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covered call profit and loss question
- Thread starter IronFist
- Start date
Quote from ClimbingMel:
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.
No, it's not you... it's the BS methodology. Hindsight reinforces bad habits. It allows you to disassociate the loss from the method.
"Should have bought the puts back at a loss". Your edge (sticky capital) doesn't allow it. And if it does it's no better than a coin-flip.
"Just write CC as I usually do" Right, it's not an edge. It's a bull-strategy.
I would suggest going a bit further otm and writing two calls per 100 shares to effect a short straddle. You system is operating on minimal leverage so it's a good fit.
Quote from atticus:
No, it's not you... it's the BS methodology. Hindsight reinforces bad habits. It allows you to disassociate the loss from the method.
"Should have bought the puts back at a loss". Your edge (sticky capital) doesn't allow it. And if it does it's no better than a coin-flip.
"Just write CC as I usually do" Right, it's not an edge. It's a bull-strategy.
I would suggest going a bit further otm and writing two calls per 100 shares to effect a short straddle. You system is operating on minimal leverage so it's a good fit.
By me, I meant I didn't follow my rules and take the loss when they said I should. 1st rule is always stick to the plan and don't think about it.
I'm not sure what you mean by sticky capital... I could have bought the puts back but I didn't.
Always have you entry, exit and stop decided before entering a trade and follow it no matter what! I broke that rule and got bit in the ass.
My method may not be great, but it is still working for me. I don't put everything into it, just a portion as I keep diversified and never put all my eggs in one basket.
For your short straddle, do you mean on a stock you hold? So basically 1 CC and 1 short call same strike & expiry?
Quote from ClimbingMel:
By me, I meant I didn't follow my rules and take the loss when they said I should. 1st rule is always stick to the plan and don't think about it.
I'm not sure what you mean by sticky capital... I could have bought the puts back but I didn't.
Always have you entry, exit and stop decided before entering a trade and follow it no matter what! I broke that rule and got bit in the ass.
My method may not be great, but it is still working for me. I don't put everything into it, just a portion as I keep diversified and never put all my eggs in one basket.
For your short straddle, do you mean on a stock you hold? So basically 1 CC and 1 short call same strike & expiry?
I am stating that you change the method to suit the precedent. It's not a accusation, as everyone does it to a certain degree. Part of what you define as your edge is the ability to "stick" with a ticker through an extended draw-down rolling from a short put -> assignment -> CCs. So your stop doesn't really play a role as you're seemingly intent on letting stuff ride. Cutting the loss is in opposition to your "edge" of sticky capital (limited leverage -- the ability to sit through the DD).
IOW, the "edge" is blown to shit the moment you take the stop-loss. If you don't stop-out then you retain your "edge" but risk an event in which you can't write calls at suitable premiums even with the high volatility.
Yeah, long XYZ and short 2 100 calls = short 100 straddle (synthetically).
So as of market close today I'm showing:
SSO
Average unit cost: $36.54
Market price: $45.27
Gain/loss: $872.82
SSO 43 Oct 11C
Average unit cost: $0.5874
Market price: $2.30
Gain/loss: -$171.26
So do I subtract the option loss from the stock gain?
That leaves me with $701.56 which is basically the profit of selling at 43 plus the premium. That would make sense.
When does it actually get assigned and taken out of my account?
SSO
Average unit cost: $36.54
Market price: $45.27
Gain/loss: $872.82
SSO 43 Oct 11C
Average unit cost: $0.5874
Market price: $2.30
Gain/loss: -$171.26
So do I subtract the option loss from the stock gain?
That leaves me with $701.56 which is basically the profit of selling at 43 plus the premium. That would make sense.
When does it actually get assigned and taken out of my account?
By monday morning Your account should be clean. You will probably have to pay a commission to do the exercise.
As of Sunday, my home screen shows both positions gone.
My gain/loss report shows:
SSO
Cost: $3,654.18
Market value: $4,527
Gain/loss: $872.82
SSO 43 Oct 11
Cost: -$58.74
Market price: N/A
Gain/loss: N/A
Total unrealized gain/loss: $872.82
Obviously that isn't correct, since the shares are going to be sold at 43 rather than the current market value of $45.27. They must be in the middle of handling it now.
My gain/loss report shows:
SSO
Cost: $3,654.18
Market value: $4,527
Gain/loss: $872.82
SSO 43 Oct 11
Cost: -$58.74
Market price: N/A
Gain/loss: N/A
Total unrealized gain/loss: $872.82
Obviously that isn't correct, since the shares are going to be sold at 43 rather than the current market value of $45.27. They must be in the middle of handling it now.
Yep, it's the same $700 that we spoke about 10 days ago (page 5). Your position will be gone and the $700+ will be credited to your account, at the latest, by tomorrow morning.Quote from IronFist:
So do I subtract the option loss from the stock gain? That leaves me with $701.56 which is basically the profit of selling at 43 plus the premium. When does it actually get assigned and taken out of my account?