Why will this not work?

C

clell888

A kind of covered call, but have a buy stop order on the stock in below the strike price of the call option that you sell.

Example: TSLA

sell Mar 3 840 call for $4195 break even stock price is $881

have share stop purchase good till completed at something below 840 that is a safe buffer. buys the stock at market price once price hits stop price. (what would be safe stop buy price? 830?)

if stock goes down you make $4880 with no down side of owning stock that is dropping in price.

If the stock goes up you may buy stock at $830 (need $83000 dollars in account) in case you get assigned.

Or time decay will devalue the option and you can buy it for a profit.

One problem is if stock gaps up and you buy it above $840.

Lets say you buy it at $900 you will lose $60 per share for a loss of $6000 - $4880 option income for a loss of $1120. (buy stock below $881 to break even)

Whats the chances of not being able to buy stock on the way up? With a stop purchase order already in place?

Thanks
 
clell888 said:
A kind of covered call, but have a buy stop order on the stock in below the strike price of the call option that you sell.

Example: TSLA

sell Mar 3 840 call for $4195 break even stock price is $881

have share stop purchase good till completed at something below 840 that is a safe buffer. buys the stock at market price once price hits stop price. (what would be safe stop buy price? 830?)
More...
buy stops are placed above current price
 
My main concern would be that gap up. Make sure you take a look at after-hours sessions during the last week, and when TSLA went parabolic a few weeks back, and see if there would have been enough AH liquidity for you to get a fill close to your buy-stop. If so, double- and triple-check that your buy order is set to execute after-hours.

There’s also potential loss in the underlying going up (past your buy stop) and then dropping significantly. Your premium would get eaten up quickly in that kind of scenario).
 
You will get much better responses if you re-post your question without $figuures -- just strikes, mkt, premium(s). Your mixing of market and account numbers clouds your question.
 
Gap up is your risk. One I would not like to take on a stock such as TSLA.
Once price has triggered where you buy the underlying, you have to manage your position careful in case it drops again.

You can apply this strategy with weekly futures (ES/NQ). Write option Sunday evening after they open and be out before the weekend.
 
The way I figure it, TSLA covered calls are bulletproof right now.
$750.09.
3/13 100 call bid $650.30.
TSLA could fall to $100 and there would be $20 profit.
 
Hivey said:
Gap up is your risk. One I would not like to take on a stock such as TSLA.
More...

The UK CFD/Spreadbet brokers offer GUARANTEED stops on most major indices and FX pairs to protect against gap risk ... minimal cost / only charged if stop triggered.

They used to allow traders to simultaneously take both a Long and a Short position in the same underlying ... with guaranteed stops on both trades at no charge ... a sort of synthetic long straddle / strangle for zero premium

Worked a treat during the volatile markets back in the DotCom Boom ... until the brokers wised up ... and no longer allow you to have separate Long / Short trades in the same account ... but doesn't stop you having 2 separate brokers for the different legs
 
I rarely reccomend excessive leverage,but if you can still collect 14 for 840 calls that expired yesterday,than go for it:)
 
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