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Continuous rolling of covered calls
- Thread starter ferrycorsten
- Start date
Quote from ferrycorsten:
What is wrong with this strategy?
Sell ITM covered calls. Buy back before expiration, roll to next month, same ITM strike. Repeat.
The roll should always yield a credit since you are selling a call with more time value than the one you buy back.
Basically you can do this an unlimited amount of times, even if calls go deep ITM, until you get assigned.
Thoughts?
This is not a strategy thats going to work for you in the long term. You will always have risk with the stock. Look at this trader's site, if anything, watch his free videos on youtube and learn why covered calls are not for you. http://www.radioactivetrading.com/
Quote from ferrycorsten:
What is wrong with this strategy?
Sell ITM covered calls. Buy back before expiration, roll to next month, same ITM strike. Repeat.
The roll should always yield a credit since you are selling a call with more time value than the one you buy back.
Basically you can do this an unlimited amount of times, even if calls go deep ITM, until you get assigned.
Thoughts?
If you can find a stock that is range bound I think it is a strategy you can use EXCEPT for your idea to sell ITM covered calls. If you sell ITM covered calls then buy them back, I don't think you are going to make much money doing that.
When I sell an option I want it to expire worthless. Selling an ITM option decreases the likelihood of that happening. When I sell a covered call I select a slightly OTM strike (delta of 30-40).
KO is a stock I have had some success recently with. It is range bound between 36-38. If you can buy it close to 36, then sell say a 37.5 covered call I think you will be more successful than you would be by buying close to 36 then selling a 35 covered call. Either it will cost you too much to buy the call back or the stock will be called, assuming the price of the stock goes up, of course.
Another possibility as it applies to KO. If you wouldn't mind owning the stock at $36, sell a naked put at that strike. This strategy has the same risk as the covered call.
Just my opinion and I am not very smart.
Quote from ferrycorsten:
Thoughts?
You need a stock with high implied volatility. Also, ITM options have very small premiums, and you need to take into account bid/ask spread.
When they analyzed the Bernie Madoff strategy, which was but a put, sell a call and repeat, they said it still required market timing to pull of an annualized 8% return.
Here is a nice piece about your strategy http://www.optionsweekly.com/covered-call-returns-5-percent-a-month/