Selling naked calls OTM & covering them just before ITM?

[anon9812]

As the title says, I’d like to sell naked calls far OTM and cover them by buying the underlying if the price approaches the strike price so that they’re covered when ITM.

Why this strategy? If I have to buy the underlying I want it to be in an uptrend.

I don’t mind having it recalled if the calls are ITM, I’m here to only collect the premium. And if they actually become ITM and I bought the underlying a bit below there’ll be a little bit of profit there too.

If the price doesn’t hit the strike price and I’ll be left holding the underlying after the original calls expire, due to the uptrend it’s likely the current price won’t be far from the entry price, so either I can sell it for a profit or take a small loss or write covered calls near the entry price to get out of the position quickly and without a loss.

The risk obviously here is that if the price moves abruptly ITM I won’t be able to cover the naked calls with an entry price below the strike price.

Another risk would be that if the price of the underlying just collapses after I bought it I won’t be able to write those covered calls near the entry price.

Any feedback on this idea?

 

[cesfx]

I don't like the strategy exposure to naked risk.
You are naked (for a tiny credit, otm) at inception, naked on the downside once you cover, this if your long spot gets filled and not skipped by a gap or past your short call strike, which by then could be X10 or more in premium.

Too many headaches for a tiny profit.

 

[earth_imperator]

Did you say naked? Too risky, man, IMO.

 

[qlai]

The problem with selling OTM options, imho, is that you paid so little. In your example, you are willing to take ownership of the stock and you will see it run up to your strike, your mind goes- damn, I would have made X but only made X/100 and now may have to buy the top. I just don’t think it is a realistic way to make money.

 

[anon9812]

I don’t see which short options strategy is a realistic way to generate a stable income. They either carry a significant downside risk, whether covered or not, or in case of spreads the premium is greatly diminished by the hedge, while often not completely eliminating risk, like in case of calendar spreads.

One needs to be able to predict the underlying to really eliminate risk, but then where wouldn’t be a point in selling options when much greater profits could be achieved by buying them instead.

 

[qlai]

I don’t see which short options strategy is a realistic way to generate a stable income.

No such thing in trading, with few exceptions but most likely not attainable at our level.

 

[destriero]

As the title says, I’d like to sell naked calls far OTM and cover them by buying the underlying if the price approaches the strike price so that they’re covered when ITM.

Why this strategy? If I have to buy the underlying I want it to be in an uptrend.

I don’t mind having it recalled if the calls are ITM, I’m here to only collect the premium. And if they actually become ITM and I bought the underlying a bit below there’ll be a little bit of profit there too.

If the price doesn’t hit the strike price and I’ll be left holding the underlying after the original calls expire, due to the uptrend it’s likely the current price won’t be far from the entry price, so either I can sell it for a profit or take a small loss or write covered calls near the entry price to get out of the position quickly and without a loss.

The risk obviously here is that if the price moves abruptly ITM I won’t be able to cover the naked calls with an entry price below the strike price.

Another risk would be that if the price of the underlying just collapses after I bought it I won’t be able to write those covered calls near the entry price.

Any feedback on this idea?

Not enough info.

Are you buying enough shares to replicate a CC? IOW are you 1 to 1?

Are you get neutral (delta) on a touch of the strike (long 100 spot/short 2 calls)? If you, you're now short the straddle. No matter what you're absolutely screwed.

Yeah, the risks are whipsaws as you're probably down 3-4X your initial prem. Straddle it off and you have the benefit of being neutral.

 

[spy]

This is a great idea. Just make sure all the underlying stonks are small biotech companies that are on the verge of curing cancer.

 

[anon9812]

Where does the steamroller come in exactly?

 

[destriero]

Where does the steamroller come in exactly?

lol if you shorted the SPX May5 20D (4230) call at $11 today and we trade to 4230 on Monday your call will be worth $48.

This is including decay but excluding skew (call skew gains with moneyness; loses to volcorr). IOW, you're down 3x the prem.