Learn How We Added $225 Cash in our Pockets Last Week
January 22nd, 2021
The major indexes all made new record highs this week. Investors seemed optimistic about the inauguration of President Joe Biden and the administration’s $1.9 trillion coronavirus relief proposal. Stocks were also buoyed by a strong start to earnings season with a number of high-profile beats.
In addition to earnings, the success of the COVID-19 vaccine rollout (or lack thereof) is likely to be a big driving force behind the market’s movements in coming weeks.
We entered three new trades in Options Income Blueprint this week, selling puts on Bank of America (BAC), Chewy (CHWY) and D.R. Horton (DHI).
We rolled our BAC put out one week to avoid assignment and bring in more income. Our CHWY put was on track to expire worthless, but we rolled out one week to bring in a big chunk of cash. And our DHI put expired worthless, allowing us to collect the maximum profit of $0.75, or $75 per contract. That yielded a return of 1.1% in four days, or 98% on an annualized basis.
But the trade I really want to discuss is Intel (INTC). We were called out of our shares after fighting our way out of this position, which we entered in late February.
INTC crashed along with the broader market, shortly after we sold the initial put, and we accepted shares in mid-March.
I can’t recall how many times during the past 11 months I was asked why we continued to roll the position rather than walking away. It’s a fair question, but if you’ve been with me for any length of time, you know I refuse to take losses when I still believe in the company’s fundamental story and when the option chains continue to throw off a good deal of cash. Both were true in the case of Intel.
So, we rolled and rolled and rolled some more. After we accepted shares, we sold calls. When we were called out of shares, we sold puts and rolled until we were assigned again. And so on and so forth until we were finally looking at a breakeven position.
I am very pleased with this outcome, especially since at one point we were down more than 25% on the share position.
When employing a cash and income generation strategy, it is imperative to avoid taking losses whenever possible. And you never take losses simply because a position has moved against you.
This discipline has served us well over the years and I don’t expect that to change.