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.
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
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!