts on “A €1,62 life lesson

  1. Stalflare

    I am having struggles with options that I let go far too ITM, and I am considering starting to take “some” losses in order to cover up for some situations that I am not happy about “options wise”. So in a way closing the difficult positions with just a 1,63 euro loss is a great thing, also because rule number 1 is that you have to be comfortable with the options that you are trading, and if keeping them and NOT sleeping at night is the outcome there is something wrong…
    Ciao ciao
    Stal

    Like

  2. financialfreedomsloth

    Speculating with options is a fools game but selling puts or calls to get in or out of decent stock absolutely is not. It will not get you outlandish profits but done well it will add a few percent to your average returns. And after a few years those few percentages start to add up!

    I once heard an old jewish joke.

    Jew 1: ‘why did god create catholics?’

    Jew 2: ‘so we would have somebody to sell our options to’

    I do not believe it is an accident options are mostly a Jewish/protestant thing (London, Amsterdam New York have very active option trading and Brussels and Paris almost none). And on this point they are definitely the smarter religion.

    For food and drinking one should be catholic (Bacon, wine, champagne, beer!) but for options it definitely pays to be Jewish/protestant.

    Liked by 1 persoon

  3. ambertreeleaves

    A valuable lesson here. You need to understand the option strategy you Ish to deploy and it needs to fit your risk level.

    My rule nr one is always to be able to sleep at night and not feel any regrets.

    I like options because they offer an interesting cash flow. I will do my best not to be assigned. It will not always work, so it has to be a stock that I do not mind to hold a long time when needed.

    Enjoy the beer

    Liked by 1 persoon

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