Quote from daveyc:
the vast majority of traders using this strategy can't help but lose money over time. ok, so he had a target and wanted to make a little more. this is impossible to be repeated month after month.
for how long have you used this strategy and what is your track record? did you make it through the dot com crash, 9/11, the flash crash, financial crisis and the euro crisis by selling covered calls? i tend to doubt it, no matter what you say on this public forum. its easy to say how much money you are making but i like to put a little reality into those who want to understand the risks involved. i know this is the internet and a trading forum where all traders are making money hand over fist.
if you were a seller of puts (same risk) during the bear markets and crashes, you were dessimated. you don't need trust what i write and i certainly don't have anything to sell, just backtest and see how well (poorly) you can do during those periods.
Like I said I've done it for years. (aprox 3 1/2) So yes it can be profitable.
DotCom - nope wasn't trading options at all then, and yes I lost a bundle as I was fairly new to trading.
9/11 - yes this was one strategy that made me money. (I will explain in a moment how).
flash crash blew out some stops on trades, but didn't affect CCs.
Financial crisis from 2008 to current it has been working well.
I agree with you about the internet and forums, that is why I don't spend a lot of time on them. I do like to help when I can since it was so hard to find help when I started.
Just to be clear!!! I do not consider selling covered calls "trading"! Maybe the terminology is part of the problem. I have investment accounts that I buy stocks that I intend to hold for the long term like JNJ. Boring stock that pays a nice dividend. I will often supplement that with writting CCs on them. If they get called away, I wait for a pull back & buy them again or write naked PUTs until I get them at a good price. Then I go back to writing CCs. This has been working great for an investment account and has averaged an ROI of 12% over the last 3 years.
Now I said I would explain how this made money after 9/11 with CCs.
I also have a trading account that I daytrade. I agree that for daytrading CCs are not a good choice for your daily income, but they can be great as repair trades.
Shortly after 9/11, I thought the market had bottomed and started writting PUTs since the premium on volitile stocks like AAPL & GOOG was amazing. I had to use all my margin AND my line of credit when I got PUT all these stocks since the market continued down. At one point I was down $150000 on these two stocks. I broke all my rules as I should have cut my loses far before this. This is where I love options! I kept writing covered calls (I would go out far enough that the strike & premium would get me breakeven). Did this a number of times and then each of them broke up. I missed a $50 gap up on GOOG because I had CCs. But over the months that it took to get out of that trade I made $22 a share. Less than half of that gap up, but it was a profit. With AAPL, I have been trading it still that way. I write laddered PUTs (PUTs for various strikes & expiry dates) until I get caught with taking the stock on some of those. Then I write CCs until they get called away. I have 5 Nov CCs @ 380 on 500 AAPL I got for $339 ($350 less the $11 premium for the PUTs). May sound dumb to have $380 CCs right now, except that I sold them for $24. That gives me an effective price of $404. Sure today APPL hit as high as $418, but I'm still looking at $65 a share profit.
People that brag or lie on these forums just hurt everyone. It gets so hard to weed through all the BS to get any real info. I'm not rich (at least not in my standards) but I live a comfortable life on my trading and will eventually live a comfortable retirement on my investment accounts. My wife is the only person I care about trying to impress (or my son when we're climbing). I have put years into learning to trade and I am still learning. I have had massive losses during that time and would never have made it to this point if I had been "all in" in trading. I have wiped out an accout a few times in the learning process.
So I'm not trying to say it's easy money, it's a tool that when used properly can be profitable. There is no strategy that "always" makes money, so always the first rule is MONEY & RISK managment.
Just to show it's not all rosy... I recently lost $91k on NetFlix with that strategy. It wasn't the strategy that lost it was ME! I was up about $13.5k on naked PUTs on NFLX when I got assigned 10 @ $230 I should have bought the PUTs back at a loss when they were declining, but I thought I would take the stock at $230 less my premium and just write CCs as I usually do until I get a profit. Unfortunately just after I got assigned, NFLX tanked on some bad moves by the company. I couldn't write CCs anywhere near my price, so I wrote some just to get them called at a bit better price.
So no, if you make a mistake, any plan will lose you money. I should have kept far closer tabs on the underlying stocks, but I had gotten complacent with this stategy making me "easy" money. So now I pay more attention and have been doing well.
Wow, I didn't mean to ramble so much. Hope some of this is helpful.
