Weird can anybody explain?

Quote from Free Thinker:

actually selling covered calls is a poor strategy in an "up"market.
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It depends what you mean by "up market" as well as "poor strategy".

Coming from a high volatility, with a non-drastic up move, you would make money in your stock position and your short OTM call.

Conversely, if you are expecting a downmove, especially when vol is low, buying am OTM call and selling the underlying delta neutral is a very profitable strategy.
 
Quote from Jerkstore:



Conversely, if you are expecting a downmove, especially when vol is low, buying am OTM call and selling the underlying delta neutral is a very profitable strategy.
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This is one of the riskiest strategies. If the underlying moves slowly up
(low vol) you'd lose money on both, spot and option.

Masteratwork
 
Quote from dmo:

Free Thinker is right in saying vol crush, and a week of time erosion didn't help you any either.

Of course it's the IV of the option itself that counts. The VIX probably correlates to some extent with IV on your option, but it's not directly relevant.
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theta is an evil bitch.
 
Quote from MasterAtWork:

This is one of the riskiest strategies. If the underlying moves slowly up
(low vol) you'd lose money on both, spot and option.

Masteratwork
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If vol is high you are correct.

You must choose the strategy to match the situation, rather than look to use one (or two or three) pre-defined strategies in any market environment.

If vol is low, and an uptrend is established, I love buying 15 to 20 delta calls, and hedging them delta neutral. Typically if the uptrend continues long enough the vol will pop. Also, if the market turns around the vol will pop. It is about the best risk/reward bet I have found using options, if you know what you are looking for. The setup doesn't happen very often, but it works extremely well when the opportunity is available.
 
Let's go back to your original post.

Equity XYZ gapped down, and you expect that it will go up. So you bought a call and thought that as it goes up, the call premium would go up. Let me guess, you bought an out of the money call because it was so cheap, right?

Anyway, this is how you should structure the trade, by creating a synthetic covered call.

You buy a long term call deep in the money, with a delta of 80. You then sell a call in the current month near the price that you think the market is going, or slightly below. You purchase several of these option pairs, and it shows that the delta of your position is 110, and you have a nice theta of $2.50. And the total cost is less than a real covered call, using stocks.

What is going on here? As the market moves up, you benefit from the positive move, for every dollar move your position gains $1.10. If the market stays where it is at, you make $2.50 per day. And volatility effect (vega) is negligible, since you are both short and long options.

Here is an example from DHR (Danaher):

Market is now 77.78 after a major move down. You expect it to go back up to 80 in the near future, so you can structure the trade like this:

2xB Sep 65 call
2xS Jun 80 call @ 13.10
delta is about 100 (similar to straight stock position), theta is 8.50 (you make this if the position sits still), and vega is a reasonable 8.7.

The total cost is $2620, compared to 100 shares at $7778, the only major disadvantage being that you do not participate in dividends.
 
i like it. what about down side concerns? i can see you have a several month out window if you need it, to adjust or maybe continue trade.

Quote from cdowis:

Let's go back to your original post.

Equity XYZ gapped down, and you expect that it will go up. So you bought a call and thought that as it goes up, the call premium would go up. Let me guess, you bought an out of the money call because it was so cheap, right?

Anyway, this is how you should structure the trade, by creating a synthetic covered call.

You buy a long term call deep in the money, with a delta of 80. You then sell a call in the current month near the price that you think the market is going, or slightly below. You purchase several of these option pairs, and it shows that the delta of your position is 110, and you have a nice theta of $2.50. And the total cost is less than a real covered call, using stocks.

What is going on here? As the market moves up, you benefit from the positive move, for every dollar move your position gains $1.10. If the market stays where it is at, you make $2.50 per day. And volatility effect (vega) is negligible, since you are both short and long options.

Here is an example from DHR (Danaher):

Market is now 77.78 after a major move down. You expect it to go back up to 80 in the near future, so you can structure the trade like this:

2xB Sep 65 call
2xS Jun 80 call @ 13.10
delta is about 100 (similar to straight stock position), theta is 8.50 (you make this if the position sits still), and vega is a reasonable 8.7.

The total cost is $2620, compared to 100 shares at $7778, the only major disadvantage being that you do not participate in dividends.
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failed_trdr3

Currently you're on track to bust your account. I think stepping back and doing some studying is in order. Your lack of basic options knowledge, including your broker's fee schedule, is a recipe for disaster. Let me suggest a simple course of action:

Call up IB and close your account. When you get your check take it over to your local homeless shelter, soup kitchen, free clinic or orphanage and sign that check over to them. Go to the library and read as many options books as you can find.

This strategy accomplishes two major things. First, since you were going to lose it all anyway, it puts your money to good use for people who truly need it, (and keeps it out of the hands of vultures like us waiting to slowly pick your bones clean), not to mention giving you a nice tax deduction. Second, the education you'll pick up will at least give you a slightly better chance of success when you come back.
 
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