Quote from optioncoach:
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.
great post optionscoach. I'm impressed
I do see why you advocate to not sell the stock & go naked. It''s a completely different strategy; much diff risk as well. And, of course, as you said, I always put an SL to the upside.
Making it a collar? Not a bad idea @ all.
One more thing:
one thing I like a lot is wiritng calls against LEAP positions. (leap calender spread) Basically same as covered calls, only w. LEAPs not common. If I'm gonna do this, the LEAP will always be ITM and the calls will probably be slightly OTM.
I'll write calls over & over (if I can), adjusting as necessary, &, when the trade works out right, the LEAP becomes free.
Just another thing to talk about
Quote from Arnie Guitar:
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.
Okay first of all, ROI means "return on investment."
I'm talking about 10-15% on the position. Return. In a month.
NOT on the whole dang port. I guess if you threw your entire account into a CC position, yes you could make 10-15% return on the portfolio, but of course that would be silly.
I'm not trying to insult you here Arnie.
I don't know why you find the urge to talk down to me.
Quote from jllm03:
Hey just look at this. www.callpix.com.
I have used this for searching for CC's, LEAP calendar Spreads and also Credit Spreads plays.
Look at the few listed on the top with the highest bid/price%.
Then do you homework and see what will work and what won't work. I picked up NFLD last month on the list as a High Bid/Price%, and found a profitable bull put spread out of it....
Friday at exp it will be a 11.5 percent return for the month....
My 2 cents...
good post jllm.
Nice site too.
