Selling covered call on ETFs

osho67 · Jul 19, 2009

I had about ten covered calls on various ETFs - like DIA, SPY. QQQQ, and IWM.

This month was the best month either for covered calls or short puts as has been pointed out. All my stocks have been called away and I have earned good premium.

But of course I have missed on the upside. The gains could have been 3-4 times bigger.

If the market had gone down I would now be holding lots of stock.

Do you think vertical spreads or iron condors or any other strategy would be better in the long run. Now markets have gone up so much I am afraid to execute more covered calls or short puts for August expiry.

Plese give your comments. What would you do now?

Thanks,much appreciated.

spindr0 · Jul 19, 2009

Quote from osho67:

Plese give your comments. What would you do now?

Buy sheep
Sell deer

dagnyt · Jul 19, 2009

Quote from osho67:

Plese give your comments. What would you do now?

1) You just had a fantastic month. Does that feel like the time to change methods?

2) If you are bearish - then it is definitely the time to avoid covered calls.

3) Here's the bottom line on covered calls.

They make your ride smoother. Smaller gains and reduced losses.

Over time they perform better than buy and hold. Not a lot better, but better. For evidence compare the BXM (buy-write index) with SPTR (S&P 500 total return index). Data available at CBOE.

If you are willing to earn less, but have much greater protection against disasters (in other words, purchase cheap insurance), take a look at this blog post:

http://tinyurl.com/m5d4a3

Mark

TraderSU · Jul 19, 2009

Quote from dagnyt:

1) You just had a fantastic month. Does that feel like the time to change methods?

2) If you are bearish - then it is definitely the time to avoid covered calls.

3) Here's the bottom line on covered calls.

They make your ride smoother. Smaller gains and reduced losses.

Over time they perform better than buy and hold. Not a lot better, but better. For evidence compare the BXM (buy-write index) with SPTR (S&P 500 total return index). Data available at CBOE.

If you are willing to earn less, but have much greater protection against disasters (in other words, purchase cheap insurance), take a look at this blog post:

http://tinyurl.com/m5d4a3

Mark

At least this chart does not tell the same story, please click the link below and pick 5yrs.

S&P 500 Covered Call Fund Inc.

http://www.google.com/finance?q=BEP+.INX

May be this is company (IQ Investment Advisors LLC) is doing a lousy job of managing BXM strategy.

Is there any direct derivatives of BXM index that we can trade?

gkishot · Jul 19, 2009

Quote from TraderSU:

At least this chart does not tell the same story, please click the link below and pick 5yrs.

S&P 500 Covered Call Fund Inc.

http://www.google.com/finance?q=BEP+.INX

May be this is company (IQ Investment Advisors LLC) is doing a lousy job of managing BXM strategy.

Is there any direct derivatives of BXM index that we can trade?

The chart does not account for the BEP distributions.

dozu888 · Jul 19, 2009

Quote from osho67:

Yes I am not convinced. May be it is just in my mind. Covered call looks a bit more comfortable. I can always hope shares will go up. With a naked put once I am assigned my losses are crystalised.

it's guys like this who provide the never-ending entertainment on this site.

dagnyt · Jul 19, 2009

Quote from dozu888:

it's guys like this who provide the never-ending entertainment on this site.

I can understand when a beginner doesn't grasp the equivalency of CC and NP.

He'll get it eventually.

It just 'feels' different to own stock. Obviously upside is limited so that 'feeling' is imaginary.

Only when someone gets belligerent in defense of being wrong is it a problem (for me).

Good trading

Mark

spindr0 · Jul 19, 2009

Quote from dozu888:

it's guys like this who provide the never-ending entertainment on this site.

Entertainment? Seems a bit more like driving by the scene of a car wreck to me

TraderSU · Jul 19, 2009

Quote from osho67:

Yes I am not convinced. May be it is just in my mind. Covered call looks a bit more comfortable. I can always hope shares will go up. With a naked put once I am assigned my losses are crystalised.

Friend, check the risk reward graph for followings...

* Covered Call
* Naked Put

They are exactly same... And you pay lower broker commission for naked PUT.

Consider playing with this tool http://www.samoasky.com/ and please buy Mark's book "Options for Rookies". The examples given in that book are very helpful and easy to understand.

Hope this helps.

osho67 · Jul 20, 2009

Quote from dagnyt:

1) You just had a fantastic month. Does that feel like the time to change methods?

2) If you are bearish - then it is definitely the time to avoid covered calls.

3) Here's the bottom line on covered calls.

They make your ride smoother. Smaller gains and reduced losses.

Over time they perform better than buy and hold. Not a lot better, but better. For evidence compare the BXM (buy-write index) with SPTR (S&P 500 total return index). Data available at CBOE.

If you are willing to earn less, but have much greater protection against disasters (in other words, purchase cheap insurance), take a look at this blog post:

http://tinyurl.com/m5d4a3

Mark

Thanks Mark for your valuable post. Much appreciated. I will have to re-read to understand properly. I wish you can give a hypothetical example. But thanks anyway for your insight.