Last Month's Income Report: December 1st, 2021
It’s been a heck of a year for traders. The S&P 500 closed November at an all-time high, up nearly 22% for the year. There’s been some bumps and bruises along the way, but the bullish trend is clear.
In part, stocks have been driven higher by a surge in retail investing.
JMP Securities estimated 10 million new retail trading accounts were opened in 2020. Many attributed this newfound interest in the stock market to the coronavirus pandemic, which led to people working from home and having more free time on their hands.
As The Wall Street Journal put it:
Driving the interest was a combination of factors that started with an industrywide shift to commission-free trading in 2019 but swelled as market volatility grew. As the coronavirus rolled across the U.S., millions of new investors found themselves stuck at home, some with extra time on their hands to learn about the markets. Others, unable to bet on sports or visit casinos, found the stock market’s outsize swings presented the perfect outlet to make bets.
Yet, in the first half of 2021, as things began to open back up, new brokerage accounts opened by individual investors exceeded the level for all of 2020. According to JMP Securities, there were more than 10 million retail trading accounts opened in the first six months of the year alone.
It’s too early to tell if this phenomenon will last. While the pace of account openings is almost certain to slow, I think many of these new investors are likely to continue trading.
What’s more, there’s another interesting trend developing. Many in the retail trading ranks are turning to options.
According to a recent article in Quartz, toward the end of November, options trading activity in the U.S. was close to exceeding that of the stock market for the first time. Based on Cboe Global Markets data, average daily notional value of single-stock options hit $450 billion for the year, compared to about $405 billion for stocks.
The author notes that options “offer a cheap way for traders to bet on a stock going up or down in price without having to actually purchase the shares.” And that’s true. Most retail traders buy options to speculate.
But if you’re familiar with the strategy we use at Options Income Blueprint, you know that selling options is a great way to generate income.
So far this year, Options Income Blueprint members have earned $7,133 using a conservative income-generation strategy of selling puts and calls on fundamentally sound stocks.
In the month of November, we closed seven winners in a row, earnings $428 in cash.
Below is a rundown of last month’s closed trades.
Let’s quickly go through some of last month’s highlights.
2 More Winning Trades on a Core Stock
Last month, we closed another two successful trades on semiconductor maker Marvell Technology (MRVL), which is one of the five core stocks we trade in the service.
Since January, we’ve traded MRVL a total of seven times using a combination of puts and covered calls, earning $422 in total income. On average, our MRVL trades have returned 1.1% and 58% annualized with an average hold time of 30 days.
With semi companies saying chip shortages could last into 2023, volatility in related stocks is likely to remain elevated.
Intel (INTC) CEO Pat Gelsinger says the shortage won’t end until 2023.“We’re in the worst of it now, every quarter, next year we’ll get incrementally better, but they’re not going to have supply-demand balance until 2023,” he told CNBC.
As I’ve noted, that’s a good thing for option sellers like us, as heightened volatility means heightened premiums for the options we sell. I expect we will continue to book winning trades on MRVL in the year ahead.
A Triple-Digit Winner on a Portfolio Newcomer
On a percentage basis, November’s biggest winner turned out to be portfolio newcomer and Internet hosting service company Squarespace (SQSP).
We made a profit of $0.35, or $35 per contract on the SQSP Nov Monthly (11/19) 40 Put.
While that may not sound like a lot of money, we only had to put up $4,000 to secure the trade. This means we earned 0.9% on our capital. And since the trade was only open for three days, our annualized rate of return was an impressive 106%.
A Recovery Trade That Proves Patience Pays
Finally, we have Sonos (SONO), which was actually November’s smallest winner. But it is a success story of a different kind.
The stock sold off sharply after we entered the trade. Rather than accept a loss (which I refuse to do on a good company), I implemented an active recovery strategy.
We accepted shares and sold calls on them, bringing in additional income that lowered our cost basis. And we continued to sell calls until we were able to exit at a profit.
Our patience paid off. We were able to put a position that was deep underwater at one point in the win column.
As we head into December, expect to see more volatility as the market tries to assess what the new coronavirus variant means for the economy. I absolutely do not expect another meltdown on par with March 2020, but some wild swings are not out of the question.
At Options Income Blueprint, we will be looking to capitalize on whatever the final weeks of 2021 have to offer.