So 2022 ended, and I wanted to put a summary post so I have it to look back on, because I started this blog only during the year.
The year ended with the nasdaq down 33% and the s&p down 19.5%, and my portfolio down 17%. So on a historically shitty year, relatively decent performance but still worse than I hoped.
I will disclaim though that my YTD performance until November was only down 6%, and then the year end ~50% decline in TSLA completely destroyed my December performance, as I am highly invested in AMZN and TSLA. And here I want to go on a side rant about my investment strategy:
The thing about the short put strategy, where you sell puts and then double down on positions that go in the money, is that it concentrates your positions in “bad” performing companies. Say you sell 1 put in 5 different companies as an opening position, and then 3 of those companies go up and 2 go down significantly. The adjustment is to leave the short puts on the 3 well performing companies, and double down and out on the bad performing companies, increasing your margin requirement and therefore your exposure to them. If they continue to go down, again, you double down and out on the positions, further increasing your portfolio exposure to those 1 or 2 bad performing companies. This is kindof the opposite of what classical investing teaches – “cut your losses and let your winners run”, and honestly can feel counterintuitive, but actually, if you picked your initial companies carefully, sets you up for good future performance, and heres why:
Bankrupcy aside, theres a higher probabilitiy any given company will be above 50$ than above 100$. So if you initially sold 100$ puts, and then rolled them down to 75$ puts, and then doubled down and rolled again to 50$ puts, you have both more exposure (because you doubled down), but also a much lower strike. So despite that it feels like ah damn this stock keeps going down, ITS NOT GOING TO KEEP GOING DOWN FOREVER (unless – bankrupcy). So having more exposure to a 50$ stock which is down from 100$, is actually a good thing, and its just a matter of time before it turns around. And short put investing, as opposed to just buying the stock, doesn’t require the stock to go back up to where it was before in order to make money. If you sell 100$ short put for 1000$ credit, and then roll that down and out to 2x 75$ short put for another 1000$ credit, and then down and out to 4×50$ short put for another 1000$ credit, you don’t need the stock to go back up from 50$ to 100$, and not even 75$, thus avoiding the “value trap” that people refer to when not “cutting your losses”. During the time the stock went down from 100$ to 50$, you pocketed 3k$ for 4x short 50$ puts, and as long as the stock stays above 50$, you keep all that money. If for example you were dollar cost averaging in, you had bought 100 shares at 100, then another 100 at 75$, then another 200 at 50$, your average is still 68.75$, so you need the 50$ stock to go up 36% (!!!) just in order to break even!! And thats the term “value trap” comes from. If you chose a bad stock which is only worth 50$, sinking 27,500$ into them while averaging down from the initial 100$ is still going to leave you high and dry when the stock finds a bottom at 50$, while you would have been better off cutting your losses, admitting to a mistake after the initial 10k$, and investing the additional 17500 into a different, better performing company.
This is basically what happened to me with AMZN and TSLA. I’m not worried at this point that either one will go bankrupt, but TSLA went down from 375$ to 110$ this year!!! I started in the end of January by selling 1x 600$ put for 3800$, which granted looking back on it now was a pretty dumb idea. But the fact that tesla is down ~70% this year and my porftolio only 17% speaks to the effectiveness of the strategy even when the actual stock picks are particularly bad.
And I want to demonstrate by going over my TSLA transactions which got me to where I am today as an investigation of how the strategy develops on a particalarly poorly performing stock, with real numbers from real, executed trades:
I sold the 1x Jun ’22 600$ (before the 3-1 split so really its a 200$ put on todays price) put on Jan 27 (so 6 months out) for 3800, with the stock trading for 828$ .
1 month later (Feb 24 2022) I rolled the put out to 2x Jan ’24 450$ for an additional 9577$ credit (total credit – 13,400$).
4/14/22 – rolled 2x 450$ puts to 3x 450$ June 2024 (150$ split adjusted) for an additional 7500$ credit (total credit – $20,900)
4/27 – sold another 450$ put for an additional 6500$
6/02 – sold an additional (!) 450$ put for an additional 8200$ for a total of 5x short puts (total credit – 35,600).
Stock split 3-1 so now holding 15x short June 2024 150$ puts
10/21 – rolled 15x puts to 15x Jan 2025 150$ puts for additional 6900$ (total credit – 42,500$).
And thats where I stand today on that original 600$ put. And honestly, I got to where I am today for my own fault and not the strategies – twice I sold an additional 450$ put because I figured tesla had gone down enough and would pop back up from here (I tried to unsuccessfully time the market, duh!), which really I shouldn’t have done (easy to say retrospectively).
And over that time I actually did a couple other TSLA plays but I didn’t want to mess up following those specific puts and how they got adjusted with other plays I did. Bottom line, I got 42,500$ credit for my current 15x short put position, which is currently worth -89,000$, so 46,500$ of paper losses on the position. WHICH TOTALLY HURTS!! And is killing my portfolio performance. But with the 150$ puts currently worth 55$ and tesla trading at 117$, 22$ of that 55 is time premium (33,000$), which even if tesla stays where it is today will decay. So even if I dont adjust the position, the short puts will expire for only 10k$ of losses (instead of the current 46k). But I can also roll the position down and out in another 6mo – year and pocket some more cash, and give tesla some more time to grow earnings and recover from where it is today, and maybe in another 3 years it will be back to 150$ (definitely possible), in which case I would pocket the whole original 42k$ of credit!
So do I love that my porfolio is made up of 30% AMZN and 34% TSLA margin requirement? Not really. But I do feel confident that the positions I hold in both those companies (and my other positions as well) have a high probability of making money (or a higher probability of making money than if I had just bought an s&p ETF), and as the time premium decays I will look to decrease exposure to those 2 and diversify out to other positions.
And the lessons I learned over the -`33% nasdaq year that was 2022 will stay with me forever and will make me a better investor over the next 30 years.
And I will end the post by putting a screenshot of my portfolio as of today (I missed Jan 1), to be able to go back to in the future:
And then my account summary, so I know how invested I was: