aggresive covered call trading

O

osho67

I want to trade aggresivly weekly IWM covered calls. This is what I have started:

I bought 100 shares 0f IWM at 76.0 and immediately sold a call at 76 for a premium of $110. So my net cost is 76-1.1 = 74.9. The option will expire on 20th Jan.

If the market remains above 76 . I will do nothing and allow my stock to be called away. If the market is falling , later on I will put a stop sell on my stock at 74.9 thereby breaking even. I will be left with naked option which will expire worthless. In a week if market starts going up I will have to buy back stock at 76. Buying and selling commission is not important as IB charges only $1. The idea is that I will never have a stock which going down and down.

I am writing this here so that if there is a better way to do this , please kindly mention this. Thanks so much.
 
Quote from osho67:

I want to trade aggresivly weekly IWM covered calls. This is what I have started:

I bought 100 shares 0f IWM at 76.0 and immediately sold a call at 76 for a premium of $110. So my net cost is 76-1.1 = 74.9. The option will expire on 20th Jan.

If the market remains above 76 . I will do nothing and allow my stock to be called away. If the market is falling , later on I will put a stop sell on my stock at 74.9 thereby breaking even. I will be left with naked option which will expire worthless. In a week if market starts going up I will have to buy back stock at 76. Buying and selling commission is not important as IB charges only $1. The idea is that I will never have a stock which going down and down.

I am writing this here so that if there is a better way to do this , please kindly mention this. Thanks so much.
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Yes, their is a better way. The risk reward from a buy write and naked selling the put are the same. So, you can just sell that put, have less commissions, same profit loss. Also, consider do the same strategy on the RUT. They are the same index, except IWM is an ETF, and RUT is a cash index. You'll be able to sell less contracts on the RUT to get the same premium, so less commissions, and cash indexes offer a tax advantage.

The strategy has more risk than you expect. You can't assume your stop will protect you in a falling market during trading hours or over night. Be carful. Also, RUT options have wider spreads, so harder to get in and out.
 
Quote from rmorse:

Yes, their is a better way. The risk reward from a buy write and naked selling the put are the same. So, you can just sell that put, have less commissions, same profit loss. Also, consider do the same strategy on the RUT. They are the same index, except IWM is an ETF, and RUT is a cash index. You'll be able to sell less contracts on the RUT to get the same premium, so less commissions, and cash indexes offer a tax advantage.

The strategy has more risk than you expect. You can't assume your stop will protect you in a falling market during trading hours or over night. Be carful. Also, RUT options have wider spreads, so harder to get in and out.
More...

Thanks for your reply. If I sell put , I stand a chance that I will have to buy the stock. And then I will be doing covered call.

Rut is good but spreads are so wide. I gave up trading options on this.
 
Quote from turkeyneck:

Are these trades identical: sell CC at 76 vs short put at 76?
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Close enough if the pricing is the same. One will receive dividends, the other will adjust to dividends so the tax rates might be different. Sometimes, when the security is hard to borrow, the puts trade higher, which is better.
 
Quote from osho67:

I want to trade aggresivly weekly IWM covered calls. This is what I have started:

I bought 100 shares 0f IWM at 76.0 and immediately sold a call at 76 for a premium of $110. So my net cost is 76-1.1 = 74.9. The option will expire on 20th Jan.

If the market remains above 76 . I will do nothing and allow my stock to be called away. If the market is falling , later on I will put a stop sell on my stock at 74.9 thereby breaking even. I will be left with naked option which will expire worthless. In a week if market starts going up I will have to buy back stock at 76. Buying and selling commission is not important as IB charges only $1. The idea is that I will never have a stock which going down and down.

I am writing this here so that if there is a better way to do this , please kindly mention this. Thanks so much.
More...

don't expect that your naked call is going to expire worthless after selling the stock. iwm like all stocks make large moves up and down. try something safer.
 
Quote from daveyc:

don't expect that your naked call is going to expire worthless after selling the stock. iwm like all stocks make large moves up and down. try something safer.
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Thanks. I might try QQQ which is a bit slow moving. Any other suggestion?
 
Quote from rmorse:

Close enough if the pricing is the same. One will receive dividends, the other will adjust to dividends so the tax rates might be different. Sometimes, when the security is hard to borrow, the puts trade higher, which is better.
More...

How about in general for CC vs short put at the same strike on a non-dividend stock?
 
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