August Covered And Naked Puts Options Trades Update #3

Small and large investors in dividend stocks and ETFs can use covered calls and puts trades to generate monthly income from options premiums and options trading.

By Donald E. L. Johnson

Cautious Speculator

• August puts trades options premium income stands at about 15.8% annualized on the cash put up to secure the puts, not including unrealized losses.

• Unrealized losses on the puts trades may be covered by selling covered calls on the stocks and collecting dividends while I wait for the stocks to rally.

• Six of this month’s 16 cash secured puts trades were assigned last week.

• The stocks and the markets are looking weak.

• I’ll report on my September naked and covered puts trades and watch list soon.

Stocks and exchange traded funds in the August cash secured puts portfolio sank last week with the major indexes, which were down more than 2%.

Please click on images and zoom in for better views.

So far this month, I have done 16 puts trades on two ETFs and 14 stocks. I’ve also done 16 cover calls trades. Doing a lot of small trades. Collecting dividends and interest on cash reduces my risks and helps me have a positive cash flow every month. Annualized returns on risk on the 16 trades averages about 15.8%.

Six of my nine expiring August puts trades were assigned to me Friday after the underlying stocks closed below their strike prices.

They were D.R. Horton (DHI), Intuitive Surgical Inc. (ISRG), JPM Equity Premium Income ETF (JEPI), Newmont Mining Corp. (NEM) and Southern Co. (SO). Nasdaq QQQ Investco ETF (QQQ) was assigned a week ago and the QQQ 8.18.23 $370 strike covered calls expired worthless Friday.

During more than 12 years of selling puts options, I’ve never had this many puts assignments in one month.

This month I sold puts on JEPI and SO because I wanted to add more of their shares to my dividend stock portfolio. I also took more risks to get higher options premium income returns when I sold puts on IWM, QQQ, DHI, ISRG, MRNA, NEM, PAYC, Williams-Sonoma (WSM) and S&P 500 Energy Sector SPDR (XLE). All of the assigned equities are trading below the strike prices that I paid for them when they were assigned.

I have to decide whether to take losses on them or write covered calls on them while I wait for them to recover, if they do. They’re looking weak.

Here are the comments I posted last week on my DOW, ISRG and Paycom Software Inc. (PAYC) puts trades and positions:

8.17.23 DOW $54.16. Cost $53 on 5.13.23. After collecting calls premiums and one dividend, net debit is $51.44. Less $0.45 puts premium on assigned puts, the net debit is $50.99. DOW 8.18.23 $57.50 calls expire tomorrow. Ex Dividend for $0.70 on 8.30.23.

Today I sold DOW $8.25.23 (8 days) $54 puts for $0.68, or an ARoR of about 57%. Delta is -.46, OTM probability is about 53%, implied volatility is 26.2%. I hope the stock will dip be low $54 so that the addition shares will be assigned and I'll get the 8.30.23 $0.70 dividend (5.2% annual yield on the $53.32 net debit on the puts trade.)

DOW has a 16% buy rating on Barchart.com. The average analysts' rating is 3.19 out of a possible 5, or a hold. The highest analyst target price is $66. The mean target is $54.94 and the low target is $47 a share. Like my other dividend stocks, DOW is in our IRAs.

8.18.23. ISRG $286.54. Puts were assigned at $305. Barchart rating is a 24% buy. That trend is weakening a bit. Analysts' average rating is 4.33. High target price is $400, mean is $364 and low is $270. The stock is down 6% from the $305 purchase price. The net debit ($305-$1.50 puts options price per share) is $303.50. I'll write covered calls on ISRG because I expect it to rally.

8.18.23. PAYC $279.31. PAYC was put to me at $330 a share. It is down about 15% from the price I bought it at. Analysts rate the stock at a moderate buy, or an average rating of 4.29 out of a possible 5. The high target price is $450 a share. The mean target is $385.88 and the low target is $310. PAYC will have to rise about 11% to hit $310, 18% to hit $330 and 38% to hit the mean target price of $385.88.

I can sell PAYC 9.15.23 $320 covered calls for about $1.20 a share or PAYC 10.20.23 $330 covered calls for about $2.40 a share. I want to give the stock room to bounce without being called when I sell covered calls over the next year or so.

I'm expecting the stock to recover while my net debit price, which is $327.70, falls as I sell covered calls and collect $0.37 a quarter in dividends. The net debit is $330 minus the $2.30 in puts options premiums I collected when PAYC was at $367.09 and I sold the puts on 7.28.23.

Between my portfolio updates, I report my thoughts and trades in the comments section of this and other posts.

I respond to comments on the comments section where readers’ comments are posted. That is, if you have a question about this article or other comments, I'll discuss your questions with you in the comments section below this article.

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Beware. Like all investing, trading stocks and options is risky. I’m an active private speculator who trades covered calls and sells puts on stocks for my accounts. I am not a professional analyst nor a financial advisor. I don't take and won't take responsibility for how other people trade. This article is for educational purposes only. It is not advice. The data presented looked accurate at publication time except for intra-day fluctuations, but I can’t guarantee the accuracy. Traders should do their due diligence. I reserve the right to trade any of the listed stocks and options at any time. I receive no compensation for producing this content nor for any links.