Deep-ITM covered calls
- Thread starter ADLE
- Start date
what stock are you talking about? those numbers sound too optimistic.
I know some on this board don't like covered calls; capital intensive..etc, but some do. They're easy to understand, and I would be willing to bet are the first type of option trade most people do, they were for me.
So while we're on the subject of ITM covered calls. I thought I'd post a position I just took with my old fave underlying, MO.
Here's what I did last Friday, with MO going ex-div (.80) the following (this)Monday.
Bought MO@ 72.92
Sold April 70 calls @ 4.30
74.30 + .80 = 75.10 - 72.92 = 2.18 premium/profit.
2.18 / 70 = 3.1% for 7 weeks, 23.1% annualized.
As I am writing this, the calls are 5.70, and MO is 74.11, for a premium of 1.59, much less than the 2.18 I took on Friday.
Yes, I could have sold puts and accomplished the same thing, but I like using different strategies to keep it interesting. Depending on the price of MO as time goes along, I may buy the calls back and rewrite, maybe OTM, maybe ITM, we'll see. To me, this is a short term CD, and 23% beats 4.5%.
I just try and keep it fun and interesting.
So while we're on the subject of ITM covered calls. I thought I'd post a position I just took with my old fave underlying, MO.
Here's what I did last Friday, with MO going ex-div (.80) the following (this)Monday.
Bought MO@ 72.92
Sold April 70 calls @ 4.30
74.30 + .80 = 75.10 - 72.92 = 2.18 premium/profit.
2.18 / 70 = 3.1% for 7 weeks, 23.1% annualized.
As I am writing this, the calls are 5.70, and MO is 74.11, for a premium of 1.59, much less than the 2.18 I took on Friday.
Yes, I could have sold puts and accomplished the same thing, but I like using different strategies to keep it interesting. Depending on the price of MO as time goes along, I may buy the calls back and rewrite, maybe OTM, maybe ITM, we'll see. To me, this is a short term CD, and 23% beats 4.5%.
I just try and keep it fun and interesting.
Well, I guess my math was wrong.
It's 6 weeks, not 7.
So it is 26.8%, not 23.1%.
All the better!
It's 6 weeks, not 7.
So it is 26.8%, not 23.1%.
All the better!
2 Arnie,
This exactly what I am talking about.
I am not really understand the math you provided, though
I think the right math is:
72.92 - 4.30 = 68.62
70 - 68.62 = 1.38 - this is your max gain, isn't?!
By the way, do you know how covered calls impact on you tax returns? Is it really a big deal write covered calls?(IRA 550)
Thank you for interesting post.
2 ra1,Quote from ra1:
Oops, big stuff up, forgot all about the premium - ok, large slice of humble pie for me plus some butt kicking (and no more postings for at least one week).
ra1
Take it easy,
Could you recommend good books to read on options trading?
I read few, they are ok, just explaining how options work, but w/out - how to find best trading opportunities in real market.
Thank you.
You are forgetting the dividend, $.80.
Another way to do the math is.....
72.92(MO) - 4.30(Apr70call) - .80(Dividend) = 67.82(Total Cost)
If called away,
70 - 67.82 = 2.18 profit, 3.21% for 6 weeks, 27.8% annualized.
As for the tax implications, I dunno, I use H&R Block Tax software, and Microsoft Money.
I keep all my transactions on "Money", convert them into a .txf file, and upload them into the tax program.
Arnie
One difference to note Adle is that Arnie is NOT doing DEEP in the money....he is only slightly in the money and that is an important differerence. Most people see deep in the money is 25 to 50 % ITM rather a few %.