Fingers in the Cookie Jar

  When I last wrote about my adventures using my self-directed 401K to buy stocks and write covered calls at a lower price than I paid for the stock to grab a short term 1 or 2 percent return on my investment I was going to experiment further with selling options that expired shortly after the dividend declaration date of early August with the thought that I would either pick up an extra dividend if the stock tanked or have the option picked up early in case the stock stayed above the strike price. I tried this with my two old favorites Exxon (XOM) and Emerson Process Management (EMR) with decidedly mixed results.

  I bought 200 shares of Exxon on June 19th and for $83 and collected $400 by selling an option to buy the shares on August 18th for $82.50. I expected the stock to stay somewhere close to $82.50 and was hoping the option would get called on the dividend date of August 10th and give me a 1.77% profit in less than two months. Unfortunately the day I bought the stock for $83 was the day it took a steep descent and bounced between $79 and $81 for the next five weeks. On August 2nd I bought back my option for $10 and collected $160 for selling the option to buy my 200 shares at $82.50 but with an expiration of October 20th. The quarterly dividend of $154 in dividends was mine on August 10th (payable September 11th) so I was then looking at a 3.63% return over four months. The XOM tanked even further and dropped to $76.05 on August 31st. I was able to once again buy the option back for $20 and waited for a small uptick before getting $160 for selling the option to buy my 200 shares at $82.50 but now the expiration date is January 19th, 2018. This would be very alarming if I was using my rent money for these investments instead of a 401k that I can’t touch in any case or if I wasn’t invested in a top quality stock like Exxon that has paid an ever increasing dividend for decades. Exxon has since rebounded to start touching $80 a share and I will get another dividend in November if the option isn’t called away but for the moment my XOM option investment is stuck in the mud.

  

6/19/2017	Buy 200 XOM @83.005	-16605.95
6/19/2017	Sell 2 XOM Option @82.5 (2.06) Expiring 8/18/2017	405.65
8/2/2017	Buy 2 XOM Option @82.5 (.05) Expiring 8/18/2017	-10.08
8/18/2017	Sell 2 XOM Option @82.5 (.85) Expiring 10/20/2017	+163.66
8/10/2017	.77 dividend payable 9/11/2017	+154.00
8/28/2017	Buy 2 XOM Option @82.5 (.10) Expiring 10/20/2017	-20.08
9/5/2017	Sell 2 XOM Option @82.5 (.80) Expiring 1/1/2018	+153.65
	P&L as of 9/25/2017 price of $80.98	+431.60	2.26%
	Total (If option is exercised)	+735.60	4.43%

  My other June option play was with Emerson Process Management (EMR). Emerson has provided a steadily increasing dividend for the past 60 years and I can personally attest to their frugality since I worked for them in their Marshalltown facility in 2008-2010. For example, Emerson is the only company I’ve worked for in the past 25 years that didn’t offer free coffee for their employees, instead having a vending machine dispense some sort of coffee-like swill for 55 cents a cup. I’ve made over $1,300 over the last two years playing the option game with this company and on June 26th I bought 300 shares of the stock for 59.41 and pocketed $887 for the obligation to sell the stock at $57.5 on August 18th (9 days after Emerson’s dividend date). This play went just the way I wanted. The stock never dipped below $58 a share and never went over $61 until a few days before the dividend was declared. On August 8th, Emerson closed at $60.43 and the next morning the option was called which meant I didn’t get the dividend but I did collect $299.75 for a 44 day investment which worked out to a 13% annual return. I could have made the same money by not selling the option, keeping the stock, and selling it on August 8th but that would have entailed short term risk and I am trying to use the options to guarantee a profit even of the stock goes down.

  

6/26/2017	Buy 300 EMR @59.395	-17823.45
6/26/2017	Sell 3 EMR Option @57.5 (2.95) Expiring 8/18/2017	+877.95
8/9/2017	Sell 300 EMR @57.50 (option was exercised)	+17244.65
	Total	+299.15	1.68%

  With my cash back in hand from my EMR option play I decided to try something new. I noticed that Apple (AAPL) had risen from around 145 a share to over 160 a share over the previous four weeks. I bought 15 shares of AAPL in 2011 and sold 11 shares in 2012 keeping 4 shares as my profit. Since then the stock split 7 ways and started paying dividends so my 4 shares that were worth $1200 when I bought them are now 29.3 shares worth between $4000 and $5000 depending on the stock price. That was a big win (which could have been bigger if I hadn’t sold the 11 shares in 2012) and has always made me think kindly of Apple. Not to mention that my Apple iPod is my favorite toy and helps me understand why the company has such amazing brand loyalty. So on August 15th I bought 100 shares of AAPL at $161.75 and collected $83 for the option to sell the stock for $162.50 on August 17th. I thought I would either make a quick $160 over three days or I would keep the $83 and the stock and start all over the next week. I was feeling very good on August 16th when the AAPL jumped over $162.50 but less so the next day when the stock fell under $158. Making lemonade out of lemons I bought back my option for $10 and made $79 more by selling the option to sell the stock for $162.50 by the next Friday, August 25th.

  Over the next week Apple’s stock price rebounded past 160 but never threatened the 162.50 mark so on the 25th I bought back my obligation for $4 (as the expiration date of the option approaches the option becomes worth less and less if the stock price is less than the option (or strike) price. I then made another $85 for selling another option to sell the same 100 shares at the same $162.50 price but a week later on September 1st.

  This seemed like free money. I was collecting $70 to $80 every week for offering to sell this 100 shares of Apple for more than I paid for it in the first place. Over the next week AAPL’s price went straight up and by August 30th was well over $163. With my option ready to be called the next day I could have banked a cool $300 for a three week investment. Could have if I hadn’t gotten greedy. I decided I wanted to stretch this out a little further and bought my option back for the high price of $191 but collected $359 for selling the obligation to sell the stock for $162.50 with an expiration date of September 15th which was two weeks in the future. This seemed like a good play but after Labor Day AAPL began a descent, dropping under $162.50 on September 12th and under $159 on the 15th. I turned around and bought back my option for $3 and sold a new option to sell the 100 shares at $162.50 by the next Friday which is the 22nd but I only collected $65 since $162.50 was much further away.

  I wasn’t kicking myself over not letting the 9-1 option get called until this past week when AAPL lost $8 a share to close at $151.88 on Friday the 22nd. I bought my option back for $10 on the 20th but there was no late week rebound and no market for AAPL options at $162.50. I have made $450 in options over the 7 weeks I’ve owned this stock but the entire transaction was underwater by $400 as of Tuesday night.

  

8/15/2017	Buy 100 AAPL @161.7053	-16175.48
8/15/2017	Sell 1 AAPL Option @162.5 (.88) Expiring 8/18/2017	+83.00
8/17/2017	Sell 1 AAPL Option @162.5 (.10) Expiring 8/18/2017	-10.04
8/17/2017	Sell 1 AAPL Option @162.5 (.84) Expiring 8/25/2017	+79.00
8/257/2017	Sell 1 AAPL Option @162.5 (.04) Expiring 8/25/2017	-4.04
8/25/2017	Sell 1 AAPL Option @162.5 (.90) Expiring 9/1/2017	+85.00
8/30/2017	Sell 1 AAPL Option @162.5 (1.86) Expiring 9/1/2017	-191.64
8/30/2017	Sell 1 AAPL Option @162.5 (3.65) Expiring 9/15/2017	+359.35
9/14/2017	Sell 1 AAPL Option @162.5 (.03) Expiring 9/15/2017	-3.04
9/15/2017	Sell 1 AAPL Option @162.5 (.70) Expiring 9/22/2017	+65.00
9/20/2017	Sell 1 AAPL Option @162.5 (.10) Expiring 9/15/2017	-10.04
	P&L as of 9/26/2017 price of $153.14	-414.18	-2.56%

  Not a pretty picture but it looked a lot worse when Apple dipped under $150 a share earlier this week before bouncing back up. I could always sell the stock and take the loss but there seems no reason to since this is 401k money that I can’t touch and Apple remains an incredibly profitable company that will explode if the government decided to give them a discounted tax rate on their billions and billions of dollars stashed offshore instead of being brought to the U.S. at a higher tax rate or when the sales from their new iPhoneX come rolling in. At the moment I’ve been caught with my fingers in the cookie jar with both Exxon and AAPL and there is nothing much for me to do except wait until the inevitable rebound which is sure to happen. I could have not written about these two decidedly non-winning ventures but it helps illustrate my point that my option strategy is best employed with super solid stocks with a proven track records. Both Exxon and Apple make tons of money and provide dividends so I will still be paid while I’m on the sidelines and when they rebound I will have a happier blog post to write!