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How I Generated 100% Return on Equity with Covered Calls and Cash Secured Puts

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Selling Options on Robinhood in 2021

In the great bull market of 2021, I was able to sell enough options premium to get my stock's cost basis to 0. Back in 2020 after the co-vid crash, I was looking to see if I could find a way to beat the S&P 500 returns.

I tried swing trading and had decent success, but it was not until I learned more about selling options that I found consistency in increasing my small trading account that I was trying to grow at 30% a year.

Ever since switching to selling options, my trading improved and I wanted to share with you the results and the things I learned about the stock market. I am still learning everyday!

My Experience of Selling Covered Calls and Cash Secured Puts in My Winners and Losers

So in 2021, there were a lot of opportunities to trade as it was a great bull market. Most people were posting big gains! It was not until end of the year where things started to fall apart and going into 2022 with the Fed rate hike, the market conditions started to change. Below is an image of the premiums I made in 2021:

Made $2745 in premium on MARA stock in 2021.

Made $2745 in premium on MARA stock in 2021.

The Strategy (Winners and Losers)

The main strategy I used were mainly selling covered calls and faded the rally and selling a cash-secured put during a pullback. I held the following stocks in 2021:

  • MARA (Winner)
  • HUT (Winner)
  • NOK (Winner)
  • UWMC (Loser)
  • AVPT (Loser)
  • PLTR (Loser)
  • NNDM (Loser)
  • AQB (Loser)

As you can see, I had more losers than I had winners. So my stock picks weren't that great despite being in a bull market. What saved me was the winners made more than the losers, and the options premium kept me in the game.

Initially, during the early part of the year, I was selling 0.3 delta covered calls as the premiums on these stocks were really good and they were in an uptrend. However, when February came, most of my growth stocks took a hit. I didn't learn to hedge at the time, so I lost a lot of my equity during that drop.

I have since learned how to hedge and play defence by selling 0.7-0.8 delta covered calls to reduce losses. Occasionally, I would buy a put as well.

Around late November, I decided to cut all my growth stocks loose after they lost about 20% of their value. With selling covered calls, I was able to keep the losers to about a 10-15% loss on average, thus keeping my account safe.

I kept my winners and at the end of the year, I got 100 MARA shares for free and reduces HUT shares to 75% of my initial cost basis. The good thing about these mining stocks is that they are volatile, so it really works in my favour, especially the theta decay from the options premium. However, it does require active trading (have to watch the market daily for a few hours), so there is a trade off here.

I ended the year at 43.5% annual return. My account started at $10,000 and ended at around $14,350. I took out about $9500 to invest in cryptocurrencies in 2022 and left the rest to invest this year.

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Learning How to Deal with FOMO and Fear of Losing Money

I think trading really amplifies fear and greed. The fear of missing out on the gains of a great run is real and can really cloud my judgement when putting on my trades. On the opposite end, where fear takes place, I may hesitate to put on a trade when things are selling hard.

It really is a constant struggle to keep both emotions in check and learn how to go through with the trades when my trading system signals to execute a trade.

Thankfully, selling covered calls and cash-secured puts has really given me more flexibility in dealing with both ends of the spectrum.

March 25th, 2022 Robinhood Account


Selling Options in 2022 So Far

At the time of writing, on March 25th 2022, I managed to break even after selling premiums. So this year hasn't been easy, but it has been a great learning experience.

I learned defensive strategies such 0.5 delta covered calls and bought 0.5 delta puts to hedge my positions. This kept my account to minimal losses.

Occasionally, I will also short my MARA and HUT stock buy hedging over 1.3 delta, thus gaining some profits on the downside. However, I realized I am not a natural shorter, so I tend to stick to long trades.

Since I own Bitcoin mining stocks, much of my gains this year will depend on how Bitcoin does. Based on the previous cycles, Bitcoin should be in a bear market for the most part this year.

However, things could change as we have not yet seen the blow off top like the previous cycles. I am still hopeful that Bitcoin will be able to hit a new all time high this year despite all the world events going on such as co-vid and the Russian/Ukrainian war.

Either way, I will still be selling options and hedge my account should things go south.

That is all that I have to share. If you are interested a more in-depth look at my options strategies, I have written a simple guide that highlighted the options strategies I used in 2021.

Hope we will have a good 2022 and happy trading!


© 2022 Seet

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