I've cracked the code...

[taowave]

The time decay premiums are always the profit even when called away?????

Really???

Buy writing the Spy has not beaten the market ,and by your assumptions,dollar cost averaging is likely a better trade..

I would need specifics from the OP to backtest

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...

 

[MarkBrown]

5 sigma event headed your way

 

[danielc1]

The time decay premiums are always the profit even when called away?????

Really???

Buy writing the Spy has not beaten the market ,and by your assumptions,dollar cost averaging is likely a better trade..

I would need specifics from the OP to backtest

I'm a very naive 30-year experienced options trader, so please take anything I write with a grain of salt here: If you write off your investment in the SPY, let's say at this moment 438 a share, X 100 = $43800. If you then write the call July 438 for a premium of 7.2 or $720. Your $720 dollar is your profit.
Now, what most people do, what I do not do, is this: Yeah, but if my underlying goes to 350 I have a loss of 88 dollars a share or $8800 total. What I say is: I do not care. I still be able to write another option, because I still own 100 shares. The only thing that is going to happen, is that in reality, I should write maybe ten cycles, before I recoup the loss, through every month again write an option out of the money. Then other traders will chime in and say: Ok, but when the price then fluctuates to the upside and your stock, gets called, then you have a loss. Nope. I have collected the time premium, and if it is clear that the call is heavy in the money, the time decay is my profit, because the underlying goes also up. Maybe not as much, as my original investment, but that is ok. I can either let the stock be called away, or I invest a little more and go further out in a call-writing session at a higher price. In the long term, I get enough premiums to cover my investment. Sometimes it is as fast as 24 months, sometimes it takes 54 months. I do not care. S&P index buying outperforms the cover call? Sure, I do not care. My goal is monthly cash flow and not appreciation of the underlying or what worries most people the deprecation of the underlying.

 

[Trader0007]

Thanks for the reply.

One of the things that I've learned about writing covered calls/wheels flies in the face of what I've learned about dealing with realized losses and unrealized losses.

William O'neil, who was the founder of Investor's Business Daily, said that unrealized losses are no different than realized losses. They're both detrimental to one's portfolio. But he was talking about losses in the context of individual stocks. Not a diversified ETF like the SPY.

After studying how to write CCs on SPY, it's actually "ok" to have a unrealized loss when a bear market occurs because it's likely that the stock market will trend up again later. I don't have to worry about whether the SPY is another Enron or Worldcom and will go to $0. A bull market in the SPY is inevitable after a bear market. The loss is only temporary and I can make income from selling calls.

Look up the Nikkei index

 

[hilmy83]

I'm a very naive 30-year experienced options trader, so please take anything I write with a grain of salt here: If you write off your investment in the SPY, let's say at this moment 438 a share, X 100 = $43800. If you then write the call July 438 for a premium of 7.2 or $720. Your $720 dollar is your profit.
Now, what most people do, what I do not do, is this: Yeah, but if my underlying goes to 350 I have a loss of 88 dollars a share or $8800 total. What I say is: I do not care. I still be able to write another option, because I still own 100 shares. The only thing that is going to happen, is that in reality, I should write maybe ten cycles, before I recoup the loss, through every month again write an option out of the money. Then other traders will chime in and say: Ok, but when the price then fluctuates to the upside and your stock, gets called, then you have a loss. Nope. I have collected the time premium, and if it is clear that the call is heavy in the money, the time decay is my profit, because the underlying goes also up. Maybe not as much, as my original investment, but that is ok. I can either let the stock be called away, or I invest a little more and go further out in a call-writing session at a higher price. In the long term, I get enough premiums to cover my investment. Sometimes it is as fast as 24 months, sometimes it takes 54 months. I do not care. S&P index buying outperforms the cover call? Sure, I do not care. My goal is monthly cash flow and not appreciation of the underlying or what worries most people the deprecation of the underlying.

Just invest in JEPI and call it a day

 

[danielc1]

Just invest in JEPI and call it a day

Yep, you do that. I will keep on doing what I do.

 

[deaddog]

I do not care. I still be able to write another option, because I still own 100 shares. The only thing that is going to happen, is that in reality, I should write maybe ten cycles, before I recoup the loss, through every month again write an option out of the money. Then other traders will chime in and say: Ok, but when the price then fluctuates to the upside and your stock, gets called, then you have a loss. Nope.

Can you explain how you don't have a loss.
You have 43,800 invested and you received 720 in premium.
If the stock drops to 350 and you write another option(say 10 bucks OTM) and get another 720 in premium and get called at 360.
You now have 36,000 in cash plus the option premiun of 1440 for a total of 37,400
You started with 43800 and now have 37400. How can that not be considered a loss?

 

[danielc1]

Can you explain how you don't have a loss.
You have 43,800 invested and you received 720 in premium.
If the stock drops to 350 and you write another option(say 10 bucks OTM) and get another 720 in premium and get called at 360.
You now have 36,000 in cash plus the option premiun of 1440 for a total of 37,400
You started with 43800 and now have 37400. How can that not be considered a loss?

I´m going to try too explain my view:
1) if you are at the end of the option life, you have no more time decay. So, delta is almost 1 to 1 with the underlying. The only problem we have is that if we let our stock call away, we have a difference between what we have paid for it and what we get for it. But we can also just buy the close to expire option back and roll over to a higher out of the money option. That buying back, cost you money, because it is here where you pay the difference with your original stock price. But that is also going to be recouped, if we just keep writing for the time decay. It is a matter of time, before you will get all the investment in the stock back.
2) let's say you let your stock being called away. Turn around and write an out of the money put.

There is more to it, then this, but what I'm trying to say is, when you have something that doesn't goes to zero, in the longterm, the premiums of the options will cover your expenses of buying the stock and the differences in fluctuations.

 

[deaddog]

I´m going to try too explain my view:
1) if you are at the end of the option life, you have no more time decay. So, delta is almost 1 to 1 with the underlying. The only problem we have is that if we let our stock call away, we have a difference between what we have paid for it and what we get for it. But we can also just buy the close to expire option back and roll over to a higher out of the money option. That buying back, cost you money, because it is here where you pay the difference with your original stock price. But that is also going to be recouped, if we just keep writing for the time decay. It is a matter of time, before you will get all the investment in the stock back.
2) let's say you let your stock being called away. Turn around and write an out of the money put.

There is more to it, then this, but what I'm trying to say is, when you have something that doesn't goes to zero, in the longterm, the premiums of the options will cover your expenses of buying the stock and the differences in fluctuations.

want to give me an example with numbers?

 

[taowave]

I sort of see your reasoning,but lets start with the fact that a Covered call is a Short Put.If you look at it that way,if the market tanks and drops 150 SPY points,your balls out long,down 150 minus the premium taken in. Your next trade has no relevance.Its an entirely new position. The roll is meaningless.You should be asking what is the best trade available with the SPY down 150,not blindly/systematicaly rolling to make up losses.

Selling 50 delta puts has not outperformed the market the last 10 years. Not a terrible strategy,and obviously one you feel comfortable with,and thats an important factor.

I'm a very naive 30-year experienced options trader, so please take anything I write with a grain of salt here: If you write off your investment in the SPY, let's say at this moment 438 a share, X 100 = $43800. If you then write the call July 438 for a premium of 7.2 or $720. Your $720 dollar is your profit.
Now, what most people do, what I do not do, is this: Yeah, but if my underlying goes to 350 I have a loss of 88 dollars a share or $8800 total. What I say is: I do not care. I still be able to write another option, because I still own 100 shares. The only thing that is going to happen, is that in reality, I should write maybe ten cycles, before I recoup the loss, through every month again write an option out of the money. Then other traders will chime in and say: Ok, but when the price then fluctuates to the upside and your stock, gets called, then you have a loss. Nope. I have collected the time premium, and if it is clear that the call is heavy in the money, the time decay is my profit, because the underlying goes also up. Maybe not as much, as my original investment, but that is ok. I can either let the stock be called away, or I invest a little more and go further out in a call-writing session at a higher price. In the long term, I get enough premiums to cover my investment. Sometimes it is as fast as 24 months, sometimes it takes 54 months. I do not care. S&P index buying outperforms the cover call? Sure, I do not care. My goal is monthly cash flow and not appreciation of the underlying or what worries most people the deprecation of the underlying.