Covered CAll Interest

[CoveredCalls5]

Quote from optioncoach:

Lets cut the the numbers then. You are expecting to make $500 a month (5%) on covered calls with $10k. First off, how many stocks can you buy with $10k? 4 - 5 if they are under $25 a share and only 100 shares. For asset protection you will need stable strong companies that hopefully will not crash and burn.

You also need to assume you will make 5% a month every month going forard. In August you would have probably lost on all 4 or 5 stocks and had to sell the stock and close out the call as you said you would do in a bad move down. You might take a 10% hit on the portfolio from $10k down to $9k.

Now to make $500 min a month you need to make 5.5% just to get back to even. The point is losses are inevitable and you cannot just assume you will take $10k to $1mil. That is a nice goal to work towards but as a newbie to options, it is unrealistic.

How about you do 2 monhts of paper trades on 4 stocks and sell calls and see how the portfolio does before committing the money. 2 months is not enough by any stretch but at least you can get a taste of it for free. Post your trades here so you can get some useful analysis.

Well first off I am not saying your wrong, I am just going to explain what I experienced here and let people comment. Because I am here to get different views and perspectives on what I am planning to do, And what all there is to do on the market.


What I was taught in this class was to plan ahead of time when your going to get out, how much that will cost, How much it costs to get in. So for example, If I did 3 different stocks, and lets say here are the profits on them. (On the Options Premium % of Return)


Stock 1 --- 1,775 Return

Stock 2 --- 1,500 Return

Stock 3 -- 2,000 Return


Now lets say to get in and get out on all those costs an imaginary I will say 200$. Just throwing a figure out there. Now I am getting 1775 back PROFIT along with the others after expenses. Lets say Stock number #3 goes down to where I am loosing 1,000 dollars on it. I could buy back my option sell the stock and still gain like 950 dollars. Or I could wait it out and see if it goes back up. I am in control of how much I loose and how much risk I want to take. And the other 2 do ok. I still get a good chunck of return. This is what I was doing on paper trading. Can't this be done?


And once again I don't act like I know everything I am here to learn and get opinions of people who have been playing on the market for while. I thank you all for your time and replies. Thanks a bunch!

 

[atticus]

Quote from CoveredCalls5:

Well first off I am not saying your wrong, I am just going to explain what I experienced here and let people comment. Because I am here to get different views and perspectives on what I am planning to do, And what all there is to do on the market.


What I was taught in this class was to plan ahead of time when your going to get out, how much that will cost, How much it costs to get in. So for example, If I did 3 different stocks, and lets say here are the profits on them. (On the Options Premium % of Return)



Stock 1 --- 1,775 Return

Stock 2 --- 1,500 Return

Stock 3 -- 2,000 Return


Now lets say to get in and get out on all those costs an imaginary I will say 200$. Just throwing a figure out there. Now I am getting 1775 back PROFIT along with the others after expenses. Lets say Stock number #3 goes down to where I am loosing 1,000 dollars on it. I could buy back my option sell the stock and still gain like 950 dollars. Or I could wait it out and see if it goes back up. I am in control of how much I loose and how much risk I want to take. And the other 2 do ok. I still get a good chunck of return. This is what I was doing on paper trading. Can't this be done?


And once again I don't act like I know everything I am here to learn and get opinions of people who have been playing on the market for while. I thank you all for your time and replies. Thanks a bunch!

You're not in control of how much you lose. Your risk is bounded to zero on the shares. Technically your loss is limited, but it's potentially catastrophic in empirical terms. Buying XYZ at 100 and selling a 100C is synthetically-equivalent to selling a 100P naked. Suppose the stock misses their quarterly numbers and drops 10%. You're out 6-7% instantly on your CC position. Sure, you can rollover your calls to the next cycle, but you're locking in a loss nonetheless. You're no longer receiving an adequate premium in selling the par-call... you're now selling the 90C.

CC returns can be large on shares with high vols where the stock trades higher. A vertical spread will often outperform a CC in that scenario, with truly limited-risk. CC are no panacea. The worst risk-reward positions are selling "singles', calls [CP], puts [CC] and short flies, in that order. Sound methods are not built on these positions.

 

[CoveredCalls5]

Quote from atticus:

You're not in control of how much you lose. Your risk is bounded to zero on the shares. Technically your loss is limited, but it's potentially catastrophic in empirical terms. Buying XYZ at 100 and selling a 100C is synthetically-equivalent to selling a 100P naked. Suppose the stock misses their quarterly numbers and drops 10%. You're out 6-7% instantly on your CC position. Sure, you can rollover your calls to the next cycle, but you're locking in a loss nonetheless. You're no longer receiving an adequate premium in selling the par-call... you're now selling the 90C.

CC returns can be large on shares with high vols where the stock trades higher. A vertical spread will often outperform a CC in that scenario, with truly limited-risk. CC are no panacea. One of the worst risk-reward positions that one can trade, along with the short butterfly.

Whow wait a minute, Whats the point in even buying a Stock to do a covered call? Can't you do them naked and just have the cash in your account? that way you can save on all the fees of buying/selling the stock? Plan ahead of time of what you are going to do if the stock hits a certain point and etc...... Then if I am going to do naked Options, Naked puts are a better way to go correct? Now have many people been successful selling naked puts?

 

[CoveredCalls5]

Quote from atticus:

You're not in control of how much you lose. Your risk is bounded to zero on the shares. Technically your loss is limited, but it's potentially catastrophic in empirical terms. Buying XYZ at 100 and selling a 100C is synthetically-equivalent to selling a 100P naked. Suppose the stock misses their quarterly numbers and drops 10%. You're out 6-7% instantly on your CC position. Sure, you can rollover your calls to the next cycle, but you're locking in a loss nonetheless. You're no longer receiving an adequate premium in selling the par-call... you're now selling the 90C.

CC returns can be large on shares with high vols where the stock trades higher. A vertical spread will often outperform a CC in that scenario, with truly limited-risk. CC are no panacea. One of the worst risk-reward positions that one can trade, along with the short butterfly.

And I don't understand how you said my risk is bounded to zero on the shares, If the stock starts to drop where it cuts to much into my profit (Because I will be checking it every day) I can buy back my option and sell the stock before it drops to much. That was the whole risk vs profit thing I was taught on this course. and If it goes up and I get called out, I get all that profit it went up to at the strike price + the Option premium. Could you amplify on this a little bit please?

 

[atticus]

Quote from CoveredCalls5:

Now have many people been successful selling naked puts?

You've no knowledge of synthetic equivalence. A CC is identical to a same-strike short put in a static dividend stream. The CC requires double-commission, so it's actually inferior. To answer your question; the naked put seller is marginally more successful assuming LoLN.

 

[atticus]

Quote from CoveredCalls5:

And I don't understand how you said my risk is bounded to zero on the shares, If the stock starts to drop where it cuts to much into my profit (Because I will be checking it every day) I can buy back my option and sell the stock before it drops to much.

Bullshit. Tell that to the guy doing covered calls on DNDN when it dropped from 19 to 6 overnight. Do yourself a favor and burn the course book. It's going to be far more costly to implement than you've spent on the course to date. I apologize for my earlier comments, but I naturally-assume the CC-minions are either vendors or the "easy money" crowd.

 

[ajna]

The 2 main problems I see with your approach to the short put strategy are the following.

1) Expectations too high.
If your goal is to multiply your money 100x in 7 years you're already heading down the wrong path. Focus on trading smart and trading well, and sustaining that for many years. At the best you should expect good returns, not the sensational ones you are expecting. With such high expectations you're bound to take on way too much risk.

2) The allure of making a bit more with a naked strategy is very difficult to sustain mentally long term.
Your goal is to trade successfully for many years. The toll of holding unlimited risk day after day is tough. Better to use limited risk strategies so that you can make rational and good decisions. Those sorts of decisions get harder to make when you have open ended risk and are looking at large losses.

 

[CoveredCalls5]

Alright lets take this into a different Direction. Lets talk about the successful people who have made huge amounts of money in low to moderate risk investments that have high yield return.

What did they do, How did they do it, And what made them successful?

 

[atticus]

Quote from CoveredCalls5:

Alright lets take this into a different Direction. Lets talk about the successful people who have made huge amounts of money in low to moderate risk investments that have high yield return.

What did they do, How did they do it, And what made them successful?

That's a can of worms. My partners have produced >140% this YTD on a diversified portfolio in the listed and OTC option markets. Peak to trough DD of ~6%.

Positions consisted primarily of European and American barrier options in the OTC markets [neutral delta, gamma bets], and delta flies and straddles in listed options [directional positions].

Your best bet is to learn about butterfly greek exposure. Trade very small in high option OI tickers.

 

[CoveredCalls5]

Quote from atticus:

That's a can of worms. My partners have produced >140% this YTD on a diversified portfolio in the listed and OTC option markets. Peak to trough DD of ~6%.

Positions consisted primarily of European and American barrier options in the OTC markets [neutral delta, gamma bets], and delta flies and straddles in listed options [directional positions].

Your best bet is to learn about butterfly greek exposure. Trade very small in high option OI tickers.

Alright keep in mind I am new to all this stuff, could you rephrase all that into a more basic language? 140% this YTD dang! What is your % return? And what are you doing? what does OTC stand for?

Ok butterfly greek exposure, High option OI tickers, Where do I start on learning all this stuff? I want to learn it very well, And I want to learn it right. Where do I start? =)

P.S. Thanks for replies