Katafin Week 16 — Evaluating The Model, Prepping for Expansion.
By: John Andrews
Tags: Options Trading, Options Strategy, Fintech, Retirement

Earlier this year, I began trading option premium and put together a model for a sustainable investment approach. This was inspired in part by my colleague Jason Osborne with whom I have shared countless conversations about the options space and an experimental spreadsheet showing a conservative options premium trading model that would in theory, provide predictable, very low risk returns. I was very interested in Jason’s theory that this is likely how our broker’s make money, they just sell premium on our investments. Factual or not, it would be a viable strategy.

Jason and I are both fans of figuring out how things work, deconstructing the pieces and looking for easier models with less friction. Much of the financial world is doing the same as the friction put money of the pockets of people that own the friction tolls like banks, investment houses, hedge funds etc. and leave most individual investors with at or below market returns. The real money in investing is the fees, not the returns. At least it has been. The early trading computers and algos didn’t make money from picking stocks, they made money by taking the lunch money from the exchanges, banks and market-makers that were making banks from being in between investors and investments.

Financial service is one again undergoing a period of rapid change. Retail traders powered by frictionless platforms like Robinhood, TD Ameritrade and IBKR are affecting markets in new and unexpected ways. Professional traders are watching Robinhooders who are in turn anticipating the pros moves (and discussing them with their communities on Reddit). The algos are responding to all parties and each other. The interplay is fascinating and its changing the investing landscape rapidly. Alongside this change is the rise of new forms of currency/stores of value found in cryptocurrencies. While the debate rages on about crypto, it has been one of the best investments of 2020 and in fact the previous decade.

Much like the early computer traders, crypto-investors don’t really care much of what the establishment thinks, they are just seeking a profit from their endeavors. Many are doing just that and others are losing money as well. Sounds much like any type investing, most people, including professionals, don’t outperform the market long term.

The Katafin model continues to perform consistently with the past 4 weeks this programs is averaging $2,695 in weekly returns on average invested capital of $95,494 (2.8%, 1.49% including total account cash used for short puts ~$180,000). The model is being assigned more often now and the profits are adding to the total return and the occasional dividend is nice burrito money.

Net Invested Capital — $106,656

Assigned Short Puts: AFYA-100 shares at $30-$3,000. APHA-200 shares- at $8.00-$1600. HEES-100 shares at $30.00-$3,000. INTC-100 shares at $50.50-$5,050. Call Assignments: ASAN-$3,000 ($176 profit). TOWN-$2,000 ($200 profit). GE-$700 ($80 profit). RIO-$6,250 ($0 profit).

GE Assignment-$7 12/18 Call — $32 (Assigned for $699.97 —$79.97 profit) $32. note: I sold this position on October 1st. It’s a good lesson in being patient and waiting for the market to develop. I was selling further out looking for any kind of positive return but this leaves money on the table and locks up capital that could be invested elsewhere.

APHA Premium-$7.50 12/18 Put-$23 (closed early for $4) $19 (2) $8.00 12/18 Put-$32 (assigned — $1,600) $32.

QIWI Premium-$15 12/18 Put-$75 (assigned $1,500). $75.

GOLD-Premium-$22 1/8 Put-$27 (closed early for $10) $17. $22.5 12/24 Put-$25 (closed early for $10) $15. Dividend-$7.65.

ASAN-$25 12/18 Put-$110 (assigned-$2,500) $110. $30- 12/18 Call (closed early for $5) $65.

HEES Premium-(3) $30 1/15 Put-$675 (closed early for $480) $195. $30 1/15 Put-$215 (closed early for $180) $35. $30 12/18 Put-$120 (assigned — $3,000) $120.

MUR Premium-(5) $10 1/15 Put-$225 (closed early for $100) $125.

BB Premium-(5) $9.50 12/18 Call-$125 (closed early for $70) $55. (3) $9.50 12/24 Call-$90 (closed early for $27) $63.

XPEV Premium-$51 12/18 Call-$60 (closed early for $5) $55.

T Premium-(2) $31.50 12/18 Puts-$96 (assigned for $6,300) $96

SDOW-$18 1/15 Call-$125 (closed early for $100) $25.

TOL Premium-$46 12/18 Put-$60 (expired) $60. $46.50 1/8 Put-$250 (closed early for $200) $50.

INTC Premium-$50 12/24 Put-$83 (closed early for $59) $24. $50.5 12/18 Put-$49 (assigned $5050) $49.

TOWN Premium-(2) $22.50 12/18 Puts-$120 (expired) $120. $20 12/18 Put-$15 (expired) $15. $22.50 12/18 Call-$20 (assigned — $1999.94, $199.94 profit) $20.

AAPL Premium-$124 12/18 Put-$204 (closed early for $150) $54.

ASAN Premium- 12/18 Put-$60 (closed early for $6) $54. $30 12/18 Call-$38 (assigned-$2,999.92, $175.93 profit) $38.

SNAP Premium-$51 12/18 Put-$73 (closed early for $2) $71. $50 12/31 Put-$144 (closed early for $73) $71.

RIO Premium-$69.39 1/15 Call-$95 (closed early for $70) $25. $65 Call 12/18-$130 (assigned-$6250-$0 profit) $130.

COLD Premium-$35 12/18 Put-$90 (expired worthless) $90.

ELF Premium-$22.50 12/18 Put-$100 (closed early for $5) $95.

TWTR Premium-$53 12/18 Put-$37 (closed early for $7) $30.

DKNG Premium-$50 12/24 Put-$100 (closed early for $35) $65.

QS Premium-$57 12/18 Put-$220 (closed early for $50) $170.

IWM Premium-$186 12/18–$145 (closed early for $19) $126. $195 12/18 Put — $30 (expired worthless) $30.

RXT Premium-$20 1/15 Put-$170 (closed early for $140) $30. note: another potential tech acquisition stock that I’ve been tracking.

JETS premium-$22.50 12/18 Put-$60 (closed early for $22) $38.

PLTR Premium-$25 12/18 Put-$33 (closed early for $8) $25 $26.50 12/18 Put-$25 (assigned-$2650) $25.

NRZ Premium-(2)$10 12/18 Put-$120 (closed early for $20) $100. (2) $10 12/18 Put-$24 (assigned $2,000). $24.

OLLI Premium-$77.5 12/18 Put-$65 (closed early for $5) $60.

Total Return: $3,306.49, 3.10%

I was a week late in creating my recap this round. We’ve just finished a very short holiday week and it was another directionless week with lots of conflicting directions. These recaps are critical for me to consider what I’m doing and why I’m doing it. With this week’s assignments, my portfolio is now at the highest level of invested capital since I began. I know that my PTON Calls will be assigned next week which will be a significant reduction but I would still like to have less invested capital and more cash for a potential pullback at some point.

The beauty of the democratization of investing is that we can all learn to manage our own finances and explore investments once limited to very sophisticated investors and brokers. This comes with its own set of risks and rewards but so has every market. The best part is that people can take control of their own investment and not simply pay a tax to achieve what more often than not, doesn’t exceed or even meet what the market would deliver anyway. I plan to expand the capital committed to the model in 2021 with the same basic approach and basic goal of creating 1% weekly returns.

The house has been broken.

Note: This is not financial advice, and I am not a financial professional. This article is an account of my personal experience. This information is for entertainment purposes only.