Weekly options and free money

I receive free money this week.

I'm making good progress since my first option purchase on 4 November. Currently, I'm in profit of USD226, not deducting my commission of USD24.14. Not too bad for the initial capital of USD3081.23. That's about 7% in 18 days. I do attribute this more to luck and optimal market conditions than skills.

Since I open my multiple bull put spreads last week, I have written two other positions and purchase a stock:

  • NIO (weekly), bull put spread 34P/39.5P, 2 days to expiry @ 0.39 credit
  • BYND (weekly), bull put spread 120P/-125P 9 days to expiry @ 0.60 credit
  • BABA (stock) 10 shares @ $266.20

Free money trade

NIO, darling to many people. I first hear about this potential "free money" from TastyTrade's Last Call by Tom Sosnoff. Juicy premium even for a contract that is expiring in 2 days since the volatility of NIO is around 120%. As you can see from the 5 days:5 mins chart below, the price dropped from 49 to 42 after earnings. The stock is also seeing fluctuations between the range of 42 to 49. The NIO position is written on 18 November. The stock is trading with a volume upwards of 200 million. I like my trades to my of liquid underlying.

Here are the greeks of the NIO trade:

Delta Gamma Theta Vega
13.86 (Beta weighting of 0.16) -2.88 20.02 -0.72

On the next day, 19 November, I manage to close it at 0.10 debit, earning a quick USD30. Money for a few quick lunches, I will say. I think money squeezed out from the high Theta. I could have held it to expiration and keep the full credit. However, at that point in time, I'm not so sure if the underlying might tank the next day, given the fact that this stock has insane fluctuations.

Here are the greeks of the BYND trade:

Delta Gamma Theta Vega
7.65 (Beta weighting of 0.6) -0.88 4.8 -2.01

I'm also looking to close my BYND position soon rather than holding it to expiration. It's currently almost touching the 50% profit zone and currently trading at 0.33 debit.

Misses of the week

In the past few days, SPCE moves up to 22 after the day that it drops steeply when it announces that it is going to delay their first commercial spaceflight due to COVID. I am not in a loss when I close this position (+10USD), but it could have a higher profit margin if I could stomach the potential downside risk if I hold on to the position. Back then, I wouldn't be able to handle the downside risk.

After a few days of purchase, the bull put spread in MSFT is profitable. However, I didn't close it. As of today, it is at a loss of USD66. My assumption is MSFT is a strong stock and it should be able to keep the stock price above my short put strike price of USD205. I'm going to monitor the position and see if I need to make an adjustment or assume loss in this position.

Previously, I have mentioned that my iron condor in UAL could have been profitable if I did not close the bear call spread of my iron condor. Right now, UAL is in between my strike price and the volatility has contracted a little.

Sold MSFT to purchase ATVI I feel like kicking myself every time I look at my standard chartered exchange. In which I sold Microsoft at 196 to purchase Activision Blizzard even though I have more conviction in Microsoft as a company. The options profit is sufficient to cover the ATVI losses. But the stock seems to be trading in a range. I will assume loss when ATVI reaches 80, or fall even more drastically.

Moving forward

But hindsight is always 20/20.

While I could have kept the losing trade on and become more profitable. However, there is the possibility of the trade going against me as well. Because of the spread width, the loss is much higher in proportion than the potential reward. I do not want just a few losses to wipe up my account. While I'm happy that I'm still a profitable position, arrogance (we all got that hyper-invincibility during the previous crypto bull run in 2018) could lead to a harder recovery. Data says I can't always be right and I don't want to assume I am capable of doing that. As long as I have more right than wrong, I would have to take a slower but a safer approach towards wealth building.

The next up will be to look into strategies that could be more of a volatility play than a directional play. Looking forward to grow my portfolio with options.

Till the next portfolio update.

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