Simple Covered Call Strategy

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tacotacotacotaco
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Simple Covered Call Strategy

Post by tacotacotacotaco »

So, I've been an investor for a long time but I've only recently in the past year or so started learning about options.

One thing I've started to do is sell weekly covered calls on SPY, AAPL or TSLA. Basically every Friday afternoon or Monday morning, I sell covered calls that expire the following Friday. Tesla covered calls have been great. AAPL decent, SPY less so.

I just sold some TSLA calls at 475 for next Friday at just about $15.50 each. Tesla was around 447 at the time.

Anyway, my point is - each week I'm making 2-5% on TSLA just selling out of the money covered calls. Lately I look at TSLA and sell calls 5% above where it is to expire that week. So effectively if I get my shares called away, I made 7-10% that week. I would be happy with that, even if Tesla went up 20%. It is so volatile I am happy to lock in the weekly call profit even if I get called away. I recognize that TSLA could tank, but I figure even if it does by selling calls all along, I'm making money holding it.

I've only done it a few times but each time its been quite profitable and at least to my eyes pretty low risk. My goal is to sell options that don't get called. But if they do I just rebuy back Monday and sell another covered call for another 2-5%.

What am I missing here, because this seems like a pretty low risk way to make a decent return each week. I mean, with TSLA I could easily make a 100% annual return just selling weekly covered calls.
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Re: Simple Covered Call Strategy

Post by LadyGeek »

Welcome! This may not be the right forum to ask your question.

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Re: Simple Covered Call Strategy

Post by 123 »

tacotacotacotaco wrote: Fri Oct 16, 2020 3:36 pm ...What am I missing here, because this seems like a pretty low risk way to make a decent return each week. I mean, with TSLA I could easily make a 100% annual return just selling weekly covered calls.
There are some stocks that continue to go up regularly, until they don't, and often the market can turn on them very quickly leading to a substantial collapse in share price. Eventually there will be an absence of "bigger fools" at which time the share price will be "adjusted" by the market (to say it mildly). Historically there have been other stocks that "couldn't fail" that were held by true believers in the company, GE and Kodak come to mind. Those that are holding it at that time could reap some truely astounding tax loss harvesting opportunities. Perhaps you'll get to be one of those "lucky" ones. I'd rather never have situations where I can tax loss harvest.
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superbobbyg
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Re: Simple Covered Call Strategy

Post by superbobbyg »

I have also been "playing" covered calls and cash secured puts. I aim for at least 1% per week and stick to a 1-3 week duration. You are not missing anything ...until you lose. Blue Collar Investor- Alan Ellman has some excellent books and a website for education and his website (charges) makes recommendations.
I think the biggest risk is that of missing out on gains should the price take off above your strike.
Personally I think TSLA is a bit too risky for an options play since any time the bubble could burst.

I have been using more cash secured puts in this lofty market on stocks that have decent dividends and would be ok with owning if play goes against me. PRU, UNM, SAVE-no dividend but tremendous option returns, F calls, TECK calls to name a few of my recent gambles.

Good luck.
Bob
inbox788
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Re: Simple Covered Call Strategy

Post by inbox788 »

tacotacotacotaco wrote: Fri Oct 16, 2020 3:36 pmI just sold some TSLA calls at 475 for next Friday at just about $15.50 each. Tesla was around 447 at the time.
Let's say a few months ago, I sold some TSLA calls at 375 for at just about $15.50 each. Tesla was around 347 at the time. They got called away and I made 20%. What do I do now?
superbobbyg wrote: Fri Oct 16, 2020 3:59 pmI have been using more cash secured puts in this lofty market on stocks that have decent dividends and would be ok with owning if play goes against me. PRU, UNM, SAVE-no dividend but tremendous option returns, F calls, TECK calls to name a few of my recent gambles.
Comparing Covered Call Writing and Selling Cash-Secured Puts
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Valueinvestor2
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Re: Simple Covered Call Strategy

Post by Valueinvestor2 »

tacotacotacotaco wrote: Fri Oct 16, 2020 3:36 pm So, I've been an investor for a long time but I've only recently in the past year or so started learning about options.

One thing I've started to do is sell weekly covered calls on SPY, AAPL or TSLA. Basically every Friday afternoon or Monday morning, I sell covered calls that expire the following Friday. Tesla covered calls have been great. AAPL decent, SPY less so.

I just sold some TSLA calls at 475 for next Friday at just about $15.50 each. Tesla was around 447 at the time.

Anyway, my point is - each week I'm making 2-5% on TSLA just selling out of the money covered calls. Lately I look at TSLA and sell calls 5% above where it is to expire that week. So effectively if I get my shares called away, I made 7-10% that week. I would be happy with that, even if Tesla went up 20%. It is so volatile I am happy to lock in the weekly call profit even if I get called away. I recognize that TSLA could tank, but I figure even if it does by selling calls all along, I'm making money holding it.

I've only done it a few times but each time its been quite profitable and at least to my eyes pretty low risk. My goal is to sell options that don't get called. But if they do I just rebuy back Monday and sell another covered call for another 2-5%.

What am I missing here, because this seems like a pretty low risk way to make a decent return each week. I mean, with TSLA I could easily make a 100% annual return just selling weekly covered calls.
Selling covered calls far out of the money to make and additional 3-4% per year while buying and holding long term is a very effective strategy that will enhance “market returns”.

With that said owning Tesla is a sure way to lose money over the long haul. Sell that garbage.
bugleheadd
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Re: Simple Covered Call Strategy

Post by bugleheadd »

I sold a 10/23 460 call for around $13-$14 yesterday too.

Just be wary tsla could drop back down to $300 any day. And surely the juicy premiums can't last forever?

As long as you don't put all your money into it, should be ok. You might have to bag hold the shares for a few years for it to recover
DJZ
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Re: Simple Covered Call Strategy

Post by DJZ »

tacotacotacotaco wrote: Fri Oct 16, 2020 3:36 pm So, I've been an investor for a long time but I've only recently in the past year or so started learning about options.

One thing I've started to do is sell weekly covered calls on SPY, AAPL or TSLA. Basically every Friday afternoon or Monday morning, I sell covered calls that expire the following Friday. Tesla covered calls have been great. AAPL decent, SPY less so.

I just sold some TSLA calls at 475 for next Friday at just about $15.50 each. Tesla was around 447 at the time.

Anyway, my point is - each week I'm making 2-5% on TSLA just selling out of the money covered calls. Lately I look at TSLA and sell calls 5% above where it is to expire that week. So effectively if I get my shares called away, I made 7-10% that week. I would be happy with that, even if Tesla went up 20%. It is so volatile I am happy to lock in the weekly call profit even if I get called away. I recognize that TSLA could tank, but I figure even if it does by selling calls all along, I'm making money holding it.

I've only done it a few times but each time its been quite profitable and at least to my eyes pretty low risk. My goal is to sell options that don't get called. But if they do I just rebuy back Monday and sell another covered call for another 2-5%.

What am I missing here, because this seems like a pretty low risk way to make a decent return each week. I mean, with TSLA I could easily make a 100% annual return just selling weekly covered calls.
I have been selling so-called “way out of the money covered calls” for many years now. I have not done a formal analysis, but my impression is that this strategy *seems* like free money, but in fact is about neutral or perhaps a slight loser.

The problem is that they are properly priced, or slightly underpriced, by the market (presumably because so many people like to do it).

The losses occur in the rare instance when the underlying stock price increases well above the strike price, and you don’t want to sell, so you must buy the options back at many times what you sold them for.
Last edited by DJZ on Sat Oct 17, 2020 9:50 pm, edited 1 time in total.
inbox788
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Re: Simple Covered Call Strategy

Post by inbox788 »

DJZ wrote: Sat Oct 17, 2020 1:47 pm I have been selling so-called “way out of the money covered calls” for many years now. I have not done a formal analysis, but my impression is that this strategy *seems* like free money, but in fact is about neutral or perhaps a slight loser.

The problem is that they are properly priced, or slightly underpriced, by the market (presumably because so many people like to do it).

The losses occur in the rare instance when the underlying stock price increases well above the stock price, and you don’t want to sell, so you must buy the options back at many times what you sold them for.
The guaranteed loser used to be the trading commissions, spreads and fees. Per trade plus per contract? How much are you paying per trade these days? Which broker? The commissions are going to zero, but the costs are still going to be there and will be paid for one way or another.

Looks like most per trade fees are now zero, but there is still a per contract fee. Anyone charging zero for contracts or lowest per contract fee? Robinhood?
https://www.nerdwallet.com/best/investi ... ng-brokers
https://robinhood.com/us/en/support/art ... investing/

Zero sum game, less fees is negative expected return. Same as gambling casino.
invest2bfree
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Re: Simple Covered Call Strategy

Post by invest2bfree »

tacotacotacotaco wrote: Fri Oct 16, 2020 3:36 pm So, I've been an investor for a long time but I've only recently in the past year or so started learning about options.

One thing I've started to do is sell weekly covered calls on SPY, AAPL or TSLA. Basically every Friday afternoon or Monday morning, I sell covered calls that expire the following Friday. Tesla covered calls have been great. AAPL decent, SPY less so.

I just sold some TSLA calls at 475 for next Friday at just about $15.50 each. Tesla was around 447 at the time.

Anyway, my point is - each week I'm making 2-5% on TSLA just selling out of the money covered calls. Lately I look at TSLA and sell calls 5% above where it is to expire that week. So effectively if I get my shares called away, I made 7-10% that week. I would be happy with that, even if Tesla went up 20%. It is so volatile I am happy to lock in the weekly call profit even if I get called away. I recognize that TSLA could tank, but I figure even if it does by selling calls all along, I'm making money holding it.

I've only done it a few times but each time its been quite profitable and at least to my eyes pretty low risk. My goal is to sell options that don't get called. But if they do I just rebuy back Monday and sell another covered call for another 2-5%.

What am I missing here, because this seems like a pretty low risk way to make a decent return each week. I mean, with TSLA I could easily make a 100% annual return just selling weekly covered calls.
Covered call is a bad strategy to implement. It does not protect you from downside and basically caps your upside. In a volatile market you will whiplashed and could be stuck holding the bag.

In March you had 10% down days and when stocks started rallying you cannot participate if you keep doing it.
ivgrivchuck
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Re: Simple Covered Call Strategy

Post by ivgrivchuck »

tacotacotacotaco wrote: Fri Oct 16, 2020 3:36 pm
What am I missing here, because this seems like a pretty low risk way to make a decent return each week. I mean, with TSLA I could easily make a 100% annual return just selling weekly covered calls.
If you play a game where you put $100 in, and you have 99% chance of winning $1 each round, and 1% chance of losing it all. It may look and feel like a really good deal for a really long time. Until suddenly it doesn't.

Now, I admit that the game that you are playing doesn't exactly work like that, but the underlying mathematics is around the same. You are pocketing small profits consistently until you miss out a really big win, because you sold a covered call, and you are still subject to a full downside risk of that stock.

Buying and selling options is all about estimating and analyzing probability distributions. I seriously doubt that you can in the long term win that game against the top pros who have all the historical data, know-how and access to the latest algorithms.

Do whatever you want, but it's a very good time to leave the Casino when you have been lucky and beaten the odds by luck.
44% VTI | 36% VXUS | 10% I-bonds | 10% EE-bonds
BogleFan510
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Re: Simple Covered Call Strategy

Post by BogleFan510 »

removed by edit
Last edited by BogleFan510 on Mon Oct 19, 2020 12:59 pm, edited 1 time in total.
DJZ
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Re: Simple Covered Call Strategy

Post by DJZ »

inbox788 wrote: Sat Oct 17, 2020 1:59 pm
DJZ wrote: Sat Oct 17, 2020 1:47 pm I have been selling so-called “way out of the money covered calls” for many years now. I have not done a formal analysis, but my impression is that this strategy *seems* like free money, but in fact is about neutral or perhaps a slight loser.

The problem is that they are properly priced, or slightly underpriced, by the market (presumably because so many people like to do it).

The losses occur in the rare instance when the underlying stock price increases well above the stock price, and you don’t want to sell, so you must buy the options back at many times what you sold them for.
The guaranteed loser used to be the trading commissions, spreads and fees. Per trade plus per contract? How much are you paying per trade these days? Which broker? The commissions are going to zero, but the costs are still going to be there and will be paid for one way or another.

Looks like most per trade fees are now zero, but there is still a per contract fee. Anyone charging zero for contracts or lowest per contract fee? Robinhood?
https://www.nerdwallet.com/best/investi ... ng-brokers
https://robinhood.com/us/en/support/art ... investing/

Zero sum game, less fees is negative expected return. Same as gambling casino.
I get 100 free trades at Vanguard. Agreed, commissions would make these much worse.
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Re: Simple Covered Call Strategy

Post by CardinalRule »

inbox788 wrote: Sat Oct 17, 2020 1:59 pm
Looks like most per trade fees are now zero, but there is still a per contract fee. Anyone charging zero for contracts or lowest per contract fee? Robinhood?
https://www.nerdwallet.com/best/investi ... ng-brokers
https://robinhood.com/us/en/support/art ... investing/
I can tell you which is my worst online broker in this regard - Wells Fargo Advisors. Free online equity trades, but options cost $5.95 + $0.75 per contract. And you had better not have anything assigned, or you will be hit with the full "agent-assisted" equity-trade commission of $25.00. I found out the hard way about the $25.00 when I sold a covered call on 100 shares of DIA (SPDR Dow Jones Industrial Average ETF) earlier this year, and it was exercised.
Topic Author
tacotacotacotaco
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Re: Simple Covered Call Strategy

Post by tacotacotacotaco »

bugleheadd wrote: Sat Oct 17, 2020 12:58 pm I sold a 10/23 460 call for around $13-$14 yesterday too.

Just be wary tsla could drop back down to $300 any day. And surely the juicy premiums can't last forever?

As long as you don't put all your money into it, should be ok. You might have to bag hold the shares for a few years for it to recover
I'm not - most of our investments are in SPY and a few fixed income funds. The TSLA stock is less than 5% of our liquid investments. We have a 40+ year remaining lifespan so I'm fine waiting if things go south for a while.
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tacotacotacotaco
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Re: Simple Covered Call Strategy

Post by tacotacotacotaco »

DJZ wrote: Sat Oct 17, 2020 9:52 pm
inbox788 wrote: Sat Oct 17, 2020 1:59 pm
DJZ wrote: Sat Oct 17, 2020 1:47 pm I have been selling so-called “way out of the money covered calls” for many years now. I have not done a formal analysis, but my impression is that this strategy *seems* like free money, but in fact is about neutral or perhaps a slight loser.

The problem is that they are properly priced, or slightly underpriced, by the market (presumably because so many people like to do it).

The losses occur in the rare instance when the underlying stock price increases well above the stock price, and you don’t want to sell, so you must buy the options back at many times what you sold them for.
The guaranteed loser used to be the trading commissions, spreads and fees. Per trade plus per contract? How much are you paying per trade these days? Which broker? The commissions are going to zero, but the costs are still going to be there and will be paid for one way or another.

Looks like most per trade fees are now zero, but there is still a per contract fee. Anyone charging zero for contracts or lowest per contract fee? Robinhood?
https://www.nerdwallet.com/best/investi ... ng-brokers
https://robinhood.com/us/en/support/art ... investing/

Zero sum game, less fees is negative expected return. Same as gambling casino.
I get 100 free trades at Vanguard. Agreed, commissions would make these much worse.

I think I'm paying 50 cents a contract at eTrade. I'm trading 1-5 contracts here, this is not big $ investing and not a big % of our overall pot.
000
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Re: Simple Covered Call Strategy

Post by 000 »

Unless you're actually willing to sell permanently at the strike price, what do you plan to do if it keeps going up?
inbox788
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Re: Simple Covered Call Strategy

Post by inbox788 »

tacotacotacotaco wrote: Mon Oct 19, 2020 2:08 am
bugleheadd wrote: Sat Oct 17, 2020 12:58 pm I sold a 10/23 460 call for around $13-$14 yesterday too.

Just be wary tsla could drop back down to $300 any day. And surely the juicy premiums can't last forever?

As long as you don't put all your money into it, should be ok. You might have to bag hold the shares for a few years for it to recover
I'm not - most of our investments are in SPY and a few fixed income funds. The TSLA stock is less than 5% of our liquid investments. We have a 40+ year remaining lifespan so I'm fine waiting if things go south for a while.
In that cases, you should be selling cash covered puts.
bugleheadd
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Re: Simple Covered Call Strategy

Post by bugleheadd »

inbox788 wrote: Mon Oct 19, 2020 12:46 pm
tacotacotacotaco wrote: Mon Oct 19, 2020 2:08 am
bugleheadd wrote: Sat Oct 17, 2020 12:58 pm I sold a 10/23 460 call for around $13-$14 yesterday too.

Just be wary tsla could drop back down to $300 any day. And surely the juicy premiums can't last forever?

As long as you don't put all your money into it, should be ok. You might have to bag hold the shares for a few years for it to recover
I'm not - most of our investments are in SPY and a few fixed income funds. The TSLA stock is less than 5% of our liquid investments. We have a 40+ year remaining lifespan so I'm fine waiting if things go south for a while.
In that cases, you should be selling cash covered puts.
maybe will continue selloff after earnings day...at which time would sell covered puts.
dcw213
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Re: Simple Covered Call Strategy

Post by dcw213 »

I am a great example of how this scenario can go badly. Mostly out of interest and wanting to do something, I bought an individual stock in my Roth IRA account back in January and started selling weekly covered calls. My goal was to earn 1% per week. The first few weeks felt great earning that premium while the stock increased in value slowly but not enough to get called away. Sure enough, the stock promptly dropped by 30% during Feb and March. My strategy was to hold until recovery. I got antsy and sold some more calls. Recovery ripped higher and most of my shares were called away, locking in sizable losses. The weekly recovery went far beyond my strike price and then I was hesitant to buy back in.

This experiment put me back about 15-20%. I’m just thankful I did it with a small lot and didn’t go all in. Good learning experience. There is no free lunch.
bugleheadd
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Re: Simple Covered Call Strategy

Post by bugleheadd »

dcw213 wrote: Tue Oct 20, 2020 7:13 pm I am a great example of how this scenario can go badly. Mostly out of interest and wanting to do something, I bought an individual stock in my Roth IRA account back in January and started selling weekly covered calls. My goal was to earn 1% per week. The first few weeks felt great earning that premium while the stock increased in value slowly but not enough to get called away. Sure enough, the stock promptly dropped by 30% during Feb and March. My strategy was to hold until recovery. I got antsy and sold some more calls. Recovery ripped higher and most of my shares were called away, locking in sizable losses. The weekly recovery went far beyond my strike price and then I was hesitant to buy back in.

This experiment put me back about 15-20%. I’m just thankful I did it with a small lot and didn’t go all in. Good learning experience. There is no free lunch.
A good rule to adhere to is never sell a call below your cost basis strike price
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Re: Simple Covered Call Strategy

Post by grabiner »

bugleheadd wrote: Tue Oct 20, 2020 7:23 pm A good rule to adhere to is never sell a call below your cost basis strike price
This is an anchoring bias. If you hold a stock worth $70 and write a call at $80, your returns will be the same whether you bought the stock at $100, or bought it for $70. (You might even have the same cumulative return, if you bought at $70 after selling some other stock which fell from $100 to $70.)
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Re: Simple Covered Call Strategy

Post by grok87 »

invest2bfree wrote: Sat Oct 17, 2020 3:43 pm
tacotacotacotaco wrote: Fri Oct 16, 2020 3:36 pm So, I've been an investor for a long time but I've only recently in the past year or so started learning about options.

One thing I've started to do is sell weekly covered calls on SPY, AAPL or TSLA. Basically every Friday afternoon or Monday morning, I sell covered calls that expire the following Friday. Tesla covered calls have been great. AAPL decent, SPY less so.

I just sold some TSLA calls at 475 for next Friday at just about $15.50 each. Tesla was around 447 at the time.

Anyway, my point is - each week I'm making 2-5% on TSLA just selling out of the money covered calls. Lately I look at TSLA and sell calls 5% above where it is to expire that week. So effectively if I get my shares called away, I made 7-10% that week. I would be happy with that, even if Tesla went up 20%. It is so volatile I am happy to lock in the weekly call profit even if I get called away. I recognize that TSLA could tank, but I figure even if it does by selling calls all along, I'm making money holding it.

I've only done it a few times but each time its been quite profitable and at least to my eyes pretty low risk. My goal is to sell options that don't get called. But if they do I just rebuy back Monday and sell another covered call for another 2-5%.

What am I missing here, because this seems like a pretty low risk way to make a decent return each week. I mean, with TSLA I could easily make a 100% annual return just selling weekly covered calls.
Covered call is a bad strategy to implement. It does not protect you from downside and basically caps your upside. In a volatile market you will whiplashed and could be stuck holding the bag.

In March you had 10% down days and when stocks started rallying you cannot participate if you keep doing it.
yep
RIP Mr. Bogle.
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Re: Simple Covered Call Strategy

Post by grok87 »

DJZ wrote: Sat Oct 17, 2020 1:47 pm
tacotacotacotaco wrote: Fri Oct 16, 2020 3:36 pm So, I've been an investor for a long time but I've only recently in the past year or so started learning about options.

One thing I've started to do is sell weekly covered calls on SPY, AAPL or TSLA. Basically every Friday afternoon or Monday morning, I sell covered calls that expire the following Friday. Tesla covered calls have been great. AAPL decent, SPY less so.

I just sold some TSLA calls at 475 for next Friday at just about $15.50 each. Tesla was around 447 at the time.

Anyway, my point is - each week I'm making 2-5% on TSLA just selling out of the money covered calls. Lately I look at TSLA and sell calls 5% above where it is to expire that week. So effectively if I get my shares called away, I made 7-10% that week. I would be happy with that, even if Tesla went up 20%. It is so volatile I am happy to lock in the weekly call profit even if I get called away. I recognize that TSLA could tank, but I figure even if it does by selling calls all along, I'm making money holding it.

I've only done it a few times but each time its been quite profitable and at least to my eyes pretty low risk. My goal is to sell options that don't get called. But if they do I just rebuy back Monday and sell another covered call for another 2-5%.

What am I missing here, because this seems like a pretty low risk way to make a decent return each week. I mean, with TSLA I could easily make a 100% annual return just selling weekly covered calls.
I have been selling so-called “way out of the money covered calls” for many years now. I have not done a formal analysis, but my impression is that this strategy *seems* like free money, but in fact is about neutral or perhaps a slight loser.

The problem is that they are properly priced, or slightly underpriced, by the market (presumably because so many people like to do it).

The losses occur in the rare instance when the underlying stock price increases well above the strike price, and you don’t want to sell, so you must buy the options back at many times what you sold them for.
yep
RIP Mr. Bogle.
langlands
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Re: Simple Covered Call Strategy

Post by langlands »

ivgrivchuck wrote: Sat Oct 17, 2020 4:07 pm
tacotacotacotaco wrote: Fri Oct 16, 2020 3:36 pm
What am I missing here, because this seems like a pretty low risk way to make a decent return each week. I mean, with TSLA I could easily make a 100% annual return just selling weekly covered calls.
If you play a game where you put $100 in, and you have 99% chance of winning $1 each round, and 1% chance of losing it all. It may look and feel like a really good deal for a really long time. Until suddenly it doesn't.

Now, I admit that the game that you are playing doesn't exactly work like that, but the underlying mathematics is around the same. You are pocketing small profits consistently until you miss out a really big win, because you sold a covered call, and you are still subject to a full downside risk of that stock.

Buying and selling options is all about estimating and analyzing probability distributions. I seriously doubt that you can in the long term win that game against the top pros who have all the historical data, know-how and access to the latest algorithms.

Do whatever you want, but it's a very good time to leave the Casino when you have been lucky and beaten the odds by luck.
+1

I never understood how selling covered calls could be considered a "trading strategy." It's just a way of modifying the distribution of outcomes, and in this case adding negative skew aka picking up pennies in front of a steamroller. I suspect the reason the "strategy" is so popular is that the negative skewness isn't immediately apparent. People don't realize that "not winning big" is equivalent to losing big. So psychologically, I suppose it's a very soothing strategy. Most of the time you outperform holding stock except the few times when the stock completely blasts past your strikes. But in those cases, you're still a small winner so I guess it doesn't sting that much.

In any case, IMO way too much thought and attention goes into this idea. It sort of reminds me of "dividend investing," another one of these ideas discussed ad nauseum (thankfully not on this site) where people think they've found some golden investment strategy that spits out "free money."
bugleheadd
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Re: Simple Covered Call Strategy

Post by bugleheadd »

grabiner wrote: Wed Oct 21, 2020 8:08 pm
bugleheadd wrote: Tue Oct 20, 2020 7:23 pm A good rule to adhere to is never sell a call below your cost basis strike price
This is an anchoring bias. If you hold a stock worth $70 and write a call at $80, your returns will be the same whether you bought the stock at $100, or bought it for $70. (You might even have the same cumulative return, if you bought at $70 after selling some other stock which fell from $100 to $70.)
Must be tired, I'm not following . If I bought a stock at 70 and sold a call that gets assigned at 80, I have realized gain. If I bought a stock for 100 and sold a call that gets assigned at 80, I have realized loss.
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Re: Simple Covered Call Strategy

Post by RyeBourbon »

bugleheadd wrote: Wed Oct 21, 2020 10:45 pm
grabiner wrote: Wed Oct 21, 2020 8:08 pm
bugleheadd wrote: Tue Oct 20, 2020 7:23 pm A good rule to adhere to is never sell a call below your cost basis strike price
This is an anchoring bias. If you hold a stock worth $70 and write a call at $80, your returns will be the same whether you bought the stock at $100, or bought it for $70. (You might even have the same cumulative return, if you bought at $70 after selling some other stock which fell from $100 to $70.)
Must be tired, I'm not following . If I bought a stock at 70 and sold a call that gets assigned at 80, I have realized gain. If I bought a stock for 100 and sold a call that gets assigned at 80, I have realized loss.
It's only a loss if it gets called. He means in the case where you pocket the premium.
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Re: Simple Covered Call Strategy

Post by grabiner »

bugleheadd wrote: Wed Oct 21, 2020 10:45 pm
grabiner wrote: Wed Oct 21, 2020 8:08 pm
bugleheadd wrote: Tue Oct 20, 2020 7:23 pm A good rule to adhere to is never sell a call below your cost basis strike price
This is an anchoring bias. If you hold a stock worth $70 and write a call at $80, your returns will be the same whether you bought the stock at $100, or bought it for $70. (You might even have the same cumulative return, if you bought at $70 after selling some other stock which fell from $100 to $70.)
Must be tired, I'm not following . If I bought a stock at 70 and sold a call that gets assigned at 80, I have realized gain. If I bought a stock for 100 and sold a call that gets assigned at 80, I have realized loss.
Yes, but that has nothing to do with whether the call itself a good investment. If you hold a stock currently worth $70 and write a call at $80, your gain or loss from this point on will be the same regardless of whether you paid $70 or $100 for the stock. If you received $2 for the call, then you will have $82 if the call is exercised, and $2 plus the value of the stock if the call expires; would you rather have this, or just have the value of the stock? That doesn't depend on what you paid for the stock (except for tax issues).
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