I’ve focused more on options income the past few months. To sell covered calls without a margin, an investor needs to own 100 shares or more of the stock in question or have enough cash in a brokers account to cover 100 shares of said stock option contract strike price. Buying 100 shares seems like a logical thing to do for an options trader.
I recently sold off $70k worth of stock to focus more on selling options. My options income has increased the second half of 2016. The past 3-months I’ve been able to earn more than $1,000 each month selling covered calls and cash secured puts. So far this month, I’m already over $1,200 in options income.
As part of my options strategy, I’ve decided that when stocks I own, go on sale, I’m planning to buy enough shares to take my total to more than 100 shares. In some cases, I’ll do this even if the stock is not trading at a discount. This is because I can make enough money selling covered calls to offset the stock price differences.
Buying 100 Shares
The market has had a few moments of weakness the past few days. Yesterday, I made two stock purchases to take two positions to 100 shares.
Wells Fargo Bank
I bought 21 shares of Wells Fargo Bank (NYSE:WFC) for $47.20 per share, totaling $989.50. If you’ve looked at my portfolio page, you’re probably wondering why I bought 21 shares, when I already own 106.63 shares of WFC. The reason is because I own these shares in two different broker accounts. I’ll be moving all of my WFC shares together in a few months, but in the interim, I want to sell options. Buying 21 shares took my Schwab account to 100 WFC shares. I now own 127.63 shares of WFC at a cost basis of $47.31 per share.
I bought 40 shares of AT&T (NYSE:T) for $39.84 per share, totaling $1,593.90. This purchase takes my total shares of AT&T owned to 100.23, at a cost basis of $34.27 per share.
I used to own more shares, but I had an AT&T covered call assigned early and those 100 shares were taken away. This 40 share addition will allow me to sell covered calls.
I would like to own a few hundred more shares of AT&T. I’ll be selling puts to try and buy AT&T on the dip. This stock doesn’t move much, which means there’s not much option value with AT&T. Because of this, I will not sell options as often against this stock.
What are your thoughts on buying 100 shares of stock for options trading? Do you think these to stocks are good buys? Does the WFC fake account scandal changed your opinion of Wells Fargo?