Option articles newsflash

Well I have been thinking a lot about my option article series, one representing the actual positions and another one explaining my option strategy and learning curve. I have decided on stopping with the overview. It’s not really teaching anything and I was struggling on getting all the information in a readable format. As such it was just a spreadsheet with some of my gains and losses. While these can be interesting , my current way of thinking is I will post a blog as soon as I enter a position with and explaining why I think it’s a good idea.

Not as an advice that anyone should follow, just showing my thought process presented by a real life example. This combines the two article series in a more learning focused way. And it will save me a lot of hassle presenting large spreadsheets in a meaningful way.

Hopefully these adjustments will help the articles along.

April 2019 – Dividend

Another month passed by quickly. And so it’s time for another dividend update. This month and the next are always big on dividend coming in. This year is no different. It’s also got a few decent increases within the payments which is a nice bonus. Although this is exactly what is supposed too happen, it still feels as a bonus.

Mind you it can also go the other way round. Dividend payments can stop just like that and stock prices can implode as well. The last decade has been amazingly good. So for all of you who are just starting out. Have a long focus and don’t be deterred when things go sideways. Because they will at some point in time.

For now we are enjoying a nice ride, so here are the results for April :

DateStockCurrencyAmount
25-04-2019Ahold DelhaizeEUR70,00
24-04-2019Cisco systemsEUR8,75
16-04-2019WP Carey Inc. REITEUR9,21
15-04-2019NedapEUR50,00
10-04-2019Vanguard FTSE All-WorldEUR57,71
02-04-2019Vanguard Dividend AppreciationEUR1,36
02-04-2019NikeEUR1,96
01-04-2019Coca Cola CompanyEUR8,03
TotalEUR207,02

January 2019 – Dividend

Another month has passed, first in 2019, time for another dividend update. Comparing 2019 with 2018 , the January dividend has gone up 50% , mainly because of growth in the portfolio. I don’t know if it’s also down to individual company’s raising there dividends. To be honest I wasn’t too bothered looking it up. Maybe I can muster up some will power the next time round.

It’s still fun watching dividends come in, although I follow the discussion around whether dividend investing is still as viable today as it was in the past with great interest. I think it a bit of a save guard for management not too take too short term decisions , and look more towards stability in growth as opposed too fast growth. Well for me it still works well, and for now I will keep it as part of my investment strategy alongside the ETF part of the portfolio.

Now the numbers :

DateStockCurrencyAmount
23-01-2018
Cisco SystemsEUR8,10
15-01-2018
W.P. Carey IncEUR9,03
10-01-2018
Walt Disney CompanyEUR0,77
09-01-2018
Vanguard FTSE All-World UCITS ETFEUR37,11
02-01-2019NikeEUR1,92
TotalEUR56,93

Options – Basics , writing covered options

Part two in this new options series, this time we start looking at the practical use of options within a portfolio and the how and why of buying and selling options. In the first part we established options are more or less working as insurance. Because this is also a learning process for me I will keep it simple again. We are going to write covered options. Which basically means selling rights while covering the risk 100%. I know there are a lot more possibilities but as I said I keep it simple.

Writing a covered call option :

Our example in part 1 we had a Call Ahold Delhaize, strike price at 20 euro’s and a expiration date of 21 December 2018. Which just to remind ourselves means we have the right to buy 100 shares Ahold Delhaize at 20 Euro’s until the 21th of december. Puts are the other way around. The right to sell.

Now we are going to sell one, risking you have to deliver 100 shares of Ahold Delhaize at the expiration date for 20 Euro’s.

Why would you want to do this ? Well let’s say you bought 100 shares Ahold for 15 Euro’s and the current price is at 18 , you fully expect somewhere around 20 should be achievable in the future. You can now do two things , wait until the stock hits 20 Euro’s and decide if you want to sell then which can take quite a bit of time. Or you can sell a call option, with the strike price of 20 euros ,you can do this each month or sell one a few months down the line. The biggest risk is you would have too deliver the 100 stocks at 20 if the price at the expiration date is higher than 20. Which is annoying if it suddenly jumps up to 25. If it stays below 20 at expiration date you get to keep the shares and have also collected the cash for which you sold the option.

You can repeat this each month or on another interval you set for yourself, and have a little extra return on the equity. Basically you expect a rise but not all too sudden and with this set you will benefit from the time decay in the option. In other words time pushes value out of the option, given it has the expiration date as a hard line at which the option terminates.

Writing covered puts:

Exact opposite , you have got the cash , want to buy 100 shares of Ahold, but instead of just buying them , you will write a put. Let’s say one that is due in a month, at 18 euro’s. You again collect the option premium, reflected in the price you sell the option for, and the risk is covered because you have the 1800 euros cash in your account.

What is the advantage ? Well , the collected cash will cover your transaction cost and the assignment cost if you get to be assigned too buy the shares. The risk ? The stock drops significantly in the time you have until the expiration date of the option. Which would have been as bad when you bought the shares outright. Plus you can always take the loss and buy the option back if it’s gets out of hand.

Everything in between is another form of profiting from the time decay. Mostly this tactic is useful when the stock is moving sideways or when a slight drop in share price. With writing options you can also build in some buffer against the market going against you so instead of writing an option with the strike price of 18 which was the price when you wanted too buy , you can opt writing an option with a strike price of 17, give a bit of space, your premium will be lower.

There is a certain amount of expectation when trading options, a probability of future events. But with writing covered calls and starting out small you can see the benefit of time decay. And collecting premiums is good fun as well. It’s not huge amounts of money but all little amounts add up.

In the next episode I will specifically address time decay in option prices, until next time.

Debt reduction, it’s not easy.

A lot of people are writing about debt reduction as an easy way of getting the monthly costs down. Which in theory it is.The math is pretty straightforward and if you make a simple spreadsheet the reduction of debt and all it’s benefits become pretty clear. It’s a no brainer really. So you start with a lot of renewed optimism and energy and the first few months fly by. But them the promised big dent in the costs doesn’t happen as fast as you would like , you hang in there but the lure of your wish list , bucket list or some other short term gratification is looming. You start questioning if it’s worth it.

Congrats ! You just arrived at the hard part, sticking with it regardless. This is hard, and it’s not happening at the end it’s when you just got started , and it’s going too happen again. Psychologically all these small steps and keeping the enthusiasm alive is the most difficult part. Because it’s becoming boring. The numbers don’t change magically , the time and effort stay the same no matter how hard you look and your spreadsheet.

But sticking with it really pays off, make a game out of it. Every time you want too spend money on something you don’t really need , step back think again and….

take that amount and pay off some more debt. You get too adjust your spreadsheet and the numbers change. Excitement has returned ! All kidding aside, debt reduction is more of a mind game than a numbers game. Most hard things take a long time , remember your original goal and reason for doing it!

By all means paying off large sums of money is never easy, it is however one of the best decisions you can make in your life. It reduces your financial vulnerability , reduces your monthly cash flow needs, and reduces stress. All very cool benefits. Just hang in there !

December 2018 – Dividend

Final month of 2018. And the final monthly dividend report for this year. The Stockmarket has tanked last few months which leads too all sorts of speculation and doubt, for my strategy it’s not important. For I am still in the building up part of the process. Time in the market is far more important than timing the market.

The dividend this month is less then December 2017, because I sold Shell in the summer. So we are down 67%. Green costs money ;). This will be corrected next year because the money went into other dividend paying company’s. Overall the dividend in 2018 is up 27% compared with 2017. Which is pretty good. It’s motivating.

We will see what 2019 will bring.

The numbers:

DateStockCurrencyAmount
20-12-2018Vanguard dividend appreciation ETFEUR1,51
18-12-2018Icahn Enterprises LPEUR1,53
14-12-2018DowDupont EUR3,33
14-12-2018Coca-ColaEUR5,13
13-12-2018Microsoft EUR8,07
05-12-2018UnileverEUR3,87
TotalEUR23,44

Options – What’s are options ?

Options, a very nifty and useful financial instrument which can be traded on all sorts of exchanges. In this new series I will start from the beginning and will explain what options are and how we can use them in our portfolio’s. Ok let’s start.

An options is the right too buy or sell a product for a set period of time for a predetermined price. Most people’s only experience with an option is when they take out an option on a house. For a fixed period the buyer has the right to buy the house at the agreed upon price without the seller having the option selling the house to someone else. Most of the time this is done for the buyer figuring out finances and seeing if the house is structurally sound. These conditions enable the buyer that if one of these non binding conditions apply they don’t have too buy the house. (This is the way it’s done in the Netherlands , maybe this will differ per country. But you get the idea, I hope)

With this option comes a risk, if there is no non binding reason for the buyer getting out of the deal, they either have to buy the house or pay a 10% fine, which means 10% off the agreed upon price. So there is also an upside for the seller. He/she knows they either sell the house or get 10% in such a case.

The risk for the seller is this, in the meantime they can loose possible other buyers and when the markets are hot they might miss out on the rising prices in the period the option on their house is valid. And if the deal falls trough they can start all over again finding new buyers.

An option is comprised of a set of attributes, an end date , an underlying product (stock, house, commodities , etc) an a fixed price at which the underlying product can be bought or sold.

Trading options can be done on all sorts of (financial) markets, but most well known are stock options. Which will be the main focus of this series.

You have 2 types of options. One gives the right too buy stocks , named call options. The reverse, a right too sell stocks is called a put option. Let’s look at them with a simple example.

Call option :

An option is being noted (mostly) as, AH C20.00 21DEC2018, which is Ahold Delhaize, Call 20 Euro , 21 December 2018.

The first part is the name of the underlying stock, in this case Ahold Delhaize. Followed by the price at which the option can be exercised, 20 Euro’s in this instance. Last but not least the end date of the option. The date on which the option expires, and becomes worthless.

Also worth mentioning, 1 option will give you the rights on 100 stocks , so in this case you can buy 100 stocks Ahold at a price of 20 euro’s each, before the option expires on 21 December of 2018. A total of 2000 Euros worth of risk. Options generally end on the third Friday of each month.

Put Option :

Essentially the same principle, just another right, one too sell instead of buying. It’s presented in the same way, AH P20.00 21DEC2018, Ahold Delhaize Put, 20 Euro, 21 December 2018. This is again a right for 100 stocks, Ahold in this case again, a sell right for 20 Euro each.

Well so far we have learnt a Call gives a buy right, a put a sell right. But when there are buyers there must be sellers. Together they make the market. Buying an option will cost you a premium. As expressed in the option price you see when looking up an option on the exchange.

You can look at the option price as an insurance premium, you will pay every month on your car insurance. The insurance company is the seller of the option (insuring your car against the risk of damaging it). And you are the buyer. You cover unexpected damages and events and in return you pay a monthly fee (the premium). The insurance company now takes the risk that if you have an accident they will have to pay for the damages. You are insured against these risks for a certain amount of time (mostly a year).

The premium or price of an option is changing a lot faster then the premium of your car insurance. But the same principle applies. A seller makes a risk analysis with selling the option and gives a price too the buyer. The option buyer insures the fact he can buy or sell the underlying stocks at the price of 20 Euros, until the expiration date. The seller has too buy or sell them too the buyer at this price.

The option price is determined by the price of the underlying stock, the distance too the strike price of the option (the 20 Euro’s) and the time left in the option, i.e the number of days , hours minutes until the option becomes worthless. Other factors are interest rates, dividend payments and overall sentiment in the market.

Where do people use these options , or insurances for ? Well, that will be the next item in the series. For now just let the characteristics of options sink in.

Portfolio news – Winter 2018

Time for another portfolio news. Since the last additions I have been going out of the fossil energy industry and reinvested the funds into technology and the ETF’s. I had still had Shell, sold ONEOK before that and now it was time to remove Shell from the portfolio. It’s a nice dividend income and for all their commercials and PR towards clean energy I haven’t really seen anything apart from sponsorships. No real moves as of yet. In name an Energy company, in practice still a old style oil giant. I realize I am still an investor by the way of the ETF, so I am not completely clean at the moment. But this is the first step.

Also out is General Electric, one of my longest holdings in the portfolio, and one I neglected acting on earlier which resulted in a loss, another testament towards simply buying an ETF and holding that instead of following separate companies. But I am still having fun doing the research, so for now I will keep adding some handpicked stocks to my portfolio.

As for technology , more ASML, Apple and Microsoft have been bought. Next on the list is Philips. Getting larger in healthcare which will remain a growing market, it’s been lagging a bit lately and now starts making up a bit. So I will start out with writing put options and seeing how things develop.

The ETF’s have seen the biggest growth in my portfolio, simply because it’s easy and cheap. Which comes a long way in having a nice return in the future. Low costs and simplicity is key. Its also remarkably stable. My handpicked portfolio goes up and down a lot more, which makes sense because it only contains a few positions versus hundreds combined in an ETF.

So my testcase is more and more in favor of the ETF’s , which I will be allocating more money towards in 2019.

November 2018 – Dividend

Its the end of November and time for another albeit short dividend report. Let’s see, as usual November is a slow month in the dividend department. This year even more so as I sold ONEOK this year which paid dividend in November, which leaves Apple as the sole dividend paying position in my portfolio. So a 13% drop in dividend income compared to last year. Next month the last dividend update and a final report on 2018.

The very short list :

DateStockCurrencyAmount
15-11-2018AppleEUR9,69
TotalEUR9,69

October 2018 – Dividend

October 2018 is almost over , time flies and so it’s time for another dividend update. A new increase, comparing with October 2017 due too the expansion of the portfolio. The exchange rate impact is something I am used to by now and the small increases in dividend payout minimize the inconvenience in the result. It’s a figure too low for me to consider hedging the currency issue.

Percentage wise the increase is pretty large, 67%. At some point as the portfolio increases this will level out more and produce a more normal percentage. For now it looks fun. With another 2 months to go this year I’m curious we’re we end up. For now the numbers :

DateStockCurrencyAmount
24-10-2018Cisco systemsEUR8,03
25-10-2018General ElectricEUR2,30
15-10-2018W.P. Carey EUR8,91
10-10-2018Vanguard FTSE All-world UCITS ETFEUR39,63
1-10-2018Coca ColaEUR5,09
1-10-2018Vanguard Dividend Appreciation ETFEUR1,30
TotalEUR65,26