Covered Call "Income Experiment"
I've decided to try a little "Income Experiment" on OptionXPress's Virtual Trader, using IWM. This is based on the concept of only worrying about income generation and not caring about the market value of the holdings.Three trading rules:
- Sell enough shares and calls to earn at least $500 income per week (0.1% of cash portfolio value)
- Never sell calls below cost basis (roll out in time as needed)
- Set a limit order of $0.02 per share on each new call position
Transactions so far (related transactions are color coded):
| Date/Time | Description | Result | Total | Shares | Price | Comm | Fees | Week | Income | Week2 |
|---|---|---|---|---|---|---|---|---|---|---|
| 2014-04-10 11:00 | BTC 5 IWM 4/11 2014 $117 Call | -- | -$15.13 | 5 | $0.02 | $4.95 | $0.18 | 4 | -$15.13 | -- |
| 2014-04-04 12:34 | STO 5 IWM 4/11 2014 $115 Call | Open | $624.85 | 5 | $1.28 | $14.95 | $0.20 | 5 | $624.85 | -- |
| 2014-04-04 12:34 | Buy 500 Shares IWM | Open | -$57,513.95 | 500 | $115.01 | $8.95 | $0.00 | 4 | -- | 5 |
| 2014-04-03 15:00 | STO 5 IWM 4/11 2014 $117 Call | Rolled | $629.85 | 5 | $1.29 | $14.95 | $0.20 | 4 | $629.85 | -- |
| 2014-04-03 15:00 | Buy 500 Shares IWM | Open | -$58,538.95 | 500 | $117.06 | $8.95 | $0.00 | 4 | -- | 5 |
| 2014-03-27 14:30 | STO 8 IWM 5/9 2014 $119 Call | Open | $776.75 | 8 | $0.99 | $14.95 | $0.30 | 3 | $776.75 | -- |
| 2014-03-27 13:52 | BTC 8 IWM 3/28 2014 $116 Call | -- | -$21.23 | 8 | $0.02 | $4.95 | $0.28 | 2 | -$21.23 | -- |
| 2014-03-25 00:00 | Dividend of $0.302 per share | -- | $241.60 | 800 | $0.30 | $0.00 | $0.00 | 2 | $241.60 | -- |
| 2014-03-24 12:04 | STO 8 IWM 3/28 2014 $116 Call | Rolled | $584.75 | 8 | $0.75 | $14.95 | $0.30 | 2 | $584.75 | -- |
| 2014-03-18 12:34 | STO 8 IWM 3/22 2014 $120 Call | Expired | $416.76 | 8 | $0.54 | $14.95 | $0.29 | 1 | $416.76 | -- |
| 2014-03-18 12:34 | Buy 800 Shares IWM | Open | -$95,520.95 | 800 | $119.39 | $8.95 | $0.00 | 1 | -- | 8 |
The "Week" and "Week2" columns are just so I can do the weekly income summary table.
Summary of weekly income generation:
| Week Ending | Cost basis | Shares | Price | Week | Income | aROI |
|---|---|---|---|---|---|---|
| 2014-03-21 | -$95,520.95 | 800 | -$119.40 | 1 | $416.76 | 22.69% |
| 2014-03-28 | -$95,520.95 | 800 | -$119.40 | 2 | $805.12 | 33.26% |
| 2014-04-04 | -$95,520.95 | 800 | -$119.40 | 3 | $776.75 | 36.27% |
| 2014-04-11 | -$211,573.85 | 1800 | -$117.54 | 4 | $614.72 | 16.06% |
| 2014-04-18 | -$211,573.85 | 1800 | -$117.54 | 5 | $624.85 | 15.92% |
| 2014-04-25 | -$95,520.95 | 800 | -$119.40 | 6 | $0.00 | 29.38% |
| 2014-05-02 | -$95,520.95 | 800 | -$119.40 | 7 | $0.00 | 25.18% |
| 2014-05-09 | -$95,520.95 | 800 | -$119.40 | 8 | $0.00 | 22.04% |
Note that the "aROI" column is based on income generate for actual funds invested in IWM, and not the assumed $500,000 cash that I decided was avaialable for the strategy. Part of this experiment is to test the 0.1% weekly assumption.
Weekly explanations:
| Week Ending | Description |
| 2014-03-21 | Initiated a covered call by buying 800 shares of IWM @ $119.39 and selling eight 3/22 $120 calls @ $0.54. A little less than the $500 goal, but it's really only for a half-week. |
| 2014-03-28 | The eight 3/22 $120 call expired worthless. I sold eight 3/28 $116 calls @ $0.75 for this week's income. Note that I shouldn't have done that, because $116 is below the cost basis of the 800 shares I had bought. In any case, the $0.02 limit order on those calls triggered, to finish out the week. I also managed to pick up $0.302 per share of dividend for the 800 shares of stock. |
| 2014-04-04 | To generate the income for this week, I sold eight 5/9 $119 calls on the 800 shares of stock I held. |
| 2014-04-11 | Since
the currently held 800 shares of stock are obligated through 5/9, I had
to initiate a new position for this week's income -- I bought 500 share
of IWM @ $117.06 and sold five 4/11 $117 calls @ $1.29. I did this
early, because of the drop in price of IWM. I figured I'd be better off
buying them early, at a lower price, then after a recovery. Because I
have faith in the recovery. :) Note that I have since bought back the five 4/11 $117 calls, because the $0.02 per share limit order was triggered. |
| 2014-04-18 | Because the price of IWM dropped another $2, I again got a head start on this week's income by buying 500 more shares of IWM @ $115.01 and selling the 4/11 $115 calls @ $1.28. |
| 2014-04-25 | Since it looks like I will have 1000 shares of IWM available at the end of this week, I will use them to generate income for this week. I expect the $0.02 limit order to trigger on the five 4/11 $115 calls sometime on 4/11. At which time, I will sell calls on 1000 shares of IWM at a cost basis of about $116. The prices will determine which expiration date I use. |
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