I have been trading options (primarily selling covered calls) for about six months now. I have made almost 300 trades in this time. Some observations I have made are as follows:
- If there is more bullish sentiment out there, you can sell more covered calls. Therefore trading is not uniform every week or every month.
- Options trading requires enormous patience and effort. If I enter 10 covered calls, sometimes three or four get sold, sometimes none get sold.
- This whole experience is very similar to what I had observed back in my village when I was a child. One of the Annayyappa's (the younger one) had a general store which his father tended. His father spent his entire life sitting and selling items in that store. He died at over 100 years of age in that store. The son went every week to Chinthamani to buy items in bulk and stocked the store. The father decided the prices more or less at the time of sale. They hoped they are selling at higher than the purchase price at least most of the time. There wasn't any clear accounting. Apparently, they made money because they bought jewelry for their women folk constantly. I observed the entire time I lived in my village (up to age 14). Now after 5 decades I have understood the moral of this story. It is the process. Do not think about every single trade. Trading is your life and keep doing it no matter what. It will work out in aggregate very well.
- With my options trading I maintain much better accounting. But I have realized, too much accounting and looking at numbers all the time is not good for your basic health. You will have losses and gains. Take the losses in stride, learn from them, and then forget about them.
- If you own a stock, its price keeps going up and down constantly. Regardless, it is just paper loss or paper profit. It is real loss or profit only when you sell it. Generally, nobody wants to sell when it is up. They think it will go even higher. A covered call accomplishes what humans psychologically cannot do - sell when it is high. Let me illustrate. I bought 200 shares Texas Instruments at $111.40 per share. Wrote a covered call with $115 strike. The stock reached $115.14 on the expiration date which was just 5 days after buying the stock. It got assigned. I got a premium of $24 and capital gains of $718. This amounted to almost 300% annualized return. But if I had not sold the stock, I would have had a few more dollars worth of paper profit but, the stock could fall the following week and wipe out my paper gains. I don't think I would have sold the stock myself. The covered call did it! This is the major point of this post. In the six month period I have sold almost 100 stocks. About ten resulted in capital loss. This is also good. On our own we don't get rid of losing stocks with the hope they will raise again. They may but you have capital tied down longer with a loser.
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