I've cracked the code...

[Snuskpelle]

Writing covered calls, your "income" is basically selling your upside. Works well in some conditions, not in others (compared with B&H as the baseline), so no free lunch.

When the market is steadily making new highs you generally want to be long calls (or some kind of similar bullish exposure with less theta decay) unless the IV is too high.

Disclaimer: I'm an option noob myself.

 

[nwoptions]

https://www.investopedia.com/trading/cut-down-option-risk-with-covered-calls/

-> Go to Risk of covered call writing.

Not quite a low risk strategy if the stock depreciates heavily. It might work on the SPY but so it will a simple buy and hold strategy.

But isn't it the cherry on top, so to speak? Let's say the SPY appreciates 10% in 1 year, and I make additional income from selling calls. According to OptionStrat, I can make an additional 2.5% a month (in terms of capital at risk). That's 12.5%. This is better than buy and hold.

 

[M.W.]

Rubbish, you hold onto losing positions until the market reverts? I don't think so, pal.

Hi everyone, I've been exploring selling covered calls on the SPY for income. I've recently discovered how powerful selling covered calls or writing CSPs are for generating income.

This strategy is appealing because I can make income in both bull markets and bear markets.

If the ETF goes up, I make money via market action as well as collecting premium. We recently got a Golden Cross (50sma crossed 200sma). This signifies typically the beginning a bull market.

If the ETF goes down, I still collect premium even though I have an unrealized loss. The market will go up eventually. I won't sell my shares. I buy and hold forever.

What do you guys think of covered call writing? Is it a great way to make passive income?

Thanks

P.S. Can someone please tell me how the IRS treats income received from covered call premium? Is it taxed as a capital gain? Regular income?

 

[newwurldmn]

But isn't it the cherry on top, so to speak? Let's say the SPY appreciates 10% in 1 year, and I make additional income from selling calls. According to OptionStrat, I can make an additional 2.5% a month (in terms of capital at risk). That's 12.5%. This is better than buy and hold.

it doesn’t work that way.

 

[TheDawn]

If the ETF goes down, I still collect premium even though I have an unrealized loss. The market will go up eventually. I won't sell my shares. I buy and hold forever.

What if the ETF drops more than the premium that you have collected from the short call? Yes the market will eventually go up but the question is when. Think of this scenario a bit before you trade covered calls.

 

[danielc1]

OP is right in his thinking. If you write off your investment in the stock SPY, and just focus on getting premiums that have a time decay, it is a matter of time before you get ahead. Your initial investment of getting the 100 shares and your ability to write 1 call, will not change if price fluctuate of the underlying. You invest to get the cashflow and you can sit out the up and downs of the underlying. It is just another way of thinking that you need to understand. The time decay premiums are always the profit, even when your stock could be called away. The only thing that will be hard is to have a 1 tot 1 ratio of profit if your stock goes up. But who cares? The premiums are easy more then 10% profit on a year basis...

 

[Buy1Sell2]

Hi everyone, I've been exploring selling covered calls on the SPY for income. I've recently discovered how powerful selling covered calls or writing CSPs are for generating income.

This strategy is appealing because I can make income in both bull markets and bear markets.

If the ETF goes up, I make money via market action as well as collecting premium. We recently got a Golden Cross (50sma crossed 200sma). This signifies typically the beginning a bull market.

If the ETF goes down, I still collect premium even though I have an unrealized loss. The market will go up eventually. I won't sell my shares. I buy and hold forever.

What do you guys think of covered call writing? Is it a great way to make passive income?

Thanks

P.S. Can someone please tell me how the IRS treats income received from covered call premium? Is it taxed as a capital gain? Regular income?

Oh---that's a new strategy I hadn't heard of before----Thanks!!

 

[hilmy83]

Hi everyone, I've been exploring selling covered calls on the SPY for income. I've recently discovered how powerful selling covered calls or writing CSPs are for generating income.

This strategy is appealing because I can make income in both bull markets and bear markets.

If the ETF goes up, I make money via market action as well as collecting premium. We recently got a Golden Cross (50sma crossed 200sma). This signifies typically the beginning a bull market.

If the ETF goes down, I still collect premium even though I have an unrealized loss. The market will go up eventually. I won't sell my shares. I buy and hold forever.

What do you guys think of covered call writing? Is it a great way to make passive income?

Thanks

P.S. Can someone please tell me how the IRS treats income received from covered call premium? Is it taxed as a capital gain? Regular income?

I recently found out that if you buy low and sell high, you can make a profit. It's pretty crazy.

 

[Drawdown Addict]

Plenty covered call ETFs available. Expense ratios are pretty low for most so easier to just buy the ETFs rather than doing it yourself IMO.
XYLD, QYLD, DIVO, JEPI, JEPQ, SPYI, etc...
https://money.usnews.com/investing/...-covered-call-etfs-income-investors-will-love
This article talks about tax implications.
https://www.simplysafedividends.com...ts/5625-covered-call-etfs-too-good-to-be-true

I wonder if one could use these ETFS as indicators, if their model works it should be more expensive to buy the ETF when a period of high volatility is expected. I might look into it

 

[deaddog]

Hi everyone, I've been exploring selling covered calls on the SPY for income. I've recently discovered how powerful selling covered calls or writing CSPs are for generating income.

This strategy is appealing because I can make income in both bull markets and bear markets.

If the ETF goes up, I make money via market action as well as collecting premium. We recently got a Golden Cross (50sma crossed 200sma). This signifies typically the beginning a bull market.

If the ETF goes down, I still collect premium even though I have an unrealized loss. The market will go up eventually. I won't sell my shares. I buy and hold forever.

Not sure how far out you are writing these options for.

Here is the problem that I see. You write an option and the price drops.
You collect the premium.
Now if you write an option for the same strike price the premium will be a lot less. If you write an option for a lesser strike price than you paid for the stock you might get called away and you have a loss. If the price keeps dropping your chance of a loss increases.