Covered Call Strategy

[drownpruf]

The same reason why anyone makes a bullish bet with a call spread. You don't mean to tell people there are only some ways to make trades now are you?

In the quote you quoted, there was no synthetic call spread. Just a synthetic call.

The synthetic call spread will be in my latter post where I described doing a protective put and selling a call also.

In any case, actually, the difference between doing a call spread and the situation he is in, is that he is now sitting on cap gains already. Which means the position he puts on is free. Someone who goes out and does a debit bull call spread spends money and risks that. He risks nothing relative to his initial capital. Further, OP seems to want to obtain yield by rolling calls, with a mildly bullish sentiment and expectation that DDD continues an upward trend.

He mentioned a CC. You read a book and offered a collar. Great, but absolutely pointless. He loses a bit below $40 and has maybe a buck in credit on the 3-way simply due to gains. So stop offering advice where you shouldn't. Mildly bullish? That's what you get from his posts?

The 25D reversal is $1.20 puts over calls. So yeah, tell him to buy some puts.

 

[butterfacetrader]

He mentioned a CC. You read a book and offered a collar. Great, but absolutely pointless. He loses a bit below $40 and has maybe fifty cents in credit on the 3-way. So stop offering advice where you shouldn't. Mildly bullish? That's what you get from his posts?

The 25D reversal is $1.20 puts over calls. So yeah, tell him to buy some puts.

lol. OP, this is your typical ET resident DB troll. FYI he deleted an earlier post that was fully intent on trolling you on the get go already. Just so you know since you might be new here.

So whats your trade professor? I haven't seen you offer a winning trade for him smarty.

 

[newwurldmn]

OP, you think the stock is going to 100? If so, by Jan 2016? Sell your stock and buy the Jan16 ATM call for $10.
If you think the stock will trend up slowly then sell the august calls. But selling calls would suck if the stock went to 100 by august.

 

[Greymalkin]

This is not a recommendation.

Right. Absolutely. I'm not fishing for advice, I'm just trying to get my head around options strategies. Using real-ish numbers makes it easier to understand than if I go with more generic X, Y, Z descriptors.

I certainly appreciate your comments. Thank you.

 

[drownpruf]

lol. OP, this is your typical ET resident DB troll. FYI he deleted an earlier post that was fully intent on trolling you on the get go already. Just so you know since you might be new here.

So whats your trade professor? I haven't seen you offer a winning trade for him smarty.

Dude, you're late for your "winning with options" seminar. I've told both of you the put is not the buy here. It's asymmetric. If you do the 25D bear reversal you are OUT over a buck. I don't have a reco as I don't trade these names, but the CC is fine. Cover in the box out to 2015.

 

[FXforex]

BUT, there's a ton of volatility with it and I figure I can profit from it using covered calls.

Volatility and Covered Calls are not a good mix. And the 1-year chart also says NO to covered calls.

 

[butterfacetrader]

Dude, you're late for your "winning with options" seminar. I've told both of you the put is not the buy here. It's asymmetric. If you do the 25D bear reversal you are OUT over a buck. I don't have a reco as I don't trade these names, but the CC is fine. Cover in the box out to 2015.

Ok professor.

When you invest in something you're either decisively bullish or bearish, or in some cases neutral/flat. And you make your bet accordingly. Without an ability to see the future, nobody knows what the price will do. There is no right trade.

The point of a put is not an outright directional bet, but to protect a long stock position from downside. Seeing as DDD is a major momo stock with over 100 forward P/E, I'd argue risk to the downside is quite high if and when a market correction happens.

So, since clearly he is mildly bullish, yes 'mildly' because he wants to sell a call at $60 instead of being mega bullish and not selling any calls expecting it to be $100, then he can let his winner run and protect the downside completely with a put, which will cost him nothing, since he is already sitting on big cap gains.

 

[FXforex]

The point of a put is not an outright directional bet, but to protect a long stock position from downside.

Puts are too expensive. Better to sell the stock.

 

[butterfacetrader]

Puts are too expensive. Better to sell the stock.

TBH thats what I would personally do.

But it goes back to the point, each investor is their own man and has their own opinions or expectations on where a stock is going. So, if he wants to let it ride higher, and expects $100 just not in the timeframe up to Aug as he stated, then he can let it ride.

The fact you're saying sell, means your own opinion is upside is limited. Clearly he doesn't have that view. Further, he may not want to sell for reasons of triggering a cap gain this year.

Problem with a covered call is you cap upside. If DDD wants to run to $100 again, it may do so quickly. Just look at recent price action. On the other hand, if it wants to correct, it will do so quickly also. Comes with the territory. But a covered call doesn't protect downside much. And it caps upside in a fast rising momo stock. On the other hand, an 'expensive put' (not really since he is sitting on a lot of cap gains so a strike far out is quite cheap here), he allows capturing full upside and have limited downside relative to initial investment. So, if his thesis is bullish, its best to let it run unhinged to the upside sometimes.

 

[drownpruf]

TBH thats what I would personally do.

So no to the brilliant synthetic bull vert?