What's Going on in my "Real" Account (Merrill Edge)?

This post is an example of the content I intend to provide to tier-2 (OG - $10) patrons.

The Robinhood $3k Challenge is fun. I get to slowly develop a portfolio while demonstrating different options trading strategies. However, the way I handle my "real" portfolio with Merrill Edge is not quite the same as how I handle the $3K Challenge. I am generally more conservative in my real account and tend to trade options with more time until expiration. This post shares how I manage my Merrill Edge account to include my current holding and strategies I regularly use. This information is current as of Jan 30, 2020.

Current holdings: 

115 AAPL shares;
100 GOOGL shares;
400 QQQ shares;
-1 GOOGL $1,580 covered call exp June 19, 2020;
-1 QQQ $220 covered call exp Feb 28, 2020; and
-$1,048 cash.

Total account value: $270,668.18

Goal for 2020: Reach $350,000 via gains and additional deposits

My current Wheel positions

First, you'll notice my covered calls on GOOGL and QQQ.

I have 200 shares of QQQ that I hold in my core portfolio and do not trade; these are my buy-and-hold forever shares. I regularly wheel the other 200 shares of QQQ. At present, I am only wheeling one lot of shares because I expect this raging bull market to continue, and therefore I prefer the 100 delta I get from QQQ rising in price. I will go back to selling 2 covered calls at a time, typically about 5% OTM with 30 days to expiration, when QQQ shows bearish indicators from the MACD. If assigned, I will go back to step 1 of the wheel and begin selling cash-secured puts.

As for GOOGL, I only have 100 shares and can therefore only wheel one contract at a time. Throughout 2019, this was incredibly successful. Selling covered calls about 5% OTM with one month to expiration netted me approximately $1,500/month without suffering assignment until June, at which point I became very bullish on the stock. In the summer, I began selling covered calls deep OTM, as much as 15%, to the tune of about $100-$200/month. While I was pulling much less income from selling calls, I gave myself more room for price increases. Since I became very bullish in June, this was an acceptable trade. I went back to selling calls about 5% OTM in December. After a $200 increase in stock price, I thought the big rally had already taken place and returned to selling calls closer to the money so that I could pull more premium.

This was a mistake.

The price increase I began anticipating in June did not end in December when I expected. Instead, the real rally did not come until the first week of 2020. Between the first week of December and first week of January, GOOGL rose over $100, or about 8%. As a result, my short calls reached expiration ITM. I was faced with a difficult decision. I could:

a) let the call expire and accept assignment to continue the wheel;
b) buy back the call at a loss and continue holding shares; or
c) roll the position.

I elected to roll the position. For those not familiar, this means that I buy back the call for a loss and immediately sell a new one to offset the loss. This typically involves rolling "up-and-out" - selling a new call at a higher strike and a later expiration. In my example, rolled my position by buying back my December short call for a $1,000 loss and selling a new one at a higher strike for $970 premium. I therefore suffered a $30 loss, but my shares had gone up by over $100 each, or $10,000 total, and I got to retain them in my account rather than let my short call get assigned. GOOGL's epic run continued into January, forcing me to roll the position once again. I was forced to buy back my January contract for a nearly $4,000 loss but then immediately sold a new one for about $4,300, this one with a strike of $1,580. This credited my about $300 and allowed me to hold shares that had appreciated substantially in value, to the tune of $200 each since I started rolling the contract. Although rolling for credit will force me to wait until June before I can go back to selling more covered calls, I remain in control of 100 GOOGL shares that have risen by by about $20,000 total since I began rolling. While rolling, I have only collected about $270 net credit, but I get to retain my rising shares. To me, that is a good arrangement.

If GOOGL is over $1,580 on June 21 expiration, I will roll up and out again, holding my increasingly valued shares and at least breaking even on the options.
If GOOGL is less than $1,580 on June 21 expiration, I will realize the full $4,300 premium and still hold 100 shares. It just requires patience.

Anticipate a video on how to effectively roll options later this year.

Options other than Wheels

Wheel options make up approximately 85% of my options trades. Although I do not have any options open other than GOOGL and QQQ (both in the same stage of the wheel), I regularly use far OTM call and put credit spreads to give my portfolio a boost. 

When a stock provides indicators on the MACD, namely the signal line crossing downward over the MACD line, I regularly sell call credits about 5% OTM. This is a conservative strategy that grants relatively little premium. However, selling OTM calls when indicators flash bearish carries a high probability of profit.

For example, consider Visa (V). The signal line crossed the MACD line bearishly, meaning the stock is likely to drop in the near term. This is an opportunity to capitalize on downward price action. An aggressive move would be to buy a put. I prefer more conservative strategies, so I will more likely sell an OTM call credit spread at the 0.2 delta or lower (5% OTM) assuming there is no major change after Visa's earnings this afternoon.

A 14 DTE $215/$217.50 call credit spread on V would award approximately $33 in premium for every $250 of collateral. While not an impressive ratio, it carries a very high probability of profit, especially when considering the bearish MACD indicator.

I do not currently have this position open, but am likely to open it by February 3.

You can see this strategy in Week 6 of the Robinhood 3K Challenge   https://www.youtube.com/watch?v=PuDGIY0L-zE. 

Near-term goals

Continue to roll or wheel GOOGL and QQQ as appropriate and reinvest premiums into Realty Income (O). Upon reaching 100 shares of O, begin reinvesting premiums into AMD. Upon reaching 100 shares of AMD, begin wheeling AMD and reinvest premiums into another tech stock. 

Reach $350k invested by New Years 2021 between gains and deposits.

Wrap-up

I will look to make posts like this every time I hit a milestone or a significant event takes place. In addition, Patreon supporters will have access to future posts regarding technical analysis, understanding key concepts like rolling and intrinsic value, and my point of view on upcoming market shaping events.

If there is a particular topic you'd like to see me cover, please share it in the comments section and I will look for an opportunity to respond.

I hope you all enjoyed this post. There is no pressure to become a Patreon supporter, but if you do, I promise you quality content in return and my sincere gratitude.