Reflecting on my RIOT options trades. What I did right. What I did wrong. What I am going to do next.
Riot builds, supports, and operates blockchain technologies. It operates in a single segment of cryptocurrency mining.
I was attracted to Riot because of the blockchain technology and cryptocurrency. It seems like a good company involved in an interesting technology. Generating their own electricity to support their mining operations is also attractive.
RIOT Options: Selling Put Options
I sold some put options on Riot because I thought it is a good way to earn some income. If my option is exercised, I get to purchase the stock at a lower price.
27 May 2021 – Sold two put options with strike price $26 expiring 16 Jul 2021 for a premium of $810. Closed on 14 June for $115. Profit: $695
18 Jun 2021 – Sold 2 put options with strike price at $32 expiring 17 Sep 2021 for a premium of $1,460. Closed on 28 Jul for $1050. Profit: $410
30 Aug 2021 – Sold 1 put option strike price $35 expiring 24 Sep 2021 for a premium of $275. Strike price $35. Assigned. Profit: $275
I was assigned on my third option. My actual purchase price is ($3500 -$1380)/100 = $21.20. The Put strategy worked as planned.
Selling Covered Call Options
I then started selling call options on the Riot shares I got. I think this is what many people call the covered call options.
28 Sep 2021 – Sold 1 call option expiring 19 Nov 2021 with strike price $33 for a premium of $189. Closed on 4 Oct for $105. Profit: $84
5 Oct 2021 – Sold 1 call option expiring 19 Nov 2021 with strike price $33 for a premium of $200. Closed on 4 Nov for $385. Loss: ($185)
I should not have sold an option at a strike price lower than my purchase price. I closed this call option at a loss because I thought my strike price is less than my purchase price and I didn’t want the option exercised. My mistake is that I forgot that my actual purchase price is $21.20. I would still have made a profit had I let the shares be called away.
5 Oct 2021 – Sold 1 call option expiring 3 Dec 2021 with strike price at $40 for a premium of $224. Closed on 15 Nov for $710. Loss: ($486)
I made another mistake here. I should not have closed this call option at a loss. I should have let the option be exercised. My profit would have been $224 + $500 (since I bought the shares at $35).
I don’t quite understand why I did that. Did I lost track of the numbers? Perhaps I was greedy. I saw the share price rising fast and thought I can wait till it goes even higher.
It was a volatile stock and I should have let it go earlier.
15 Nov 2021 – Sold 1 call option expiring 10 Dec with strike price at $52 for a premium of $490. Closed on 17 Nov for $133. Profit: $357
Fortunately the next call option went well, making a profit of $357. This reduced my loss to $230. The price of Riot stock declined significantly in Dec 2021. It was quite depressing.
Selling Put Options #2
Since Riot’s share price declined so much, I thought it might be good to try and sell put options again.
17 Dec 2021 – Sold 1 put option with strike price $22 expiring 18 Feb 2022 at a premium of $430. Closed on 11 Jan for $420. Profit: $10
29 Dec 2021 – Sold 1 put option expiring 18 Feb 2022 at a premium of $280. Strike price $21. Closed on 11 Feb for $179. Profit: $101
I collected a total of $110 making my total Put Options profit at $1380 + $111 = $1,491 and the effective share price at ($3500 – $1,491)/100 = $20.09
Learning to Evaluate RIOT
At the beginning of 2022, I attended a course called Options Millionaire Intensive (affiliate link). OMI is a 3-day live / virtual bootcamp. I learnt some interesting investing concepts and strategies. One of them is a checklist for evaluating whether a company is good.
- Operating cashflow (OCF) of a good company should be consistently positive. A bonus if it is growing.
- Net profit margin should be positive. 10% and more to be considered good.
- Interest coverage ratio should be positive. The larger the number the better. Nil is also good. It means the company has no loans.
- The current year Price/Earning ratio (PE) should be lower than the 5-yr PE
- The current year Earning Per Share (EPS) should be higher than the 5-yr EPS
- The Value line should be higher than the current share price. This means that the company shares could be trading at a discount.
Applying the OMI checklist to RIOT
- RIOT’s OCF has been negative for the last 5 years and it seems to be growing. That is not a good sign for a company. 5-year OCF = (15.70 million) Trailing Twelve Months (TTM) OCF = (63.31 million)
- Riot’s profit margin % had been negative for the last 3 years. It turned positive in 2021 at 12.09%. Will it continue to be positive? 4-year % = (287.37%) TTM % = 12.09%
- Riot has no loans. That’s good at least.
- Riot has no 5-year PE at the moment. Current P/E = 58.52
- Riot’s EPS: 5-year EPS = (1.95) and TTM EPS = 0.29. Is Riot starting to make some money? I hope so.
- Riot has no 5-yr PE yet so it is not possible to calculate the value line.
I am a bit sad about the outcome of RIOT’s evaluation against the OMI checklist. It doesn’t meet the first 2 checks, namely a positive cashflow and a nice net profit margin percentage. It does not qualify as a good strong stock to trade in.
I would not be selling any more PUT options on Riot. I am not planning to keep RIOT and will try to sell it with minimum loss.
The upside of the strategy is that RIOT has good options volume and interest. I can sell and buy RIOT options quite quickly compared to the other stocks I have on the same strategy.
Selling Covered Call Options #2
I learnt to set better strike prices with lower probability of being hit. So I picked up some confidence to sell calls again.
7 Feb 2022 – Sold 1 call option with strike price at $30 expiring 18 Mar for a premium of $50. Closed on 22 Feb for $9. Profit: $41
2 Mar 2022 – Sold 1 call option with strike price at $25 expiring 8 Apr at a premium of $70. Closed on 14 Mar for $13. Profit: $57
14 Mar 2022 – Sold 1 call option with strike price at $21 expiring 14 Apr at a premium of $47. Closed on 7 April at $0.13. Profit: $34
June 2022
I need to do my homework and ensure my trade positions have as much advantage as possible.
The data I used for evaluation are sourced from Firstrade.com and Moomoo (affiliate link). I have trading accounts with them and it includes access to relevant company and market information.
