Selling covered calls on GS, need some advice
- Thread starter Lalit11
- Start date
no you try to sell TV. Just stop talking.
oops. i misunderstood what he wrote. i read it as the stock being 184.47 right now.
If I was 30 points under, I'd be more concerned with breaking even rather than be OK with holding the stock and hoping for a big recovery and future profits.
With covered calls, I'd sell at least a strike lower. It would lock in a small loss but you'd have more premium coming in while holding for eternity
If GS wasn't so far underwater, I'd slightly overwrite a higher strike and possibly Apr instead of Jul. Let's leave this one alone because if you're 30 pts underwater, risk management isn't your forte
The next choice might be writing some bearish call spreads along with your CC's so that you can collect a bit more premium if GS goes nowhere. Perhaps sell 5 Jul 185 calls and buy 2 Jul 195 calls (or 6/3 etc.). If the stock actually makes the move and brings the short strike into play, you'll break even (make sure calculate the break even when figuring out how many spreads to sell).
And then there's the bullish breakeven covered call spread strategy. For every 100 shares owned, buy a lower strike call and sell 2 higher strike calls. With a Jul 160/170 CCS, you'd break even at 170.
What you do now depends on whether you want income now while waiting/hoping for breakeven (the CC or CC with add'l spreads) or you forego the premium for a breakeven at a lower price (the CCS).
With covered calls, I'd sell at least a strike lower. It would lock in a small loss but you'd have more premium coming in while holding for eternity
If GS wasn't so far underwater, I'd slightly overwrite a higher strike and possibly Apr instead of Jul. Let's leave this one alone because if you're 30 pts underwater, risk management isn't your forte
The next choice might be writing some bearish call spreads along with your CC's so that you can collect a bit more premium if GS goes nowhere. Perhaps sell 5 Jul 185 calls and buy 2 Jul 195 calls (or 6/3 etc.). If the stock actually makes the move and brings the short strike into play, you'll break even (make sure calculate the break even when figuring out how many spreads to sell).
And then there's the bullish breakeven covered call spread strategy. For every 100 shares owned, buy a lower strike call and sell 2 higher strike calls. With a Jul 160/170 CCS, you'd break even at 170.
What you do now depends on whether you want income now while waiting/hoping for breakeven (the CC or CC with add'l spreads) or you forego the premium for a breakeven at a lower price (the CCS).
Here's a concise explanation of the covered call spread:
http://www.m-x.ca/f_publications_en/options_strat14_en.pdf
Sorry to bother you again, by looking at the example that you provide how is there a net credit of .10, shouldn't it be $100.
His cost is $27,500 and from buying 10 ABC SEPT $22.50 calls for $2.50 he spends $2500, and selling 20 ABC SEPT 25 calls at $1.30 he receive $2600.
I am certain I am missing something basic. I am trying to work it out for the example that you provided earlier to lower my cost basis in GS to $170.
His cost is $27,500 and from buying 10 ABC SEPT $22.50 calls for $2.50 he spends $2500, and selling 20 ABC SEPT 25 calls at $1.30 he receive $2600.
I am certain I am missing something basic. I am trying to work it out for the example that you provided earlier to lower my cost basis in GS to $170.
He receives 10 cts per CCS. A standard option represents 100 shares so that's $10. Since he did 10 of them, that's $100 which is what you came up with by calcualting the components.
Post your premiums, strikes and calculations for GS and I (or someone else) will work it through with you.