Why not just short a naked put and save some $ on commissions ?
50-100% 2007 target return possible with options?
- Thread starter a529612
- Start date
thanks for the reserved & appropriate rebuttal.
Have you traded CCs tho?
It's not difficult for me to do 10-15% a month on them.
Which, if you compound, is far more than 50% / yr.
I go in to CC positions w. big equity too. Unlike long option positions. So the return works out.
I have yet to be truly burned on a CC position. If the call I sell goes wild, I will usually let it do its thing & see where it stands the week of exp.
Usually, it still goes to nothing, even if, the week before, the vega goes nutsss.
That or you can roll up. Which I do less. But if the trend is less momentum oriented & more resembling perhaps institutional accumulation, okay, I will roll up & just take that little lost....which is offset by my gain on the stock.
Telling you tho--in my experience--they have been the bread & butter.
I find that the calls are usually a little more expensive. If it's not b.c. of the volatility difference,
...and save alot of margin capital.
I used to be in love with CC's,
not any more, it ties up too much money,
and like coach said,
one bad hit and...poof.
Yes I have, exclusively, and I have not seen the returns you quote.
"Not difficult to 10-15%/month..."
um.....
I don't believe it.
I haven't seen it.
It is funny how you never mentioned the situation where a stock could go down in price significantly, as though that was not an option lol. You only talk about what to do if the stock rises too much. Are you implying that all stocks only move higher. I assume from your post that all your stock picks move higher or move sideways.
Honestly if you are making those kind of returns because all the stocks you pick are moving higher, then you should abandon covered calls altogether and simply buy long calls or bull call spreads with the same capital amount. You will make way more money that way.
Also remember 10% on a CC position is not the same as 10% on your entire portfolio. I was referring to 1-2% a month on the total portfolio of CC positions as the wins and losses balance out.
If you say it is not difficuly to do 10 - 15% then you are using the wrong strategy, you should remove the limited profit aspect and let your stock picking skills really fly.
Honestly if you are making those kind of returns because all the stocks you pick are moving higher, then you should abandon covered calls altogether and simply buy long calls or bull call spreads with the same capital amount. You will make way more money that way.
Also remember 10% on a CC position is not the same as 10% on your entire portfolio. I was referring to 1-2% a month on the total portfolio of CC positions as the wins and losses balance out.
If you say it is not difficuly to do 10 - 15% then you are using the wrong strategy, you should remove the limited profit aspect and let your stock picking skills really fly.
well you are w. stocks' possibilty of going down...but recently (with this mega rally since Aug) haven't had that problem! lol.
No but taking this seriously you're right.
BTW I didn't know you were talking 1-2% RO port I thought we were talking ROI. Point taken.
Do you guys have naked call abilities?
Because, sometimes, in the instant that a stock starts looking bearish, I will sell the common & leave those calls naked as they evaporate to nothingness.
That usually keeps me outta the mega drains.
That or I've occasionally turned them into bear call spreads....which is a lil less profitable.
But yeh to all education seeking readers please do realize that there is, of course, risk in this trade--not only to the upside--but to the downside.
CCs have their own characteristics. You will underperform a strong bullish market, outperform a somewhat bullish and sideways market and loss slightly less in a downward market.
This is one option strategy where stock selection is really really key. Most people try and diversify their stock selections in a portfolio so that they can reduce as best as possible the effects of some of the stocks tanking or at least have tight stop losses.
If you are buying a stock which you feel real bullish on, instead of moving the strike well OTM to make the CC position as bullish as possible (and really reduce the premium collected) you can scale out of the position and thus collect premium while still getting capital appreciation.
For example, assume you buy 1500 shares of XYZ at $20. Instead of selling 15 calls at $22.50, for example, sell 5 calls at $22.50. If stock moves above $22.50, you are called out of 500 shares but still have 1000 shares moving higher. You could then sell another 5 calls at the next higher strike and keep selling partial calls until all the stock is called away. This way you collect premium and still get capital appreciation on a high flying stock. This of course works best on stocks that you feel are really going to move higher. It can even work for sideways stocks.
CCs does not have to be so straight-forward. You can still adjust how you do it to enhance returns and change your approach Scaling Out strategy above is one example. You coulld also do a ratio write on stocks that really look to move sideways. For 500 shares of XYZ you could write 7 calls for example. Naked call risk but you need to have a stop loss on the upside.
I would proceed with caution on the sell the stock and leave the naked call there. Not a good idea to adjust a significant risk position into an unlimited risk position. If a stock has moved up or stays sideways and the potential for a drop looks like it is on the horizon, maybe better to spend the call premium on some puts and convert to a collar to lock up the risk as much as possible.
This is one option strategy where stock selection is really really key. Most people try and diversify their stock selections in a portfolio so that they can reduce as best as possible the effects of some of the stocks tanking or at least have tight stop losses.
If you are buying a stock which you feel real bullish on, instead of moving the strike well OTM to make the CC position as bullish as possible (and really reduce the premium collected) you can scale out of the position and thus collect premium while still getting capital appreciation.
For example, assume you buy 1500 shares of XYZ at $20. Instead of selling 15 calls at $22.50, for example, sell 5 calls at $22.50. If stock moves above $22.50, you are called out of 500 shares but still have 1000 shares moving higher. You could then sell another 5 calls at the next higher strike and keep selling partial calls until all the stock is called away. This way you collect premium and still get capital appreciation on a high flying stock. This of course works best on stocks that you feel are really going to move higher. It can even work for sideways stocks.
CCs does not have to be so straight-forward. You can still adjust how you do it to enhance returns and change your approach Scaling Out strategy above is one example. You coulld also do a ratio write on stocks that really look to move sideways. For 500 shares of XYZ you could write 7 calls for example. Naked call risk but you need to have a stop loss on the upside.
I would proceed with caution on the sell the stock and leave the naked call there. Not a good idea to adjust a significant risk position into an unlimited risk position. If a stock has moved up or stays sideways and the potential for a drop looks like it is on the horizon, maybe better to spend the call premium on some puts and convert to a collar to lock up the risk as much as possible.
Quote from dr_sean:
well you are w. stocks' possibilty of going down...but recently (with this mega rally since Aug) haven't had that problem! lol.
No but taking this seriously you're right.
BTW I didn't know you were talking 1-2% RO port I thought we were talking ROI. Point taken.
Do you guys have naked call abilities?
Because, sometimes, in the instant that a stock starts looking bearish, I will sell the common & leave those calls naked as they evaporate to nothingness.
That usually keeps me outta the mega drains.
That or I've occasionally turned them into bear call spreads....which is a lil less profitable.
But yeh to all education seeking readers please do realize that there is, of course, risk in this trade--not only to the upside--but to the downside.
I am talking ROI.
10-15% ROI/month on CC's?....
What kind of question is that? Of course, and I've written quite a few, still do. Naked Puts, too.
Profound.
In this low volatility market, I find it hard to believe that anyone is making 10-15% a month in covered calls unless they're selling way out of the money and making the bulk of their profits on stock selection (buy at 25; sell a 27.5 call, and the call goes itm). There simply isn't enough premium to sell a call close to atm and make that kind of money consistently. In the late 90's, maybe, but not now.
The stocks that do have options with super high vols are generally biotech stocks that WILL gap. That's the reason high IV stocks have high IV--the high likelihood of gaps (and hence losses for those selling vol, since one cannot scalp gamma that well when there are gaps in the underlying).
One could also sell otm puts on those stocks and earn because of the skew, but you still have to deal with the gaps.
The stocks that do have options with super high vols are generally biotech stocks that WILL gap. That's the reason high IV stocks have high IV--the high likelihood of gaps (and hence losses for those selling vol, since one cannot scalp gamma that well when there are gaps in the underlying).
One could also sell otm puts on those stocks and earn because of the skew, but you still have to deal with the gaps.
Making 10% - 15% per month ROI selling naked Puts is easily doable. Making 10% - 15% selling CC's much less so. Even though both strategies are essentially one of the same, you wouldn't get the leverage selling CC's when compared to naked Puts.