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My income statement

156K views 460 replies 44 participants last post by  Thal81 
#1 ·
My main investment goal is to boost my "passive" income over time, so I'm going to try to post monthly charts showing the growth in my portfolio income.

My strategy includes long positions in dividend paying stocks, covered call writing and cash secured (or margin secured) put writing. Going forward I'll adjust my strategy as I see what works and what doesn't, and as I learn more about options and the market in general.

For record keeping, I record dividends when they appear in my account, and I record income from option sales on a straight line basis over the life of the option (If I sell an option on November 30 with a January expiry, the income is proportionally attributed to December and January).

If I sell an option or it is exercised for a loss, I'll count it against income if and when the loss is realized (ie if I sell a put and it gets assigned for a loss, I hold and sell calls so income continues to flow. If a call is assigned below the strike price of the assigned put, the difference will count as negative income).

I've been recording dividends since March 2010 and Option writing since June 2011. Hope this gets some interest and generates some discussion.




Here's where I stand currently. I'm looking to grow both my option and dividend income substantially over time.

Also, what's the best way to get charts/graphs from excel into a post?
 
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#3 ·
You are missing the Y-axis, Dmoney :p
Musta slipped my mind ;). It starts from a VERY low level though so the first months are misleading. When I get a bit more history behind me I'll cut them off so it doesn't make me look like Buffett.

Whenever I have posted something from Excel on the forum, I have done screen print > Save as JPG > Upload to flickr or similar site > paste link.
Not sure if this is the best way...takes about 2 - 3 mins. I think
I did the same and it's a little bit of a pain. Oh well, that's life.
 
#4 ·


Updated with a Y-axis, just for you Harold ;). That and I guess it's always more interesting with numbers. I also included my latest trade.

Sold 5 puts on Telus today. Jan 54 strike price. Want to buy Telus for yield and some growth opportunity, but figure that by selling puts until I get assigned I can maximize my yield. I'll miss the December dividend ($0.58) but instead got $0.93 per share for the puts.


Based on today's close of $55.67, my annualized yield is 13%. Will roll over the put in January if I don't get assigned, or write the covered call if I do.
 
#8 ·
I wouldn't quite call it TA, but I consider general market dynamics, a given stocks gyrations relative to the market, timing of dividend dates, sensitivity to global events (oil prices/euro crisis/CAD$ etc.). I give the charts some consideration, but don't feel like they are going to tell me too much.

I mostly look to options that give me a potential return with enough premium to be happy with only the premium, but enough room for capital gains to not be disappointed if the stock runs up. I don't yet have a strategy for rolling ITM options over, and am debating whether I should look into it more.

How successful have you been over what period of time? What strategies do you use and how do they differ from what I've laid out? Any recommendations or pointers?
 
#53 ·
How successful have you been over what period of time? What strategies do you use and how do they differ from what I've laid out? Any recommendations or pointers?
Dmoney

Can I walk in to this thread

I saw the arrival of options in the 70's

Did all kind of stratégies and operations

At this point, since several years, I lay out my actual stratégies

1) 2 margin accounts...TDW and Itrade...each with OPTION TRADING PERMISSION....including Naked calls and Naked puts

2) I «SELL» calls (covered) and never buy them back

3) I buy the stock, immediatly sell a covered call in the hope it will be exercised and give me the profit of a combined operation...buy en sell the stock....sell the call. Sometimes there could be a loss on the stock...but that will be made up by the premium received on the call ( I cal it «A RUN)

4) Ideally I went for 1.000 shares and 10 calls, but lately the commisions on options and execising have been reduced, so 500 shares and 5 options fall easily in reach

5) I calculate PER SHARE...mentaly...and see at once what is douable and what is not

6) Did it make me «RICH» no, but did I loose my shirt....no I still have it...LoL

7) I never brag or cry about my descisions....I take them and live with them...enough to go for weeks at a time to the countre...no électricity, no TV, no Phone and CELLPHONE does not work in our spot

8) No depth, no margin....just piece of mind

9) The higher you climb up a three...the higher you can fall down

10) I trade little....4 to 8 trades per trimester

11) Canadian options, the spreads are indecent and the volume VERY LOW....but i dont want to live with the problem of echange rate on top of that...

caricole....100% financial autodidact
 
#9 · (Edited)
This is from a basic two sigma deviation bolinger band. + Avoidance of selling when the price is near a channel top or historic resistance level.

20%

I managed to reach 25% this year with some added TA. Theoretically, the new one should give me 50% return per year, but my other half of the portfolio is not currently online. i.e. it is waiting for a long term option to expire.

My accounting is also different from you. I only book profit on the month when the option expires and I mark to market everything. It is important not to disillusion yourself especially with derivatives. It is the difference between GS and Lehman.
 
#10 ·
I'll likely include MTM for my full portfolio at the end of each month. I want to highlight my realized income from the portfolio, so would only include losses that are realized in this analysis. I'll be doing net worth or portfolio performance updates that will fully reflect everything that's going on. So far have only had one losing option position which I haven't solidified and I continue to earn income on. If/when I sell for a loss, I'll offset it against income in the applicable months (likely spread the loss over the period since being assigned).
 
#13 ·
I took advantage of a strong day for TLM, buying back my Jan 14 calls for $0.09 and selling March 13 calls for $0.71. I removed the $0.09 plus commissions from December and January income then spread the income from the $0.71 across Dec, Jan, Feb and March.

I've also added in my expected Dec. dividend income.
I will update actual dividend income as well as a net worth update closer to Jan 1.



 
#14 ·
Update for the New Year

So another year come and gone, a good one overall, quite eventful.

Graduated university with a degree in finance, got a contract job and two months in got a job offer in Toronto with much better prospects so I made the move in July.

Somewhat expensive starting up in a new city and making the transition from living at home (rent free) and going to school, to working crazy hours and living in downtown Toronto paying exorbitant rent.

I have tracked my finances in quite some detail from early June, and one goal for 2012 is to have everything tracked in even more detail, some of which I will be posting here.

For December I increased my net worth by 2.13%

Assets
Cash: $11,593 ($5k primed for TFSA in Jan)
TFSA: $17,309
Unregistered account: $70,432
Employee share plan: $1,500 (It's actually slightly lower but I don't have online access yet to get the accurate number so I'm recording at book value at the moment)


Liabilities
Margin: $5,975

Net Worth
$94,859

I've been working and saving since I was extremely young (mowing lawns, raking leaves, shovelling snow), got my first 'job' as a camp counsellor when I was 12 and never looked back. Had all my savings in mutual funds for about 10 years and have learnt my lesson there.

I now have a job in equity research and love that I am connected to the financial markets more or less 24/7.

Going forward - goals for 2012:

Net worth target: $150,000 - Ambitious but a few things should hopefully get me there.
-I will hopefully get a raise sometime in the first half of 2012
-Two semi-annual bonuses, which if the past is a good indicator should sum up to roughly my base pay
-The girlfriend, who I live with, hopefully finishes school and gets a job, should let me save more

Savings targets:
-50% of after-tax base pay (~3,700/month, so save $1,850)
-100% of bonus pay - ????? haven't been here long enough to know how much I should reasonably expect

Other goals:
-Might look into getting my CFA designation
-Will keep myself open to buying a house or condo in the New Year, but no desire to rush it
-Get back into shape - hit the gym a minimum of 3 times a week, no excuses


Hopefully tracking myself here will keep me honest. I think the most challenging will be saving 50% of after-tax pay, so here's hoping I get a raise :).

Happy new year to all.
 
#15 ·
With January options nearing expiry, I took the opportunity to roll over some of my positions today.

BNS had a great day, so I thought I'd take advantage of the euphoria and replace my January $56 calls with April $56 calls.

BNS was trading ~$53.74 when I initiated the position, sold 6 calls for $0.72.
I stand to make:
Capital gains of 16.5% annualized
Premiums of 5.3% annualized
Dividend of 4% annualized

Optimal total return of 25.6%

Telus was up in early trading, but fell later in the day, and I sold 5 February $56 puts for $0.94.
The annualized premium yield on this particular option is 20.4%.
I'm willing to buy the stock at $56, and will turn around and write covered calls if I am exercised, while collecting my dividend.

Here's where I stand with portfolio income after today's option trades. I broke through $900 in option income for January and will break $1,000 in "passive" income after dividends.
My next target is $1,500 which I will hopefully get sometime in 2012.
Also aiming to register at least 4 months of income over $1,000 for the year, particularly when my big dividend payments come in.




I will be updating again in early February with my monthly results. January dividends should be good with ~$312 in dividends from BNS and just under $100 from the rest of my portfolio.
 
#16 ·
A little bit of a tangent. I'm just starting out in options trading. Can you recommend 1-2 good books for a beginner? I'm a pretty knowledgeable investor having managed my own 'coach potato' account for a few years, but I want to start adding options to the mix to increase my returns.
 
#17 ·
I haven't read nearly as many as I should have but here's a good start:

http://www.rotman.utoronto.ca/~hull/
Hull's books are very widely renowned and are used in most Canadian University level options courses.

There's lots of good websites (including Wikipedia) that can give you a breakdown of all the strategies available and when it's ideal to use them. Beware that most of these websites are trying to sell you on how easy options are and how you can't lose.

Keep in mind that there is a big downside to most of the strategies that appear to be the best.
 
#19 ·
It seems like the most common is writing covered calls. Buy the stock, write calls on the same stock. You limit your upside, but you have the full downside.

There are various spreads that you can use, I'll leave you to look them up yourself, as I'm no expert and don't use them myself.

More in depth options discussion in this thread
http://canadianmoneyforum.com/showthread.php?t=8232&highlight=options
 
#22 ·
Ahh thanks man.

Right now I'm working/saving for university and trying to get more scholarships (at $20k right now - I got pretty good grades out of high school in calculus/sciences), the money I have on the side after that goes into my TFSA..

I'm hoping I'll get into UBC business for the upcomming september (I'm moving to Vancouver in the summer).

How did you like studying finance? Did you study at U of T btw? Are there currently (m)any jobs for it in Canada?
 
#23 ·
There's always jobs, they're just quite competitive.

Unfortunately I studied in Ottawa, which made it even more challenging to find a job, as all the Toronto firms only recruited out of Toronto universities or Queen's and Western.

Loved my program, had some very good profs, got out of it what I put in.

Can't stress enough that the hardest part of getting a job is getting your first interview at the organization.

Two ways of doing this, when the time comes:

1) Know someone who can get your resume directly to the right person (get to know them through alumni networks, business competitions, investment clubs etc.

2) Send your resume to 1000s of firms, follow up by calling each of the firms and pester everyone until you get a foot in the door.

As for now, get into UBC's portfolio management program after your second year http://www.ubcpmf.com/ and you're going to get a job, guaranteed.

And good job on working and saving, try and keep that up all through university and you'll graduate miles ahead of your peers. Also, get any in-course scholarships you can along the way. $20K should cover 3/4 of your tuition, try and get that up to 100%.
 
#25 ·
Thanks!

Man, I want to get into that portfolio management program so bad - apparently it's ridiculously hard to get in though. Hopefully managing my own portfolio for 3+ years, having a 3.7+ GPA (what I intend on getting), and being in the finance/investing clubs will help set me apart.

What's your first finance job been like? What kinda GPA did you have? I hear they work finance graduates like dogs for their first few years but the pay is pretty good and you learn a ton
 
#24 ·
Bought 600 shares of Transalta at $20.20 in my TFSA today.

Like the yield, the stock has suffered more than it should have on Sundance issues. Some long-term contracts likely to be signed in the next little while which can add some upside.

Stable enough that I plan to hold for the yield alone, will write the occasional call perhaps as time unfolds.
 
#26 ·
It wasn't overly competitive getting into the portfolio management program at my university. Only about 15-20 people apply annually and 3-5 get on. I had a pretty good GPA (~11/12 which is pretty much an A average, would translate into 3.7-3.9 as far as I know).

Once you're in the portfolio management program, you're likely going to have to add 20-50 hours of work to your week (depending how much you put in and want to get out of it), but you're also going to likely have the opportunity to meet with pension fund managers, analysts etc. Take advantage of all these meetings and try and make an impression on all of these guys.

As for my job, it's in equity research, so the work is cyclical. We are extremely busy during earnings season (in the office at 6:30, out as late as midnight/1:00 or 2:00 AM, working weekends). My team covers nearly 30 companies so it gets hectic. The rest of the year it's generally ~7AM to 6/7PM.

Our junior investment banking guys put in longer hours, generally ~9AM to between 8 and 11PM year-round.

Depending where you get in, what role you take and the corporate culture, you'll be working either a 9-5 or 16 hour days. I-banking is usually 14-16 hour days but you get amazing bonuses and move up quickly. Buy-side (portfolio management or analysts for funds) usually have very short hours since they pay other firms to do most of their work. Sales/trading have very short hours since they work only when the market is open and when buy-side guys are at their phones. Equity research is somewhere in between, and also depends on your team/analyst. Some analysts are easy going, some work you like dogs all year long (unfortunately I'm in the dogs category).

All in all, the pay is commensurate to the work you do. I-bankers make the most money followed by sales/trading/research followed by buy-side. Just to give you an idea, some of the senior guys (analysts, head traders, I-bank managing directors) in my firm made semiannual bonuses of over $500K. On top of base salaries that are closer to 7 figures than to 5 figures. If you ride it out, the benefits are amazing, but it's a tough ride.
 
#27 ·
Damn man, thanks for the info!

I believe the PM program at UBC takes in like 20-30 students annually, there was no information on how many apply to it though so I sort of assumed it was a very high number.

So if I can keep my GPA above 3.7, join investing clubs, and maintain my own portfolio/document my own investing progress do you think that'll be enough to give me decent odds of getting in?

Is there anything else you would recommend? I may try getting an internship after first year, but I imagine that would be quite hard..

The PM program sounds like an absolutely amazing opportunity. It would be incredible to not only meet other people who enjoy investing/talking about investing and bashing ideas around - but people who are at the top of the investment world...

I wouldn't mind getting an analyst job killing myself at it for 5 years or so to learn as much as I can, gain experience and contacts, and then try to start up my own portfolio management company, but we'll see what life brings!

Hell, if I could just grow my own nest egg and invest purely on my own for income I would.
 
#29 ·
For January I increased my net worth by 3.49%

Assets
Cash: $6,974 (-40%: $5K put into TFSA)
TFSA: $22,909 (+32%: $5K contribution, $600 gains)
Unregistered account: $70,432 (+1%: $566 gains)
Employee share plan: $2,000 (+33%: $500 contribution) (Actual amount is slightly lower, waiting for online access, recorded at book value at the moment)


Liabilities
Margin: $4,715 (-21%: $1,260 paid off, dividends and option premiums)

Net Worth
$98,167 (+3.49%: $3,308)


Net dividends after margin interest were $410 for the month.
Options premiums for the month were $903.
Total portfolio income was $1,313.
 
#31 ·
About 48% of my long positions have covered calls associated with them, and I have written puts, which if exercised would increase my margin to about 35% of the value of my long portfolio.

What do you think are good ratios for options strategies? For now I'm comfortable with the chance that margin goes up to ~50% of my portfolio as I can easily cover it, but as my portfolio grows, I'll likely try and limit possible margin exposure to between 25-35%.

I don't mind having most of my portfolio covered with call writes as the ideal situation will see them exercised for a significant annual rate of return.
 
#32 ·
The current portfolio I have for this strategy has 50% allocation for call/put writing. Current tally (due to an exceptional January) says that it grew by 30% annually and have since doubled from inception. Yes, it means that I have not been writing the covered calls/puts with the profit. They are just sitting there in BP, waiting for the IRAN war to start. The two part combined together forms the "call/put writing" to fund "Black swam risk events" strategy. A trick I learned from GS's underwriting of MBS.

I can only imagine the profit if I put full allocation into writing. But... that will also increase the risk and I am not sure if I can handle the stress associated with it.

Without the exceptional January, it is only a 25% annual growth strategy like I mentioned in December.
 
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