aggresive covered call trading

spindr0 · Jan 12, 2012

Quote from osho67:

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.

Sounds good on paper but the market doesn't always play nice. Take a look at last August when IWN gapped down 2 points overnight five times. Once it was over 5 pts and if that happens, there's a good chance you become a bag holder (dead money).

spindr0 · Jan 12, 2012

Quote from turkeyneck:

Are these trades identical: sell CC at 76 vs short put at 76?

Hypothetical example --> Compare the reults of buying at 76 and selling a Feb 76 covered call for 1 pt versus selling the Feb 76 naked put for 1 pt. Assume no carry cost or dividends. At all prices, the P&L is the same.

daveyc · Jan 12, 2012

Quote from osho67:

Thanks. I might try QQQ which is a bit slow moving. Any other suggestion?

no. i meant try an entirely different trade idea. this is not going to be a profitable venture unfortunately. weekly cc's on any index or stock will eventualy leave you with losses.

TraderBoy23 · Jan 12, 2012

I may be wrong, and it's not the same strategy that you are implementing, BUT, you could buy the security at, lets say 76, sell the call at 77 and purchase a put at 75.

The premium from the call would be lost in the purchase for the put, (and then some possibly) but if the call and put are close to equal spacing from the purchase price of the security they are usually pretty close in cost.

hypothetically, lets say the premium from the call directly offset the cost of the put. If the stock falls from 76 down to 75, your put is essentially your stop. If the stock rose to 77, you would make the difference between purchase price and the higher call, in this case $1. This way you have profit potential to the upside, and have a limited downside of risk. Granted, this isn't the best way to make money trading options but is something that is close to original plan. it just uses a put instead of a stop order, essentially.

falcon · Jan 12, 2012

Quote from TraderBoy23:

I may be wrong, and it's not the same strategy that you are implementing, BUT, you could buy the security at, lets say 76, sell the call at 77 and purchase a put at 75.

The premium from the call would be lost in the purchase for the put, (and then some possibly) but if the call and put are close to equal spacing from the purchase price of the security they are usually pretty close in cost.

hypothetically, lets say the premium from the call directly offset the cost of the put. If the stock falls from 76 down to 75, your put is essentially your stop. If the stock rose to 77, you would make the difference between purchase price and the higher call, in this case $1. This way you have profit potential to the upside, and have a limited downside of risk. Granted, this isn't the best way to make money trading options but is something that is close to original plan. it just uses a put instead of a stop order, essentially.

Whats the best way then?

Runningbear · Jan 12, 2012

What happens is the stock sell below 76 then rises above it then sells below it then rises above it?

You will get nailed on the spread and brokerage.

Just pointing out a possible negative.

Runningbear

tickmagnet · Jan 12, 2012

Spreads are good for brokers , double commissions.

TraderBoy23 · Jan 12, 2012

I'm not saying this is the only way or saying there's only one way to do things. Only stating to the OP a slight alternative to his strategy. You would only get nailed with the put and call if someone exercised early. In that case you could buy back the short call as its premium would go down if the price of the underlying security fell down to te put strike price

Like I said before I'm only responding with a method as close to the OP's method as possible. It's not what I would do and isn't a perfect method, but can work when used correctly

falcon · Jan 12, 2012

I wasn't having a go just asking if you are keen to share some other ways or better ways to trade options.

osho67 · Jan 13, 2012

Quote from TraderBoy23:

I may be wrong, and it's not the same strategy that you are implementing, BUT, you could buy the security at, lets say 76, sell the call at 77 and purchase a put at 75.

The premium from the call would be lost in the purchase for the put, (and then some possibly) but if the call and put are close to equal spacing from the purchase price of the security they are usually pretty close in cost.

hypothetically, lets say the premium from the call directly offset the cost of the put. If the stock falls from 76 down to 75, your put is essentially your stop. If the stock rose to 77, you would make the difference between purchase price and the higher call, in this case $1. This way you have profit potential to the upside, and have a limited downside of risk. Granted, this isn't the best way to make money trading options but is something that is close to original plan. it just uses a put instead of a stop order, essentially.

Thanks for your input.Thanks for other replies as well.This is a weekly strategy and it may not work with IWM but with some more stable product it has a chance of working.