A deep ITM covered call on an index can be a good strategy. If you go to eg delta 80 delta and 365 DTE you can make 5% a year with 20% downside protection. You will not be called away because the call will have enough theta to prevent this happening. And if it does you write a new one
selling in the money calls
- Thread starter aplino
- Start date
*facepalm*
CC's are NOT short calls.
Learn about this very important distinction, please, please, before you start trading them.
Buy 100 SPY @ 440.50
Sell 1 17 Mar 23 360 Call at 97
Investment 34.350
If SPY stays above 360 your profit will be 1650 dollar. Thats 4.8%. Also you will receive 1,5% dividend. Total 6.3%. You will have 18.3% downside protection
Sell 1 17 Mar 23 360 Call at 97
Investment 34.350
If SPY stays above 360 your profit will be 1650 dollar. Thats 4.8%. Also you will receive 1,5% dividend. Total 6.3%. You will have 18.3% downside protection
Put it on on dips? When volatility is higher and market could bounce back.
A short put with the opposite delta in the same tenor will give you the same return/protection without tying up nearly that amount of capital, with the dividends already baked in.
Thats true, but you have to reserve the money in case you have to deliver. And a deep ITM call can be called away earlier so your return can be larger (reopen new). But indeed if you invest the not needed money in a government bond your total return will be higher..
I will pretty much do an "at the money" covered call. Example I could buy Intel (INTC) at say $44.70. on Friday. I would buy it (100 shares) and then do a covered call for Jan 23 $45. I would get about $5.60 ($560.) for the option. The dividend is currently 3.25% (which they should hold). I am willing to hold for the 11 months. If Intel is at $40 next January, I will write another covered call for Jan 24. If it gets called away, I have locked in an OK profit on a quality stock. I have a lot of cash laying around...Not knowing where to put it. I'm 66 1/2 and don't deal in options (except covered calls)...Just me.
So no, I do not think you are crazy. I still don't know how the IRS will treat the "loss" of the stock, if and when it got called away below the purchase price??
So no, I do not think you are crazy. I still don't know how the IRS will treat the "loss" of the stock, if and when it got called away below the purchase price??
You can also exit a short put position early for a profit (in fact, that's part of my normal process - time in trade vs. return percentage), or close it for a loss to avoid exercise. No matter how hard you stare at it, there really isn't any huge, glaring difference between CCs and short puts. There are a few subtleties - e.g., premiums are larger on the put side so you have a bit more room when price goes against you, and having cash to operate with (vs. the CC, where it's all tied up in the stock) is quite useful - but overall, the P&L/the risk graph is the same.
Selling Jan 45 naked put you get around $630 is identical trade, not sure why people assume that covered calls /wheels provide safety, and when naked puts are mentioned they freak out. You are betting on this small range and a large move down will bring huge losses. if the stock goes up to 60 you are limiting your upside because your short 45 call loses money all the way up. (If INTC is at 60 you need to buy back short call for $1500).
So, in exchange for this premium, you have no downside protection and you are limiting your upside potential in case INTC moves up big.
If you are going to bet on a range why not increase this profit range by selling 45 straddle and buy some wings 10 points wide for protection.
For example
sell jan 45 put and 45 call today going for 11.25 credit
buy 55 call 45 put for 4.25 debit
you collect around $700 and your max loss is $300
If you want to be more aggressive you could buy wings 15 apart to collect more premium. You now have downside protection, and sleep better at night.
I've shared this before...Won't go into great detail. I'm 66 1/2...My wife really doesn't want to trade. If we can't trade (death, stroke, rest home), a bank's trust department will handle all our finances. DO YOU TRUST A BANK'S TRUST DEPARTMENT TO UNWIND ALL TRADES?? Are you sure? Method to my madness...