Tracking option trades

[blackcrk]

Hi Evan,

I discovered StocksCafe just a few hours ago and have done my best to read everything I could find about how to possibly include options in the tracking and analysis features of your application. I know that I’m not well versed on how to do this using “other assets”, but I just wanted to offer for the record that when I started trading options over 10 years ago, I viewed them as a small part of my portfolio activity. That was true for many months or years, but over time, I have found options to be valuable in providing many benefits that I was not aware of when I first started trading options and over that time my option holdings have increased from perhaps 10% of my total stock and option holdings to well over 50%. In addition to that, in my opinion tracking details for options is much more time critical than tracking stock holdings details - anyone that has had a surprise early assignment of a short call the day before Ex-dividend date may appreciate what I’m referring to related to this.

Over the many years, I’ve produced an array of Excel spreadsheets to help me manage my overall portfolio and the largest amount of effort goes into my Option holdings. My problem is that I now have many hundreds of Stock and Option holdings that I update manually on a regular basis. That manual updating requirement wasn’t necessarily a bad thing early on when my holdings were less as it required me to look at a lot of things to do the update - for example to get a current option value, I had to load the ticker which allowed me to to get a quick view of the stock chart, view the recent news, etc., before opening an option chain to evaluate the Call option value or take a look at the Put value when the Call option spreads were extremely large.

That was great education, but it became very time consuming as my number of options became large.

I see in your note that you express concern about daily option prices not being readily available which is a valid concern. However, unlike stocks where the last or closing price pretty much define the current value of the stock, that’s not so much true for options where the volumes are often much much lower and the last price can be many days or even weeks old especially if they are Deep in the Money.

If I had one single recommendation about how to include options in your application, it would be to forget trying to update the option price on a real time or even daily basis. Leave that up to your user. Include the user’s last value in any portfolio performance analysis. I know this goes against providing an easy solution to providing an automatic performance metric, but I intentionally keep many of my short Call options Deep In The Money (often selling a deep in the money Call in order to be able to continue to collect the dividend instead of selling the shares outright) when I think the stock is at risk of dropping in price.

Selling DITM Calls is actually a great hedging tool that can reduce your portfolio volatility by a great amount, but unfortunately it requires a great deal of maintenance to ensure that early assignments don’t wipe out some of your potential gains.

[evankoh]

@blackcrk

I discovered StocksCafe just a few hours ago

Welcome to StocksCafe!

@blackcrk

I know that I’m not well versed on how to do this using “other assets”

You actually can track options via StocksCafe now.

@blackcrk

If I had one single recommendation about how to include options in your application, it would be to forget trying to update the option price on a real time or even daily basis. Leave that up to your user. Include the user’s last value in any portfolio performance analysis.

This is an interesting idea. To let users have the ability to override latest value. We need to think about when to choose user value and when to choose StocksCafe value. Or maybe let user choose that.

@blackcrk

but I intentionally keep many of my short Call options Deep In The Money (often selling a deep in the money Call in order to be able to continue to collect the dividend instead of selling the shares outright) when I think the stock is at risk of dropping in price.

This is also an interesting idea. I only sell Out of Money calls. So, do you keep rolling the options? What strategy do you prevent early assignments?

@blackcrk

when I think the stock is at risk of dropping in price.

Now that the market seems to be going downtrend, this seems like an idea to seriously consider.

[blackcrk]

Hello Evan,

Thanks for the warm welcome.

You said: “You actually can track options via StocksCafe now.”

I’m using StocksCafe version 3.4.32. And I must confess, I haven’t managed to determine how to enter option information yet. I got to the “Enter Transaction” screen via “Starter Guide” “Add Transaction” and I tried entering a stock option as a transaction in the standard option format (e.g. for Reality Income with Expiration April 19 2024 Put with Strike of $52.50 I tried entering Osssss240419P00052500 - where “s” is a space), but StocksCafe found the O stock, not the option. I see the “Options” icon, but when I choose it, it tells me I have “no options transactions” and I haven’t succeeded in determining how to initiate the options transaction entry screen.

You said regarding Deep In The Money Calls: “So, do you keep rolling the options? What strategy do you prevent early assignments?”

Yes, I keep rolling the options. To preserve the dividend, I keep track of the next actual or expected Ex-dividend date along with the dividend payout amount and the time value of the Call. If the Call time value is less than the dividend amount and the Ex-dividend date is near, I review the option chain and pick a new expiration to get the Call time value high enough to avoid early assignment. I generally calculate my “yield” from rolling the Call forward and compare that to what I can get from putting the cash in a money market fund. My raw yield here is the sum of the dividend (that the roll prevents the loss of) plus the net credit associated with the roll forward divided, all divided by the Strike. I then annualize the raw yield and see how it compares with money market yields. If the Roll forward yield is well above the money market yield I pull the trigger on the roll. If the roll forward yield is below the money market yield, it’s time to either let the early assignment happen or consider rolling the option Up.

[evankoh]

Hi there,

@blackcrk

I’m using StocksCafe version 3.4.32. And I must confess, I haven’t managed to determine how to enter option information yet.

Instead of clicking into “Portfolio”, please click into “Options”. Then you can use the “+” sign on the top right as you would to add transactions of options.

@blackcrk

Yes, I keep rolling the options. To preserve the dividend, I keep track of the next actual or expected Ex-dividend date along with the dividend payout amount and the time value of the Call.

Thanks for sharing. Yes, that make sense. Interesting how you even compare opportunity cost against money market.

Cheers,
Evan

[blackcrk]

Thanks for clarifying. I’m pretty sure I clicked on everything except the “+” in an attempt to get to the entry screen. Works great.