Rolling covered call on long term portfolio

[john7722]

Hello, I would need on opinion on selling covered calls.

This strategy is regarding my long term stocks that I don't wanna sell for years to come.
I often sell CC on my long term portfolio. EXP from 7 -30days out. with a strike price about 25 % OTM.
Would it make sense to sell maybe 10% OTM and then just roll it if the price gets close to strike price?
Then If the price keeps going up keep rolling calls to a higher and higher price.

It looks like you should be getting more $ from new premium then what you would pay to buy back you older call.

But I am still pretty new to options so I might be mistaken,
Thank you for your help.

 

[BKR88]

Hello, I would need on opinion on selling covered calls.

This strategy is regarding my long term stocks that I don't wanna sell for years to come.
I often sell CC on my long term portfolio. EXP from 7 -30days out. with a strike price about 25 % OTM.
Would it make sense to sell maybe 10% OTM and then just roll it if the price gets close to strike price?
Then If the price keeps going up keep rolling calls to a higher and higher price.

It looks like you should be getting more $ from new premium then what you would pay to buy back you older call.

But I am still pretty new to options so I might be mistaken,
Thank you for your help.

I've rolled covered calls for more than a year after selling 1-3 month calls against. At some point the rise will stop and your option will expire worthless. Some traders don't like to sell covered calls as they feel they're capping the profits but no profit cap if you keep rolling.

Example: GM 48.95
If short the Feb18, 49C ... 1.22
Roll to Mar18, 52.50C ... 1.22
No change in the premium sold but it adds $350 of profit potential by extending 1 month.

 

[john7722]

So , this sounds like you should always sell calls on your long term holdings. Doesn't it?
It almost sounds too good to be true.
Is there a situation when this strategy of indefinite rolling stops working and you end up losing money on your calls?

 

[taowave]

Forget about damage repair.Each and every trade should stand on its own..

What you are really asking is if the diaganols are cheap or expensive

Hello, I would need on opinion on selling covered calls.

This strategy is regarding my long term stocks that I don't wanna sell for years to come.
I often sell CC on my long term portfolio. EXP from 7 -30days out. with a strike price about 25 % OTM.
Would it make sense to sell maybe 10% OTM and then just roll it if the price gets close to strike price?
Then If the price keeps going up keep rolling calls to a higher and higher price.

It looks like you should be getting more $ from new premium then what you would pay to buy back you older call.

But I am still pretty new to options so I might be mistaken,
Thank you for your help.

 

[BKR88]

So , this sounds like you should always sell calls on your long term holdings. Doesn't it?
It almost sounds too good to be true.
Is there a situation when this strategy of indefinite rolling stops working and you end up losing money on your calls?

You can continue to roll as long as you want but if the stock moves too strong and you don't roll soon enough, you slowly roll closer to the current stock price. That's not a problem as you're continually increasing profit potential every time you roll.

Back to the GM Example: 48.95
Let's say GM moved fast and you're short the Feb18, 47C ... 2.48.
Now you might want to move to Apr15, 50C ... 3.00.
Collect an additional .50 and move slightly OTM with 2 months added.
That's just 1 OTM with the stock near 49 but to collect a similar premium, you need to farther out in time to get OTM again if you don't want to be called away.
You don't "lose money" on your calls but at some point if the stock continues to move strongly you might have to let your position get called away or buy back the call at a loss but that means your position is doing quite well & you're willing to take the loss to hold.

***The Feb18, 47C is 2 ITM with just a week to go but won't be called away yet as there's still .53 extrinsic value in the option. That will decay quickly though as it approaches expiration friday.

 

[jys78]

Hello, I would need on opinion on selling covered calls.

This strategy is regarding my long term stocks that I don't wanna sell for years to come.
I often sell CC on my long term portfolio. EXP from 7 -30days out. with a strike price about 25 % OTM.
Would it make sense to sell maybe 10% OTM and then just roll it if the price gets close to strike price?
Then If the price keeps going up keep rolling calls to a higher and higher price.

It looks like you should be getting more $ from new premium then what you would pay to buy back you older call.

But I am still pretty new to options so I might be mistaken,
Thank you for your help.

1) You will most likely underperform whatever you're selling against over time.
2) If you're set on this strategy, just sell puts. It's the same position with less commission and hassle.

 

[john7722]

1) You will most likely underperform whatever you're selling against over time.
2) If you're set on this strategy, just sell puts. It's the same position with less commission and hassle.

How is it possible to underperform if you are getting premium from calls? I don't get it.

 

[taowave]

You are looking at this trade as if it were "free lunch"...

For the relatively small downside protection/you are giving up a shitload of upside...

Rolling up and out doesnt change that.. You will most likely underperform the underlying

You do realise you are a put seller...

How is it possible to underperform if you are getting premium from calls? I don't get it.

 

[jys78]

How is it possible to underperform if you are getting premium from calls? I don't get it.

All I can say is, if you are genuinely asking this question, you are definitely not in a position to be using this strategy. Start back at options basics.

 

[The_Krakenite]

But I am still pretty new to options so I might be mistaken,

That is a little obvious, because you are making the same misconceptions as every other newbie makes who comes here after reading some magical & simple formula in some intro-to-options 101 book.

Alright, let's make something clear right off the bat, that even Sosnoff likes to drill into newbies.

When you sell a call, and your stock is called alway, stop panicking. YOU'VE WON!

YOU'VE WON.

Move on...

It seems, you are stuck in some mind of some LONG investor here. You are complicating things much more than needs to be by some added rules where you feel you have to adjust and do anything in your power to make sure you don't lose the stock.

What you are NOT doing is a covered-call. You are effectively trying to use a naked-call strategy while handicaping yourself by applying it into a covered-call strategy. Do you see the problem here?

Why?

Hell, why use up so much capital buying stock in the first place. You could just make a synthetic long-stock position and use only 20% of the capital if you wanted. Then go to town with it.