Elite Trader forum is rife with cocky members like this gentleman.
Why covered call?
- Thread starter adamchubb
- Start date
Elite Trader forum is rife with cocky members like this gentleman.
One thing that people are missing here is that BXM writes an almost ATM call. If you write a cal
One thing that most people are missing here is that BXM writes an ATM (or slightly OTM) call which expires in one month. So if the market goes up (which happens quite a bit), that CALL goes ITM very soon and you end up leaving a lot of upside potential on the table when that CALL option is exercised.
Covered Call strategy is used to supplant buy and hold strategy, not for exiting and re-entering a position around the 3rd weekend of every month (something that BXM does). So your focus should be to write calls that are most likely to expire worthless so that its pre
If you write calls with 85% or more OTM probability, you can reduce number of assignments and still enjoy the benefits of buy and hold strategy including dividends.
Another way to boost your returns is reentering the position by selling PUTs instead.
There's another factor involved - the option premium. Some stocks have expensive options (e.g. TSLA), some stocks have cheaper options (e.g. MSFT). I evaluate it by calculating the ratio of ATM CALL/PUT to the current price of the stock. The width of the strike and expiration should be consistent across the stocks to make a fare comparison. This normalizes how expensive the option contract is. So if you want to sell premiums by writing covered calls, why not use it for a stock whose options are expensive.
One thing that most people are missing here is that BXM writes an ATM (or slightly OTM) call which expires in one month. So if the market goes up (which happens quite a bit), that CALL goes ITM very soon and you end up leaving a lot of upside potential on the table when that CALL option is exercised.
Covered Call strategy is used to supplant buy and hold strategy, not for exiting and re-entering a position around the 3rd weekend of every month (something that BXM does). So your focus should be to write calls that are most likely to expire worthless so that its pre
If you write calls with 85% or more OTM probability, you can reduce number of assignments and still enjoy the benefits of buy and hold strategy including dividends.
Another way to boost your returns is reentering the position by selling PUTs instead.
There's another factor involved - the option premium. Some stocks have expensive options (e.g. TSLA), some stocks have cheaper options (e.g. MSFT). I evaluate it by calculating the ratio of ATM CALL/PUT to the current price of the stock. The width of the strike and expiration should be consistent across the stocks to make a fare comparison. This normalizes how expensive the option contract is. So if you want to sell premiums by writing covered calls, why not use it for a stock whose options are expensive.
Options are more "expensive" when their underlying has more volatility. So TSLA calls are more "expensive" because they will go a lot further ITM ($ wise) on a 1SD up-move vs. something like KO. Higher ratio of atm option price : underlying shares doesn't denote a higher expectancy trade.
Selling a "cheap" option that has an overstated IV to what it ends up realizing is going to outperform blindly selling high premium options.
Selling a "cheap" option that has an overstated IV to what it ends up realizing is going to outperform blindly selling high premium options.
Without having hard numbers, I wouldn't say one approach is better than another.
Different strategies have pros and cons that can be understood and evaluated for compatibility with a trader's individual personality. Valid claims about better/worse are, I think, much more difficult to come by.
You may find some of my ideas are fun- I trade the FTSE in the UK http://optionsinvesting.co.uk/trade130-week-ending-03may/
You should ask @rabbitsfoot for hard proofs on his baseless claims.
I hinted at that.
Are you kidding? The price of the underlying overruns the premium frequently enough that returns on just the underlying are superior to the CC returns. IE, collect premium of $1 while underlying goes up $2. You only make a $1 while holders of instrument make $2.
You're a much better trader than me - isn't that obvious?
We're talking about "covered" calls. Whatever the underlying does, you also experience.... up to the strike price.
Are there instances, say, where your strike price is $50... the stock goes to $55 over the next 2 weeks, but you haven't yet been called to deliver @ $50?
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