Continuous Positions

I updated my trading plan today with a new strategy for long term positions. For each underlying company, I will maintain a single continuous position, alternating between Covered Calls (CC) and Cash Secured Puts (CSP). Positions will only be closed when the company no longer meets my requirements.

There were several reasons for this change.

1) It provides an easier method for tracking how well a particular underlying company is performing. I used to track closed positions, but then I lost sight of how each company was performing. Going back to look at each individual closed position for a company was time consuming, since the data needed to be merged. By keeping the position open until I no longer want to hold the company, I can easily see at a glance how the company is performing in my portfolio, or how former companies have performed.

2) It provides more flexibility when making adjustments. When a CC is ITM, rather than buy it back to avoid assignment, I can just let it get assigned, and then sell a CSP at the same strike. I book a credit for the proceeds of the sale, and use that money to secure the put (debit). At times, this is a better alternative than rolling out a CC at the same strike or higher strike for very little, if any, time value. It also requires less capital than averaging down or up. Letting the stock get called and selling the same strike CSP doesn't change the cost basis. Selling a higher strike CSP requires some additional capital but not as much as buying additional shares of stock.

3) Having a small, manageable portfolio of a few good companies, and/or ETF's, and continually writing CC's and CSP's on them greatly simplifies my approach and reduces the amount of time needed to manage the portfolio, since I don't need to constantly search for companies every month.

Over the past couple of months, I've allowed most of my CC positions to be called away and have sold CSP's. When those CSP's are assigned, I'll revert back to selling CC's.

In addition, I've modified the reporting for each position to be in table format, which uses a double-sided accounting method for tracking the stock investment and income generated. Hopefully this format makes it easier for my readers see how each position has performed.