Covered Calls for ETFs and their Inverses

[HawaiianIceberg]

I was proposed this covered call options strategy and wanted to get some feedback on it. It sounds almost too good to be true..

So you buy an ETF and its inverse (say SOXL and SOSX) then sell covered calls in each.

One stock goes up, the other goes down (canceling each other out?) and you pocket the premium.

Surely there's something I'm missing as to why this wouldn't work well..

 

[lindq]

I was proposed this covered call options strategy and wanted to get some feedback on it. It sounds almost too good to be true..

So you buy an ETF and its inverse (say SOXL and SOSX) then sell covered calls in each.

One stock goes up, the other goes down (canceling each other out?) and you pocket the premium.

Surely there's something I'm missing as to why this wouldn't work well..

Look at a long term chart of inverse ETFs, and you'll see that they degrade. They don't track their positive twin. So you'll need to keep searching for your Holy Grail.

 

[El OchoCinco]

I was proposed this covered call options strategy and wanted to get some feedback on it. It sounds almost too good to be true..

So you buy an ETF and its inverse (say SOXL and SOSX) then sell covered calls in each.

One stock goes up, the other goes down (canceling each other out?) and you pocket the premium.

Surely there's something I'm missing as to why this wouldn't work well..

are the two ETFs perfectly correlated?

 

[BKR88]

I was proposed this covered call options strategy and wanted to get some feedback on it. It sounds almost too good to be true..

So you buy an ETF and its inverse (say SOXL and SOSX) then sell covered calls in each.

One stock goes up, the other goes down (canceling each other out?) and you pocket the premium.

Surely there's something I'm missing as to why this wouldn't work well..

Selling a naked Call & Put in the same instrument will give similar results.

 

[getthatintoya]

As BKR88 said your position is just a short strangle.

 

[HawaiianIceberg]

are the two ETFs perfectly correlated?

I've found SOXL and SOXS to be very well correlated. In this image, you have:
SOXL from Feb 2022 to present on top, and SOXS in the middle.
Below that is plotted the percent change in close price from day to day (red and blue) and the difference between the two in black.

The difference between the two is always < 1%

 

[HawaiianIceberg]

As BKR88 said your position is just a short strangle.

I understand what a short strangle is (naked call and put at different strikes), but would you mind elaborating on why this is similar, please?

I see the naked strangle as a strategy where you hope there is minimal price change in the underlying, and you collect premiums. With writing covered calls in both ETFs, I see this as having twice the protection as the strangle?

At first glance, this idea seems OK in my mind, but again, I know there's something I'm likely missing..

Thank you for helping with my beginner understanding of options.

 

[getthatintoya]

Ok you said it in your original post. "One stock goes up, the other goes down (canceling each other out?) All you are left with are the sold calls on the 2 inverse etf's. So synthetically you are short a strangle.

 

[Scire]

I was proposed this covered call options strategy and wanted to get some feedback on it. It sounds almost too good to be true..

So you buy an ETF and its inverse (say SOXL and SOSX) then sell covered calls in each.

One stock goes up, the other goes down (canceling each other out?) and you pocket the premium.

Surely there's something I'm missing as to why this wouldn't work well..

I was proposed the exact same Offer recently. He told me I will make 2% a week. Is this strategy real

 

[HawaiianIceberg]

I was proposed the exact same Offer recently. He told me I will make 2% a week. Is this strategy real

Aloha scire,
I was told 2% also! lol. I was unable to make it work long term and ended up losing money. Premium’s weren’t as large as the stock prices decay.
My only advice would be to sim trade it for a couple months and see what you think. The guy telling me about it had enough confidence that I just jumped in w/o trying it myself first