My monthly trades and the problem I have with options trading Twitter.
I review my monthly options trades, how much I made, and discuss the issues I see around options trading Twitter as I noticed a few of my followers also follow these accounts.
This post will focus on my monthly income from options trading (rather than lifestyle in Argentina), and address some of the issues I have with options trading accounts on Twitter.
However, for good measure, I have thrown in a photo below of my friend’s vineyard in Mendoza, which has bloody unreal winter scenes this time of year and, FYI not many vineyards in Mendoza have views on par with this!
Let’s discuss this month’s options trades. The story just keeps getting better and better from both offshore drillers and Offshore Service Vessels (OSV) and this month’s trades reflected that. After a period of consolidation (since March), there were some explosive moves, from the drillers and OSV.
I traded this volatility quite well and had a good month. I made a total of $2,630 USD in premium. That is a 15% return for the month (on a $20k position in Transocean, RIG). My entire position is much larger, but don’t want to limit my upside with options, so I only write options on ~60% of the whole position.
The options trade I currently have in the market is In The Money, which means if I’m assigned out I’ll collect a capital gain, which in turn will inrease my total return for the month, by ALOT. This is because I’m selling options well above my purchase price, but I will cap any capital gains above $8.00 per share.
I also purchased some more RIG shares this month adding to my total overall position. One event to note at the end of this month is the reporting of RIG’s Q2 earnings. This is usually a volatility-induced event and a nice one to trade options around. I haven’t decided if I will close out the one trade I have in the market currently or roll it on to another expiry, the decision will likely come based on the Q2 results.
$RIG: premium only
Covered calls: 30 x 0.41, $8.00 strike, expiry 4th August = $1,130 USD (In The Money)
Covered calls: 20 x 0.35, $8.00 strike, expiry 21st July, closed out = $600 USD
Cash-secured puts: 30 x 0.45, $8.00 strike, expiry 4th August, closed out = $900 USD
Total for the month: $2,630 USD
As I’ve also written in previous posts, I can live a bloody high-quality life off ~$1200 USD per month in Buenos Aires.
The extra $1,430 USD I’ve made this month is going towards a short trip to Europe (I’m currently in Greece, and got an Argentine ski trip booked end of August).
Earning a salary in a Western country these days and having $1,430 left over every month after you’ve covered the cost of living expenses would be a great result. This would likely only be possible from a highly stressful job, most men these days are living paycheck to paycheck.
The options trades I placed were the usual two basic strategies, covered calls and cash-secured puts, and yes only on Transcocean (RIG). I may get a lot of shit for this, but with my style of investing and options trading, I’ve struggled to find value anywhere else other than energy. The energy sector is clearly the most undervalued sector and a sector there will be in demand going forward for at least the next few years of the commodity bull cycle.
I’m not a fan of trading the standard, high multiple (P/E), shitty technology stocks people trade just because they’re considered cool and trendy. I don’t even think I need to mention which ones they are, it should be obvious (TSLA…).
If I can’t form a strong conviction behind them as I can with cyclical commodities sectors, then I certainly won’t trade cash-secured puts or covered calls on them. This is because if I’m assigned then I’m left holding the dogs.
Option trading rule number 1, never sell options on a stock you don’t want to hold.
I see many “options selling” accounts on Twitter. These accounts only seem to trade tech such as the likes of; NFLX, TSLA, COIN, etc. Another problem with trading options on these stocks is the share price, they’re fucking expensive. For example, to write one cash-secured put on TSLA, the current share price is ~$270 which means you need $27,000 to be cash-secured to sell one put contract or to sell one covered call contract.
I think these Twitter accounts form a false sense of expectations with options selling. These guys are trading big 7 figure accounts, using margin from a broker such as Robinhood, which is extremely unrealistic and stupid for most people starting out.
For one Twitter account, that posted his daily trades, I worked out that he needed at least $150k to be cash-secured from the cash-secured puts he was selling, for expiry weeks away, and this was his DAILY trades. Imagine what that looks like after one week of trading, and then look at your own account.
Say the tech-heavy NASDAQ decides to shit itself, this guy is as fucked as the Argentine economy. He will either be assigned a shit load of shares or roll down and out for a big financial loss. My guess is he is not cash-secured, and will always roll down and out of the contracts he’s sold. To roll down and out of these options he would still need a large cash base (unrealistic for most people) sitting in his account. In the event he is assigned the shares, his broker will fire-sell whatever he has in his portfolio to cover the loss i.e. blowing up your account.
If you guys want to follow an options trading account on Twitter you need to follow Trader Ferg, I’ve written this in many of my posts, but it’s how I learned, and he posts his trades for his members on Substack and explains his thoughts consisting of solid fundamentals. Check out his options trading for income video from the Crux Investor youtube here.
This is the difference between the shit you will see on Twitter, as these guys are tech traders with a similar mindset to the crypto crowd. They can’t put a conviction down on paper, rather just have “belief” or “feel” that their stock will do well (which it might).
Remember that old saying that just “facts don’t care about your feelings”, well that seems entirely appropriate here.
One way to tell if they’re full of shit or not is to work out how much cash they need to be cash-secured or if they’ve been assigned those shares after expiry. Because they frequently post their trades, work out how many contracts they’ve sold vs what they could potentially be assigned, and look at the expiration date they posted. I notice when people push back or question what they’ve posted, it goes unanswered, I’ve tried numerous times to get an answer out of them, but get nothing burgers.
It’s lonely (at least on Twitter) selling options in energy full-time for income as there really aren’t that many accounts to follow, but Trader Ferg is a must. If you’re starting out with options keep it simple. Trade options on stocks that are <$10 around a sector you have strong conviction in.
Focus mainly on covered calls mostly so you can sleep better at night, rather than dealing with the stress of being assigned shares. Plus, you also capture capital gains if you're assigned out of your covered call, adding extra dollars to your income, which is the case with my RIG covered calls this month, and it’s a significant extra (this is why I’m on a summer holiday in Europe right now).
My secret recipe, which I’m overly loud about, is living in low-cost-high-quality-of-life Buenos Aires and trading options on the never-ending demand of the energy sector.
Thanks for reading,
Jordan.
Thanks for reading Bob, it’s a Substack if you want to see his trades I think.
Love reading these blogs/post very informative! After reading you’re post I’ve taken the time to learn about cash secured puts & covered calls. I used to look at options as something for wall st but this has totally changed my opinion. Thankyou keep up the great work 😁