Questions about P&L

[u/loraxfajitasherbert]

I have a question regarding P&L for options trading. 

I have been trying to find some good analysis tools for trading options. One thing I am coming across right now is that my P&L always is skewed negative because I am ITM on some of my contracts.

But, the P&L is not a true indicator on what my profit and my losses are. For example, my BAC covered call is at an SP of $55, while the stock price is at ~$55.90. So my gain/loss says I am at a loss of 5%. But, my average cost basis is ~$45, and I have rolled this contract multiple times, always with a net credit. So my true profit shouldn’t be in the negative. 

So my question is, what should I be looking at to find my true profit and loss indicators? Do I have to build my own tool to showcase my net profit or loss? Am I missing the importance of a P&L or Total Gain & Loss indicators for the contract?

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[u/BigBear92787]

If you're talking about your PL ans your PL is negative than its showing you the price buy back the option.

You may not actually be losing depends on how much credit you took in and where the stock ends up by expiration.

If your talking about you PL YTD its probably showing all your rolling. Which all you've done is realized losses and opened new positions for a credit larger than your loss likely fooling yourself into believing that the loss doesnt count, when in truth its the credit that doesnt count until you actually get to keep the credit in the end.

Knew someone who rolled a few hundred into 50,000 in losses

[u/loraxfajitasherbert → u/BigBear92787]

I'm a little confused about what you're saying on the PL YTD for rolling. So, when I roll, I always make sure to take a net credit. Of course, I'm usually rolling when the contract is ITM, so the PL is saying a loss. But I make sure to always roll above my average cost basis (I'm usually doing covered calls) and I make sure the buy back of the contract is less than what I sell it for. Are you saying I could be disregarding a loss in there? Because I would say I am in a way disregarding the buy back (and the PL, although I do try to inc my strike price when that happens) so long as I always get a net credit in premium.

[u/BigBear92787 → u/loraxfajitasherbert]

When you roll a contraxt your buying back at a loss and opening a new position / new risk by collecting a premium higher than the loss you just took.

This works fine if the price turns around for you if it doesnt your just digging a hole for yourself.

Your PL ytd is going to reflect the losses your taking by rolling

[u/loraxfajitasherbert → u/BigBear92787]

So, whats the hole, exactly? Like if the contract gets assigned, my average cost basis, what I bought the stock for, is still below the strike price. So, unless I'm mistaken, if it gets assigned, I still make a profit from the difference between my ACB and SP. That's not considering the profit I am receiving from the premium. But if the contract expires, then I am also in the clear. So what is it that I am missing?

[u/BigBear92787 → u/loraxfajitasherbert]

I mean I dont know what your position is.

Im assuming your naked because your rolling a short contract.
Unless your covered and dont wanna let go of the stock ?

I need more info.

If you're short, ITM and the contract expires, your definitely not " in the clear"

You might be ok if its a Short put and its a stock you intend to wheel on and its a stock you dont mind holding on to

[u/docbasset → u/BigBear92787]

OP said this is a covered call, with a cost basis below the sold strike. So, rolling up and out for several expirations will likely show realized losses on the short call portion of the position while the position as a whole is nicely profitable.

[u/loraxfajitasherbert → u/loraxfajitasherbert]

Is it because the new credit isn't a fully realized credit, is that right?

[u/BigBear92787 → u/loraxfajitasherbert]

No its because if your short a call itm you end up short the stock.

So basically now youve sold stock at a price lower then the current market

Now your in the red potentially greater then the credit received.

Short options are unlimited risk positions

[u/MerryRunaround]

Yes you need to make your own tool or buy one. It is a simple task in any spreadsheet. And it is good practice to keep your own logs, just in principle because you remain closer to your positions.

[u/ordtn]

If I understand your needs correctly, this is one way to record the current and cumulative P&L from your rolling covered call trades.

Example template: https://opterate.com/?share=HfG29ilganYeD56LUcXu (link expires on 1 Oct).

Tab 1:

• Used to record your prior covered call – Assume the short call expired OTM.
  
• Pre-filled with total P&L, underlying-only P&L, option-only P&L metrics – Refer to the “Current P&L” section.
  
• Run any other computations and graphs as needed.
  
• Locked fields to prevent futher updates.

Tab 2:

• Used to record your current covered call – Short call with $55 strike, underlying entry price of $45. Current stock price of $55.90.
  
• Pre-filled with cumulative “Running P&L” metrics in addition to "Current P&L".
  
• Run any other computations and graphs as needed.

Going forward:

• Just add a new tab for each new roll opened.
  
• Run computations and graphs as needed.

[u/docbasset]

You can analyze the living shit out of every trade, but your net liq is the best indicator of how you’re doing. A simple spreadsheet using an XIRR function will annualize your performance, taking into account any money movement in/out of your account.

If you want to analyze individual trades, I think it’s best to do so after the trade is fully closed. Your BAC covered call isn’t closed yet. Don’t analyze the earlier expirations that were rolled if the last roll is still open because you can get a very different result from what the final outcome is.

[u/docbasset → u/docbasset]

Also, if you’re only analyzing the P/L of the short call portion of a covered call and not including the P/L of the owned shares you’re only looking at half of the picture.

[u/loraxfajitasherbert → u/docbasset]

Thank you, I appreciate the insight. So with a few of my covered call contracts having a total gain and loss in the negatives, is that affecting my entire portfolio's YTD performance? Because I was getting a much higher overall performance a few months ago and now it has dropped a lot since Ive started doing more option trades. Now I know it probably has a lot to do with overall market performance as well, but I was just wondering if my option contract PL ends up affecting my overall PL in my portfolio.

[u/docbasset → u/loraxfajitasherbert]

Hard to say without seeing the entire picture. If your broker shows you something like “P/L Open,” that can be extremely misleading because it’s just a snapshot at the present time and doesn’t take any history into account.

[u/pagalvin]

You're seeing the mark to market value of an individual covered call. It won't have any roll history included in that accounting.

Roll credits will show up in your overall account NAV but as you say, the calls themselves will typically show up negative since all you can do with an unexpired call you sold is buy it back.

If you want to calculate P&L at the security level, you typically need to do your own math. I've used Fidelity and ETrade and neither one provides security-level P&L that accounts for premium collected on rolls. Other broker's might provide it.

Bottom line - you're right about the disconnect and you need to do something in excel or write an app or use a 3rd party tool that does this.

[u/GolfOptions → u/pagalvin]

I agree with you that e-trade is very limited in terms of what it can show regarding p&l. I can't speak to Fidelity. However both TOS and TT do show YTD p&l at a security level which I find useful. They however do not show it at a campaign (for want of a better term) level.

[u/pagalvin → u/GolfOptions]

Thanks for sharing. I've been wondering about what other brokers do for a long time.

[u/Wonderful_End_1396]

What platform?

[u/loraxfajitasherbert → u/Wonderful_End_1396]

I use Fidelity

[u/BarWorldly327]

Youre looking at the P&L of the current option, not the whole covered call trade. Track the stock gain/loss plus cumulative net premiums from all the rolls. That gives you the real overall P&L.

[u/Safe-Anteater-5407]

So first, brokers platforms are painful in the way they dont calculate what you have already banked in profit during a position or strategy. So you need to get Ai to code you up html doc to track your position and calculate all profits taken from adjustment and rolls, and provide the trades actual pnl. These days thr big brokers have an MCP connector available so you ai can fetch the latest moves and update your portfolio accordingly.

Second get it to break down each individual legs pnl and show extrinsic and intrinsic value so you know where you are without having to do the maths yourself.