Do PMCC's work?

[wxytrader]

Or are they a steaming pile of garbage?

It's hard to analyze because of the long option and the different expiry dates.

For a regular CC, lets say I buy 100 shares of spy today @ 470. I sell a covered Jan12 call 472 for 7.30 collecting $730 in premium. The stock hits my short call @ 472 so I sell at a $2 profit plus the premium making $930 in the trade.

So what would a PMCC look like to emulate this profit?

1 Long Mar15 (90 days) 453 @ 28.48 (.75 delta)
1 Short Feb16 (60 days) 482 @ 5.23 (.36 delta)
Enter the trade @ a 23.25 debit.

75% of the spread is $21.75 so a little expensive, but with the deltas this would be a pretty standard PMCC.

Ok so looking at feb16 prices...if price does not move then it looks like:

Selling to close the 463@ 26.20
Buying to close the 482@ 6.41
19.79

if the price drops $2 then it looks like this on feb16

Selling to close the 463@ 24.47
Buying to close the 482@ 5.53
18.94

If price goes up $2 then:

Selling to close the 463@ 27.88
Buying to close the 482@ 7.31
20.57

No matter what you end up losing money.

 

[Ironplates]

you have to btc that short call you sold. or are you selling the stock at expiration?

 

[Quanto]

@wxytrader, is a std CC not possible in your margin acct?
If not then do this: first open the LongStock, and then open the ShortCall.
The system should automatically detect that the end result is a CC.
Even if it does not: what difference does it make?
IMO none, except the inital buying power requirement is higher, BUT this is just temporary, b/c after opening the 2nd leg the requirement reduces to the usual "S - Premium" of CC.

Btw, doing it this way is even better than using a CC combination order,
b/c the latter one just sits all the time at the broker and waits for the price to match.
The bad thing is: it has no impact on the order book. Ie. your Bid/Ask does not go into the orderbook.
Whereas the above alternative method is much better as your price goes into the orderbook, but has temporarily a higher initial BP requirement, as shown.

I guess by PMCC you mean "PortfolioMargin CoveredCall", right?
So, what's the difference in practice?

 

[mervyn]

@wxytrader, is a std CC not possible in your margin acct?
If not then do this: first open the LongStock, and then open the ShortCall.
The system should automatically detect that the end result is a CC.
Even if it does not: what difference does it make?
IMO none, except the inital buying power requirement is higher, BUT this is just temporary, b/c after opening the 2nd leg the requirement reduces to the usual "S - Premium" of CC.

Btw, doing it this way is even better than using a CC combination order,
b/c the latter one just sits all the time at the broker and waits for the price to match.
The bad thing is: it has no impact on the order book. Ie. your Bid/Ask does not go into the orderbook.
Whereas the above alternative method is much better as your price goes into the orderbook, but has temporarily a higher initial BP requirement, as shown.

I guess by PMCC you mean "PortfolioMargin CoveredCall", right?
So, what's the difference in practice?

No it is poor man’s covered call.

 

[mervyn]

This difference is the margin. 470x100 is 47k, for than amount you can buy 43 call contracts. If you are right, hats off.

 

[wxytrader]

I'm not talking about margin requirements, I'm talking about how their profits compare to regular covered calls...its looks like they are slim to none. They don't behave like regular covered calls...a $2 move with a regular covered call would get you $2 plus the premium you receive, a pmcc looks like you are still losing money.

 

[Quanto]

I'm not talking about margin requirements, I'm talking about how their profits compare to regular covered calls...its looks like they are slim to none. They don't behave like regular covered calls...a $2 move with a regular covered call would get you $2 plus the premium you receive, a pmcc looks like you are still losing money.

Yep, I meanwhile have figured out what you mean.
IMO just forget it.
I myself cannot use it in my CashAcct as it requires a MarginAcct. No thx, but thx

 

[wxytrader]

So I have an P/L profile from optionstrat (which btw is much more user friendly than tos) and the profit is showing $455.56 if price hits 480, but the tos chart is showing $239.47. I see that Option strat is averaging the IV across both legs, whereas tos does not...so which is it?

 

[wxytrader]

Does anybody use these? If so, can you show a P/L graph for a PMCC that actually out performs a regular put credit spread? I have looked at both and the put credit spread out performs it in every way.

 

[mervyn]

it is hail mary trade, hence the name poorman's covered call, not a comparison.

bought 5 orcl sept 2024 100 call and sold 12/22 105 call after earnings dropped last week, now the long leg is up 30.73%. i will roll the short leg to 107-110, with expectation orcl will go back to 115 or above.

or i could leave it both at have a projected return at 33% expiring this friday.