“However, your method completely ignores the unrealized losses from stocks that have been put to us and the tied up capital. Interestingly in my case the unrealized losses are equal to all the profits making net profit close to Zero.”
Response from The Oracle: “Unrealized” means “Not real”. I ignore unrealized losses as well as unrealized gains. It doesn’t seem fair to count one and not the other.
You are looking at account value, which means nothing. The only prices that matter are (1) what we paid for it and (2) what we sell it for.
What happens in between is of no importance.
Stocks go up and down like children jumping on a bed. If you watch it, you will get nervous.
Our system is designed to generate cash flow. To sell covered calls, we have to go upside down in every position we go “long” on. Notice when you sell an option, it is counted as a negative number on your “account value”. Also SNSS is reflected as $1.40, not the $4 Call we have out.
To get a handle on what cash you are making, go to Activity ——–> previous month –> Option trades. This will give you the total cash flow you generated. You can do this with each individual stock, but we do the math and publish it in our newsletter for you.
“Interestingly some of these losses could have been avoided, if interim action was taken by liquidating positions when it was in decent profit. Couple examples include SNSS”
Response from The Oracle:
Excellent question! We haven’t lost money on SNSS and SCTY. You only win or lose when you take action. Our action is to sell covered calls.
We were surprised the SNSS was not called away @ $3.50, but this extra time allowed us to stair-step up to a $4 Call. SNSS shows in your account as $1.40 showing a $1.10 unrealized loss and a cost basis of $2.50
We have a $4 Call on it, that should be listed as a $1.50 unrealized gain. It’s not, because it is not real, same with the unrealized loss, it is not real. (until you pull the trigger)
07/20/2015 Sell To Open SNSS Aug15 4 Call $0.45
04/20/2015 Sell To Open SNSS Jul15 3.5 Call $0.10
02/23/2015 Sell To Open SNSS Apr15 3 Call $0.25
01/20/2015 Sell To Open SNSS Feb15 2.5 Call $0.05
10/17/2014 Buy SNSS – Option Assignment $2.50
09/22/2014 Sell To Open SNSS Oct14 2.5 Put $0.20
On the stock, we invested $2.50 per share, we have collected : $1.05 (a 42% gain on $2.50). This is not reflected in account value either.
SCTY is a long term play. It should be trading at the $100 range.
Cost basis $75.00 per share.
Premiums collected: $12.39 per share
16.52% Return in 16 months OR our cost basis is: $62.61 depending on how you choose to look at it.
Did that help?
We just had a great month with 5 positions closing, all but one at a profit.