Covered Calls

2022 Covered Call Options Strategy

Covered Call options trades were a very effective way for me to increase income without impacting our dividend growth portfolio or reducing the gains on positions. Our dividend income continued to increase, and our overall portfolio beat the S&P 500 index in 2021. The following screen summarizes the dividend income and options income for the year. One thing the totals do not show for options income is the dramatic increase in options income in the second half of last year as I refined my strategy and put it to work. Most of the $90K was earned in the third and fourth quarters.

Options Income Plus Dividend Income for 2022

Reducing the Work and Increasing the Income

Now that I have gained some experience with my options trading plan, I hope to cut the number of trades by about one-third and increase my annual covered call options income to at least $2,500 per week. This goal will not be static every week, as I don’t plan to trade as much on positions with an approaching Ex-Dividend Date or when earnings will be reported in the near future (1-2 weeks out). Some weeks will result in higher income, and other weeks may result in less than $2,500.

This, of course, is based on the type of position. If the position pays a growing dividend, I will be hesitant to trade it aggressively. Also, if I want to lighten up on a position, I might trade going into earnings or before the Ex-Dividend date.

Reviewing Weekly Versus Monthly Options

I have categorized the positions in my ROTH IRA, Traditional IRA and Cindie’s traditional IRA to identify those that trade weekly options and those limited to monthly options. I plan to lighten up on some of the monthly long-term options positions and focus more on positions where I can trade options weekly. Again, this is not a hard-and-fast rule, but I will be more critical of positions that trade monthly options unless dividend growth is a factor.

2022 Week One Monday Results

Many weeks in 2021 were smaller options trades. I had to trade more options to reach $1,000 in income. The first week I traded twelve contracts and earned an average of $196 per trade. Here is my week one, day one result and trades. Because I had very good options income from SAVA and STX in 2021, I plan to continue to trade options on these stocks. SAVA is a health care stock focused on pharmaceuticals and STX is a technology company focused on hardware, storage, and peripherals.

Monday, January 3, 2022: Options Income

Deciphering the Option Symbol

For those new to options trading, the ticker symbol can appear mysterious. However, it is quite easy to understand. Essentially, a covered call option is a contract where I promise to sell 100 shares of stock I own if it reaches or exceeds a certain price by the contract expiration date. So, for example, the ticker symbol “-STX220121C116” is a summary of that information.

STX is the ticker symbol of the 100 shares I own of STX. I own 1,200 shares of STX, so my contract is for one lot of 100 shares. I could sell a total of 12 covered call options because I own 1,200 shares. The “220121” says the contract expires January 21, 2022. The “C” indicates it is a call option, and the 116 is the price. If the price of the shares on January 21 equals or is above $116, I have to sell my shares. This is automatic. I get to keep the $269.32 I received from selling the contract and the buyer gets to buy my shares, regardless of how much more they are worth over $116. Both of us win, but only if the price goes above $116. If it doesn’t, the buyer gets nothing.