Re: Options and AIMing...
Hi Tom,
As mentioned previously, the primary portfolio I trade options in I approach as an option seller, so I'm looking for time decay on the positions. Thus, I never get more than 100% gain on the premium if the option expires out of the money.
That portfolio consists of generally holding 12-15 issues of well capitalized companies with a strong dividend history and good EPS growth over the last 4+ quarters (generally). I look for company's priced under perceived fair value. The forward dividend yield typically provides a price floor and I look for yields ~50 basis points above the current 10-year treasury note. Once I get in I sell calls and puts against the position on an opportunistic basis. This provides good cash flow and in addition to the dividend helps reduce the cost basis for positions I'm interested in holding longer term and want to accumulate. I'm limited in price on issues due to the need to trade in 100 lots to match option selling.
As an example, ABBV, which I started accumulating in Q4'16 at ~$60, now has a cost basis of just over $32/share due the option premiums, both CC & CSP, that I've sold as well as the dividends collected. I'm able to consistently produce ~10% - 14% annually cash-on-cash in that portfolio. HOWEVER, I'm targeting income in that portfolio so at times it will sustain large drawdowns, mid-Sep'18 to late Dec'18, for example. I ended up getting assigned on a number of CSP and as a result culled the portfolio down from 14 to 9 companies. But that's ok for this portfolio as the goal is income generation and I'm less concerned with the swings and losses it sustains as long as it continues to generate cash over time.
-AIMStudent
