Investment Experiment April 18, 2021
I have horrible luck with the stock market, but want to play around with an account that I have a lot of shares with, but won't be depositing any more money into, and see how much I can grow it using a new strategy.
This post officially kicks off my investment experiment. My experiment is to produce income buying and selling options.
First a little background. So, I have an account on webull.com. And it is down. Big! Instead of selling for a loss, I intend to use my position to generate income, then use that income to generate more income.
I first had a run-in with options about 5 years ago, but I was very dumb with them. For instance, I thought buying a "put" could lead to a potential infinite loss. I was not knowledgeable on them at all and I also wasn't even smart about which companies I was buying options in. So I lost like 1500 bucks pretty quickly. Also I didn't sell many before they expired worthless. I just shouldn't have been trading them at all.
Fast forward a few years. I have not been in the stock market, but just investing through Betterment and throwing some money at Acorns as well. Acorns is particularly attractive because they only charge you a flat $1 rate a month. But I think Betterment is better overall with how they handle your money. Anyway, back to the story. At the same time I was throwing a bit into a savings account but the rate has dropped so much, I had a lot of money in there but only getting 2 bucks in interest a month. So, I felt that money could do better. Rather than do the safe thing and throw it in Betterment, which largely goes ignored, I wanted to have some fun with it.
But before that, at the start of the pandemic I decided to throw some money in, but not a lot, since I knew things were down. I bought USO, an oil ETF, because oil crashed and I knew it would be back up. I got 20 shares for about 20 bucks a pop, and sold at near 40 about 7 months later. I should have put all of it in there. But those things happen to me :) I also held OCGN at 33 cents a share but sold before it skyrocketed to $10. Yup, kicking myself. Sold it for a loss of a few bucks... ugh.
So here's what I'm starting with. I have shares in 5 different companies, 4 of them are biotech companies. I have about $6,000 invested. They are currently all $5 or below so I have a lot of shares! The market is going through something and penny stocks are really taking a beating. A ridiculously hard beating.
VTGN: 505 shares average of $2.22, current price $2.02 (my strongest stock). No options.
ETTX: 400 shares average of $2.68, current price $1.90. No options.
ATOS: 420 shares average of $2.57, current price $1.66. Options!
CBIO: 200 shares, average of $5.95, current price $4.62. Options!
UAVS: 200 shares, average of $7.90, current price $4.95. Options!
So as you can see, I'm just stuck with VTGN and ETTX, since they offer no options. But, VTGN is really strong and I have faith in ETTX as well. I have faith in all of these stocks, and they might even drop more. But I'm not selling!! I believe the appropriate vernacular is HODL.
CBIO is kinda hard to sell options with. I've tried but there's not a lot of interest.
ATOS and UAVS are pretty easy to sell options against.
I'm not depositing any more money in Webull. Every month I'm going to trade options. Options are risky but they are a lot less risky when using money that you made selling covered calls and puts. I want to get enough cash on hand that I can get to trading weekly options on some stocks that I've hand picked. The good ones start at the $4-5 range.
My strategy for now is to sell covered calls on stocks I own. When I get enough cash, I can sell covered puts as well as my covered calls. This should raise how fast I can grow my cash balance, because I'll still be able to sell my covered calls.
So, I'm setting some rules for myself.
- No depositing money, of course.
- If a covered call is assigned, I'm then obviously going to sell covered puts with the cash that I get from the sale. But if it's just too far out of reach at that point, I'll withdraw that cash.
- I won't sell calls on my whole position. The idea is of course to make money. For instance, with ATOS, I'm only selling 2 options against my 420 shares. It'll lower the rate I'm able to grow, but will not completely limit my profit. Except with UAVS, I'm selling calls on the whole shebang.
- No buying or selling of stock, unless that happens through assignment on an option.
This definitely isn't risk-free. There's no inherent risk per se in selling covered calls. You can't lose money, other than the money you would have profited if you didn't have to give up your shares. So you would gain less money. That will sting but I'm not losing money. Getting assigned on a covered put, though, since the stock is falling, it can be because it is going to zero dollars, theoretically. There's a non-zero chance of that happening. But as I said before, the money I'm putting up for that will be from selling calls on my stocks, or earlier puts that didn't get assigned. This cash doesn't come from my pocket.
So again, it's risky but it's with money I wouldn't otherwise have if not from selling options. So in both instances, it's the risk of less profit instead of actually losing money.
Where We Stand
Last week I deposited my last $500 so I could get my shares of UAVS and CBIO to 200 each, so I could sell more calls. Then I bought 90 more VTGN to get me to 505. When that settles my cash balance would be $0 (instead of -$500). But on Friday I sold 2 calls against ATOS and brought in $20, and another UAVS call for $20. So I'm +$40 at the moment. This is not yet in any position to be selling covered puts. I don't intend on buying any calls or puts until much later. So there won't be much movement on this experiment until May 21 when those options expire.
Of course, knowing my luck in the stock market, those will probably hit now.
I have horrible luck with anything outside of blue chips. I did more than double my money in 2007-2008 when I bought Intel and GE after the crash. That was fun. I think this is a way that will offset my luck. Like, now to have bad luck with this, those stocks will hit the strike price on the calls I sold, which will be bad luck in that I have to sell them, but good luck in that I sell at a strike price above my average! I am testing the universe with this one :)
Wish me luck, I'm sure it'll be fun, and tax season will be great next year.