covered calls

[osho67]

I want to commit 150k for covered calls on US stocks and QQQ. I will always do the covered call on the nearest month and have insurance as well by buying a lower price put. The idea is to generate about 20% return. I will be using IB.

Please be kind to give your comments as to whether this strategy can work or what else can I do to make improvements. The object is to leave full time job and find a part time job with extra income from .

I am new to elite trader so please be kind and gentle. Thanks

 

[ig0r]

Quote from osho67:

I want to commit 150k for covered calls on US stocks and QQQ. I will always do the covered call on the nearest month and have insurance as well by buying a lower price put. The idea is to generate about 20% return. I will be using IB.

Please be kind to give your comments as to whether this strategy can work or what else can I do to make improvements. The object is to leave full time job and find a part time job with extra income from .

I am new to elite trader so please be kind and gentle. Thanks

20% might be a little tough, shoot for closer to 10-12%.

When trying to generate an income, lower risk is a priority.

 

[Maverick74]

Quote from osho67:

I want to commit 150k for covered calls on US stocks and QQQ. I will always do the covered call on the nearest month and have insurance as well by buying a lower price put. The idea is to generate about 20% return. I will be using IB.

Please be kind to give your comments as to whether this strategy can work or what else can I do to make improvements. The object is to leave full time job and find a part time job with extra income from .

I am new to elite trader so please be kind and gentle. Thanks

Your position is not a covered call but rather what's called a collar. A collar is used to protect a position, not really derive income from it. You are better off selling the put, more edge and same risk. So you would just be short the put, no calls or stock.

 

[SumJurk]

Quote from Maverick74:

You are better off selling the put, more edge and same risk.

Ya, that's what I was going to say, but it's sort of hard to explain to a lot of people.

Here's a chart showing the comparison. As, you can see the "selling a put" strategy does in fact have an edge over covered call writing.

Hope this helps...

 

[osho67]

Thanks for the replies. I have done what I said for two months and I have received about 20% income. I have tried selling puts but when prices are going down i tend to worry at the prospect that I will have to buy the shares. For two months I have only invested about 30k so this may not be representative, and maybe I will try selling some puts as well and see how well this goes.

 

[osho67]

At the moment I pick high market cap shares and see the chart for one year and if price is going up ,I will pick that share and if the premium is good I will select that share for covered write. Is there any other better way to pick the shares? Thanks for guidance.

 

[Maverick74]

Quote from osho67:

Thanks for the replies. I have done what I said for two months and I have received about 20% income. I have tried selling puts but when prices are going down i tend to worry at the prospect that I will have to buy the shares. For two months I have only invested about 30k so this may not be representative, and maybe I will try selling some puts as well and see how well this goes.

It's the same thing! If you do the covered calls, you have already bought the shares, thats the difference. If you buy 1000 shares of stock at 50 and sell 10 50 calls at 3 pts, you are still exposed to the same risk, your breakeven is at 47. Now instead, you don't buy any stock and you sell 10 50 puts for 3 pts. Now your breakeven is 47, it's the same. If the stock drops to 40, you will have exactly the same position. In both situations you will be long 1000 shares of stock at cost basis of 47. You don't see this?

I'm not trying to be come off as smug or anything, but this is very elementary and options get much much more difficult beyond this but this is a very important concept to grasp. I would not start trading options until I could draw risk graphs in my head. You need to understand risk. Both these positions are exactly the same with the exception that you will make slightly more money selling the put then call due to the put skew. Please please please read up on your Natenburg before you start trading options. Trust me, you will thank me down the road. You don't want to blow out your account then and then buy the book. Buy it now, it will be much cheaper. Good luck.