Writing Covered Calls Again

Arnie Guitar

Arnie Guitar

Hello everyone, I am new here, but not new to options.
I have written naked calls and puts, but mostly have done covered call writing.
It has been awhile since I've been active. but have gotten the bug again. My life has gotten more free time, and I can watch things more closely.

Now that I am back researching, it seems to me that option premiums are not what they used to be, say, 3 to 4+ years ago.

Anyways, I am writing ITM (in the money) calls.
I look for stocks that are paying a dividend, and are a large company.
I have a list of twelve right now that I track. Anymore seems unmanageable.

I'll list one of my positions so you may comment, I own MO, and have written the Dec 70 calls. The stock goes ex-div during that time, so I've got the time premium, and the dividend.

Anyways, watching for stocks that go ex-div while you have them covered with ITM options sounds intriguing to me, and relatively safe.

Comments?

Thank you,

Arnie
 
IMHO Cov Calls use too much capital and can expose you to too much risk.

They have their place but not as a "starting strategy", but one you may end up legged into. For example, I write calls on stocks only when I want to sell the stocks after I have a profit on the stock move.

But then, I don't hold stocks for a long time. I tend to hold LEAPS on stocks and maybe spread them with calls, but that's about it.

The similar strategy (and of course exact same risk graph) of writing a FEW naked puts, but being careful not to over-lever, has a better return % possiblity, considering the lower margin. I like NPs, but you must be selective, of course. It's all about the UNDERLYING and always has been!

This is just IMHO. If what you are doing works and you are comfortable, then go for it.

Good trading to all.

C
 
Hi Arnie

I assume you know that writing covered calls is identical to writing naked puts. Given that, can you explain why you prefer the covered calls strategy? Not saying that there isn't a good reason, just looking to learn about the difference between these two plays.
 
It helps if you think of your strategy as short puts rather than long underlying and short the call.

Then its easy to notice two key elements for success in such a situation:

1] High volatility to get fat premiums
2] A bull market

Or ideally both. The question is this, are we in a situation as defined by those two factors? will we be soon? That's pretty much all you need to know.

If its not obvious, my own thinking is that this is not the time for such a strategy. You can implement it successfully but you need to be very selective and very careful. There are easier ways of making a buck right now.
 
Quote from traderNik:

Hi Arnie

I assume you know that writing covered calls is identical to writing naked puts. Given that, can you explain why you prefer the covered calls strategy? Not saying that there isn't a good reason, just looking to learn about the difference between these two plays.
More...

In a retirement account you can't write naked puts so you're left with the covered calls.
 
Well, thank all of you for your replies!
I am so glad I joined, I don't have any people to talk to about this subject.

I like the idea of selling out of the money options.
Puts seem less dangerous than calls.

I guess I can't really defend why I took the position I did,
as opposed to selling a naked put.
I mean, what am I really saying by buying the stock and selling an ITM call?
It says I am happy with the time premium and I don't think the stock is going much higher than it is, and doubt it is going below the strike price of the call.
I guess I would be saying the same thing but selling an out of the money put.
If I did, I would be tieing up less capital, and earning a higher return.
Maybe I felt safer doing it the covered call way.
I can't explain why, familiarity, I guess.

This is why I am here, to get different perspectives on these things.

Thank you again for responding to my post.
 
Quote from Arnie Guitar:


Maybe I felt safer doing it the covered call way.
I can't explain why, familiarity, I guess.
More...

Well, you seem open minded, at least.

I would strongly suggest you do a search on CC writing and seek out the opinions of some of the options pros here, because the one thing we all need to do is to define our risk clearly before entering any trade, and I am not sure that CC writing is any safer than writing naked puts. Let me know if I'm way off base on this.

If you find out that the two strategies are identical in terms of risk, you can adjust your approach accordingly.

Good luck in your trading, whatever you decide to do.
 
Just for discussion, these are the numbers......

buy MO @ 73.38
sell MOKN@ - 5.50
dividend - .80
-------
total 67.08

if called, 70.00
-67.08
--------
profit $2.92

return for 9 week time period, 4.3%
annualized, 25.1%

Am I figuring this right?
 
Quote from uninvited_guest:

In a retirement account you can't write naked puts so you're left with the covered calls.
More...

This is not entirely correct. At IB one can write cash-secured puts in an IRA. I do it often.
 
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