We we first wrote about our intrepid, fearless investor on February 8, 2021. Now, six months later, we are bringing an update with gratitude for sharing with us.
Here is a summary of her year-to-date position.
Total year-to-date losses in her “fun” portfolio = 567,464.59
Total year-to-date gains in her “fun” portfolio = 448,441.95
Final year-to-date loss in her “fun” portfolio = 119,022.64
$566,547.93 of the losses were incurred in her Novavax (NVAX) shares, $12.52 in her SPDR PTFL S&P 500 ETF [SPLG] shares and $904.14 and in her SPDT S&P 500 ETF [SPY] shares.
All her gains came from writing (selling) just out-of-the-money covered calls on NVAX each Monday, expiry date Friday of the same week. Occasionally, she wrote further out-of-the-money covered calls to allow for some growth if there was any. That worked out half the time.
Like the majority of “fun” portfolios, hers is not much fun but is getting to be less painful.
The only three ways to outperform the market are 1.) to dollar-cost average into it or 2.) to pick a 10-bagger, winning security and 3.) to write (sell) covered calls on a well-selective security.
1.) always outperforms, 2.) works frequently enough to keep traders coming back but rarely frequently enough to equal the market and 3.) works by using an exchange-traded fund that tracks the S&P 500.
As we frequently state, historically, 1.) over the long term, 2.) properly selected US market index exchange-traded funds, 3.) held in tax-advantaged accounts, 4.) in an appropriate asset allocation, have been the investors best way for growing savings and are likely to remain so for many years.
Here is what she plans to do when the market opens at 9:30 AM, Eastern Time, today. (Canadian markets are closed.)
She will sell 17 just out-of-the-money covered call contracts on NVAX. (NVAX C 06AUG21 180.00)
The closing bid/ask range for those calls last Friday, August 30, was $11.950/$12.80.
So, she can expect to collect about $12.00 times 1,700, or $20,400. Before breakfast! A bird in the hand! Money in the bank! Durning her best years practicing dentistry, she needed two weeks of full time work to net that kind of income.
Of course, when the market opens today, these figures will be different, but these are a good approximation.
And the possible outcomes? There are two, as we stated previously….
- NVAX, the underlying security, might drop by more than she receives in premium income resulting in an overall loss on the transaction. She views NVAX as a money tree, throwing off cash while it grows and shrinks and grows and shrinks.
- NVAX might rise above her strike price. The buyer of her covered calls will be able to acquire the security from her at the strike price and profit from that rise. She will receive cash and need to buy NVAX again if she decides that the premium income on selling covered calls on it warrants that.
With the habits of the Monday Morning program, luck hardly matters. Selling covered calls on individual securities ignores habit number 3, that is, buy the US market as a whole with no stock picking.
With what we are doing here, luck does matter.
Remember what you see below.
Resulting from its involvement in derivatives, in 1994, California’s Orange County declared bankruptcy.
Resulting from its involvement in derivatives, in 1998, Long Term Capital Management needed a $3.6 billion bailout from 14 financial institutions to prevent market panic and collapse of the entire financial system.
Gambling with derivatives, many individual investors keep losing 100% of their money.
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