Covered call on TSLA I bought shares off of the 200 sma on the daily and the 100 sma on the weekly. I really wouldn't be mad / sad or upset if I sold those shares at $242.40
:-)
Coveredcalls
Covered call on TSLA Love this chart. This gap down is SEMI bullish, but we have some time to wait on this and I'm excited to see TSLA grow higher into $300 towards end of year.
BA covered callA position I am in for a WHILE. But this is purely and simply and BUY LOW, sell high, be 'paytient' type of investment.
AND I AM IN.
:-)
covered call on BAI'm in longer term shares. NICE GAP up on earnings.
I figure = use this pop to get SOME PREMIUM at the long term moving averages... This will not get called away - and if it does, I'll be profitable
Options Blueprint Series: The Collar Strategy for Risk ReductionIntroduction to Nasdaq Futures
Nasdaq Index Futures offer traders exposure to the Nasdaq-100 index, a benchmark for U.S. technology stocks, without directly investing in the index's component stocks. Trading on the Chicago Mercantile Exchange (CME), Nasdaq Futures provide a critical tool for managing market exposure on the future of technology and biotech sectors.
Key Contract Specifications:
Point Value: Each point of the index equates to $20 per contract.
Margins: As determined by the CME, margins vary, reflecting the volatility and current market conditions. As of the time of this publication the CME website shows a maintenance margin of $17,700 per contract.
Trading Hours: Nearly 24-hour trading capability, aligning with global market hours to provide continuous access for traders.
It's important to note that similar strategies and benefits are available with Micro Nasdaq Futures , which are scaled down to a tenth of the standard Nasdaq Futures, making them accessible to a broader range of traders due to their lower margin requirements (Margin is 10 times less, point values are 10 times less, etc.)
Basics of the Collar Strategy
The Collar strategy is a risk management tool used by traders to protect against large losses in their investments while also capping potential gains. It is particularly useful in volatile markets or when significant price swings are expected but their direction is uncertain.
Components of the Collar Strategy:
Own the Asset: Typically involves owning the underlying asset, but in the case of futures, it involves holding a long position in the Nasdaq Futures contract.
Buy a Protective Put: This put option gives the right to sell your futures contract at a predetermined strike price, serving as insurance against a significant drop in the market.
Sell a Covered Call: This call option grants someone else the right to buy your futures contract at a set strike price, generating income that can offset the cost of the put option, but it limits the profit potential if the market rises sharply.
This strategy forms a price collar around the current value of the futures contract, protecting against drastic movements in both directions. The use of this strategy in Nasdaq Futures trading can be especially effective given the index's exposure to high-growth, high-volatility sectors.
Application to Nasdaq Futures
Implementing the Collar strategy with Nasdaq Futures involves selecting the right put and call options to effectively hedge the position. Here's how you can set up this strategy:
Choose the Underlying Contract: Decide whether to use standard E-mini Nasdaq-100 Futures or Micro mini Nasdaq-100 Futures based on your investment size and risk tolerance.
Select the Put Option: Identify a put option with a strike price below the current market price of the Nasdaq Futures. This strike should represent the maximum loss you are willing to accept. The graphics of this article show UFO Support Price Levels below which accepting a larger loss could be seen as a form of hope. Using UFO Support Price Levels as a reference to select the Put strike could be an efficient manner to determine the desired risk.
Choose the Call Option: Pick a call option with a strike price above the current market level, where you believe gains will be limited. The premium received from selling this call helps offset the cost of the put, reducing the overall expense of the setup. Selecting a call with its premium equal to the put price would allow for the Collar strategy to be cost-free (not risk-free).
Risk Profile Visualization: A graphical representation of the risk profile will show a flat line of loss limited to the downside by the put and capped gains on the upper side by the call. This visualization helps traders understand the potential financial outcomes and their likelihood.
Forward-Looking Trade Idea
Considering the recent market dynamics, Nasdaq Futures have been experiencing a range-bound pattern after reaching all-time highs. With current geopolitical tensions such as the recent conflict between Iran and Israel, there's a potential for sudden market movements.
Scenario Analysis:
Continuation of Uptrend: If the market breaks above the range, selling the covered call may yield limited gains but will provide premium income.
Significant Drop: If the market drops due to intensified conflicts, the protective put limits the potential loss, safeguarding the investment. That is knowing that if the market was to rebound after a significant drop, the strategy could end up as profitable as long such rebound would happen prior to the Options expiration date.
Trade Setup:
Entry Point: Current market price of Nasdaq Futures.
Put Option: Select a put option below the current market price. The chart example uses the UFO Support Level located around 18,000. Premium paid for the 18,000 Put is estimated to be 511.79 points * $20 ($10,235.8).
Call Option: Choose a call option above the current market price targeting the same level of premium as the premium paid for the put. The 18,300 Call is estimated to provide 522.65 points * $20 ($10,453).
Expiration: Options with a 1-3 month expiration to balance cost and protection level. This trade example uses June Expiration which is 67 days away from expiration.
As seen on the above screenshot, we are using the CME Options Calculator in order to generate fair value prices and Greeks for any options on futures contracts.
This setup aims to utilize the Collar strategy to navigate through uncertain times with controlled risk, taking into account both the potential for continuation of the uptrend and a protective mechanism against a sharp decline.
Risk Management Discussion
Effective risk management is crucial when trading futures and options. The Collar strategy inherently incorporates risk management by design, but understanding and applying additional risk control measures is essential for successful trading.
Key Risk Management Techniques:
Limited Risk: By default, the Collar strategy is a limited risk strategy where the risk is calculated by looking at the current Nasdaq Futures price compared to the Put strike price and adding or subtracting the Collar execution price for a debit or credit respectively.
Use of Stop-Loss Orders: Although the Collar strategy provides a natural hedge, setting stop-loss orders beyond the put option's strike can provide an extra safety net against gap risk and extraordinary market events.
Regular Review and Adjustment: As market conditions change, the relevance of the chosen strike prices may alter. Regularly reviewing and adjusting the positions to ensure they still reflect your risk appetite and market outlook is advised.
Diversification: While the Collar strategy protects an individual position, diversifying across different asset classes can further protect the portfolio from concentrated risks associated with any single market.
Conclusion
The Collar strategy offers Nasdaq Futures traders a structured way to manage risk while maintaining the potential for profit. By capping potential losses with a protective put and limiting gains with a covered call, traders can navigate uncertain markets with increased confidence. This strategy is particularly applicable in volatile markets or during periods of geopolitical tension, providing a buffer against significant fluctuations.
When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies.
General Disclaimer:
The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
Options Blueprint Series: The Covered Call Strategy DecodedIntroduction
In the ever-evolving world of financial markets, savvy investors and traders continuously seek strategies to optimize returns while managing risk. Among the plethora of strategies available, the covered call stands out for its simplicity and efficacy, especially when applied to a dynamic asset like Euro Futures. This article delves deep into the intricacies of the covered call strategy, using Euro Futures as the underlying asset. Through this exploration, we aim to equip you with the knowledge and tools necessary to navigate the complexities of the futures and options markets. By the end of this journey, you'll gain a comprehensive understanding of how to implement covered calls with Euro Futures, enhancing your trading arsenal with a strategy that balances potential returns against the inherent risks of the forex futures market.
Understanding Euro Futures: The Beacon of Currency Markets
Euro Futures on the Chicago Mercantile Exchange (CME) represent a contract for the future delivery of the Euro against the US dollar. These futures are pivotal for traders and investors looking to hedge against currency risk or to speculate on the fluctuations of the Euro's value relative to the dollar. Each Euro Futures contract is standardized, with each contract representing a specific amount of Euros.
Trading Euro Futures offers a transparent, regulated market environment with deep liquidity, making it an attractive instrument for a broad spectrum of market participants. The futures are marked-to-market daily, and gains or losses are credited or debited from the trader's account, providing a clear view of financial exposure.
Key Features of Euro Futures:
Contract Size: Each contract represents 125,000 Euros.
Tick Size: The minimum price fluctuation is $ 0.000050 per Euro, equating to $6.25 per contract.
Trading Hours: Euro Futures markets are accessible nearly 24 hours a day, allowing traders from around the globe to react to market-moving news and events in real-time.
Leverage: Futures trading involves leverage, allowing traders to control a large contract value with a relatively small amount of capital. However, while leverage can amplify gains, it also increases the potential for losses.
Market Participants:
Hedgers: Corporations and financial institutions may use Euro Futures to protect against adverse movements in the Euro's exchange rate, securing pricing or costs for future transactions.
Speculators: Individual and institutional traders may speculate on the future direction of the Euro's value against the dollar, aiming to profit from price movements.
Importance in the Financial Landscape: The Euro is the second most traded currency in the world, making Euro Futures a critical tool for managing currency exposure in the international financial markets. The contracts provide a gauge of market sentiment towards the Eurozone's economic outlook, influenced by factors such as interest rate differentials, political stability, and economic performance.
The Basics of Covered Calls: Charting a Course
The covered call is a conservative strategy where the trader owns the underlying asset — in this case, Euro Futures — and sells call options on that same asset to generate income from the option premiums. This strategy is particularly appealing in flat to moderately bullish market conditions because it allows the trader to earn an income from the premium, which can provide a cushion against a downturn in the market and potentially enhance returns in a stagnant or slightly bullish market.
Key Concepts of Covered Calls:
Ownership: The trader must own the Euro Futures contracts or be long on a futures position to write (sell) a covered call.
Option Premium: The income received from selling the call option. This premium is the trader's to keep, regardless of the option's outcome.
Strike Price: The price at which the underlying futures can be bought (call) by the option buyer. The trader selects a strike price that reflects their expectation of the market direction and their willingness to part with the futures if the option is exercised.
Expiration Date: All options have an expiration date. The covered call strategy involves choosing an expiration date that balances the desire for premium income with the market outlook.
Implementing the Strategy:
Selection of Euro Futures Contracts: The first step is to have a long position in Euro Futures. This position is the "cover" in the covered call strategy.
Selling the Call Option: The trader then sells a call option on the Euro Futures they own, receiving the option premium upfront. This option is sold with a specific strike price and expiration date in mind.
Outcome Scenarios:
If the Euro Futures price stays below the strike price at expiration, the call option will likely expire worthless, allowing the trader to keep the premium as income while still holding the futures position.
If the Euro Futures price rises above the strike price, the call option may be exercised by the buyer, requiring the trader to sell the futures at the agreed strike price. This caps the trader's upside potential but secures the premium as profit.
Risk Profile Graphic for the Covered Call Strategy on Euro Futures:
This graph illustrates the profit and loss potential of a covered call strategy applied to Euro Futures. The strategy involves holding a long position in Euro Futures while selling a call option at a specific strike price. If the Euro Futures price at expiration is below the strike price, the trader's loss is offset by the premium received from selling the call option. However, the profit potential is capped if Euro Futures rise above the strike price, as the trader may have to deliver the futures at the strike price, missing out on further gains.
Implied Volatility and CVOL: A Navigator's Tool
In the strategy of covered calls, understanding Implied Volatility (IV) is essential. IV reflects the market's expectation of a security's price fluctuation and significantly influences option premiums. For traders employing covered calls, especially with Euro Futures, high IV can mean higher premiums, offering better income potential or protection against the underlying asset's price movements.
Since the Euro Futures is a CME product, examining CVOL could provide an advantage to the trader as CVOL is a comprehensive measure of 30-day expected volatility from tradable options on futures which can help to:
Determining Premiums: By gauging current IV, traders can identify optimal premium levels for their call options.
Deciding which Strategy to use: High IV periods might indicate advantageous times to implement covered calls, leveraging CVOL's insights for timing entry and exit points.
Benefits and Risks of Covered Calls:
Income Generation: The most apparent benefit of the covered call strategy is the ability to generate income through the premiums received from selling call options.
Downside Protection: The premium received can offer some “protection” against a decline in the futures price, effectively lowering the break-even point.
Profit Limitation: A significant risk of this strategy is that the trader's profit potential on the futures is capped. If the market rallies strongly beyond the strike price, the trader misses out on those additional gains, as they are obligated to sell the futures at the strike price.
Initiating a Covered Call with Euro Futures: Setting Sail
Implementing the covered call strategy with Euro Futures involves a blend of strategic foresight and meticulous planning. The objective is to enhance potential returns or protect against downside risk through the calculated sale of call options against a long Euro Futures position. Here's a step-by-step guide to navigate through the process:
Step 1: Selection of Euro Futures Contracts
Long Position Establishment: Begin by establishing a long position in Euro Futures. This position acts as your safety net, providing the necessary coverage for the call options you're about to sell.
Margin: When going long Euro Futures, the Margin Requirement (suggested by CME on Feb-21 2024 is USD 2,100 per contract)
Market Analysis: Conduct a thorough analysis of the Euro Futures market. Consider factors like historical volatility, economic indicators affecting the Eurozone, and any impending events that might influence the Euro's value against the dollar. The chart shows how careful key Support and Resistances have been selected in order to decide when to buy long Euro Futures as well as deciding the Call Strike Price to use. Other techniques can be employed depending on the trader’s plan and methods.
Step 2: Selling the Call Option
Strike Price Decision: Choose a strike price that aligns with your market outlook. A strike price above the current market price can offer potential for capital appreciation, plus the income from the premium. Since the Resistance is located around 1.10, selling the 1.10 Call could be an appropriate decision.
Expiration Date Selection: The expiration date should reflect your market perspective and risk tolerance. Shorter-term options can provide more frequent income opportunities but require closer management. We will be using December 2024 in this educational idea.
Premium: When selling a 1.10 Call using DEC24 expiration on Feb-21 2024, the premium collected would be between 0.02180 and 0.02280. The midpoint being 0.0223 and the contract size being USD 125,000, this means we would collect USD 2787.5 in premium, which would either add to the profit or subtract from risk.
Step 3: Managing the Trade
Monitoring Market Movements: Keep a vigilant eye on market trends and Euro Futures price movements. Be prepared to adjust your strategy in response to significant changes.
Adjustment Strategies: If the market moves unfavorably, consider rolling out the option to a further expiration date or adjusting the strike price to manage risk effectively.
Case Study: A Voyage on Euro Seas
Let's illustrate this strategy with a hypothetical trader, Elena. Elena holds a long position in Euro Futures, expecting slight bullish momentum in the upcoming months. To capitalize on this and earn additional income, she sells call options with a strike price slightly above the current futures price, receiving an upfront premium.
As the market progresses, two scenarios unfold:
Bullish Outcome: The Euro strengthens, but not enough to reach the strike price. Elena retains her futures position, benefits from its appreciation, and keeps the premium from the call options.
Bearish Downturn: The Euro weakens. The premium received provides a cushion against the loss in her futures position's value, mitigating her overall risk.
Risk Management: Navigating Through Storms
Implementing covered calls doesn't eliminate risk but redistributes it. Effective risk management is crucial:
Use of Stop-Loss Orders: These can limit potential losses on the futures position if the market moves against your expectations.
Position Sizing: Ensure your position size in Euro Futures aligns with your overall risk management strategy, avoiding overexposure to a single trade.
Diversification: Consider diversifying your strategies and holdings beyond just Euro Futures and covered calls to mitigate systemic risks.
Conclusion: Docking at Safe Harbors
The covered call strategy, when applied to Euro Futures, offers traders an efficient way to navigate the forex futures market. By generating income through premiums and potentially benefiting from futures price movements, traders can strategically position themselves in varying market conditions.
However, the journey doesn't end here. Continuous learning, market analysis, and strategy adjustments are paramount to sailing successfully in the dynamic waters of futures trading. As with all trading strategies, the covered call approach requires a balance of knowledge, risk management, and practical experience to master.
Embarking on this voyage with Euro Futures and covered calls can lead to rewarding destinations, provided you navigate with caution, preparation, and an eye towards the horizon of market opportunities and challenges.
When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies.
General Disclaimer:
The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
RBLX covered calls I have some shares in my son Gabe's long term account. I am NOT scared if we sell them for a gain at $53
Buy low, sell high.
If your kid plays RBLX, get some money back....
Covered call on TSLLI have never traded this ETF before, but I am getting my practice in. I have some shares and now I have sold the $20 covered call for next Friday for $2.00 higher than the stock price is now.
Plus, this is a VERY strong gap on TSLA that will keep surging higher in my opinion.
RBLX COVERED CALL?There is money up there? Wow. $12 higher than the stock price? GEEZE. Now granted it is over earnings, but I believe RBLX is one you could begin to leg into, own some shares of (because your kid is playing RBLX *right now* and eventually sell for higher than it is presently.
zillow covered callNice gap! Nice candle! I'm in 600 shares and I'm net profitable. :) This is 2% premium for 2 weeks! I think zillow chops around but eventually goes higher!
Covered call on SQRinse and repeat.
10 ema on a monthly should act as some resistance. But this is 20% higher AND its over earnings. We could GET up to this price, but how nice would that be?!??!
Covered call on CCL A bunch of bull candles in a row. :-) Nice bounce, nice trend. I'm in 2000 shares and I'm net positive on them. Going to sell a covered call into strength over CPI. I like this move because it gives me a WHOLE $1.20 + .15 of room and only 3 weeks with one extra day of theta next monday.
Covered call on SQ.80 limit. I do not WANT to get called away at $80, so I will protect it. But I'm DEFINITIELY willing to protect it and or / wait until closer to expiration. But this would be a NICE $13 per share increase from here!
Covered call on BABA againBAG HOLDING on this one for sure. But I do believe the bottom is in. IT SHOULD BE. Looking to continually lower my dollar cost average by chipping away. I actually wouldn't mind being called away at $120!
Could be a GREAT trade, even if you are new to getting into this stock. I sold the January expiration and got filled at $1.20
SQ covered callI do not WANT to get called away here. So, I will play defense if I have to.
However, sold $70 call exiring Nov 25 for $1.00 limit.
That's $9 away or about 15%. IF this is a NEW position for you, nice level to play it. 100 sma should act as a small resistance and this is a decent retest gap.
AMZN just broke through a falling wedge (plus stock split)With AMZN pending 20-to-1 stock split this looks like a good bet right now. AMZN just broke through the top resistance of the falling wedge pattern. This is good short term and long term bet. Also if you like selling covered calls after the split AMZN will be a good stock for Covered Calls as it will be more affordable to buy in blocks of 100. If you buy 5 stocks today that will give you 100 after the split and you can sell a covered call. So buying in blocks of 5 is a good thing if you plan to sell covered calls.
Closed (IRA): UAL January 21st 47 Covered Calls... for a 45.41 credit.
Comments: A late IRA house keeping post. This is the last of my reopening trades. My cost basis in my shares was 43.05 (See Post Below) with a bunch of scalping around my covered call. A 2.36 ($236) winner that I'm glad to see the back of, since we have earnings in 11 days, and I'd rather not have single name risk in my IRA.
Rolling: MJ April 14th 16 Covered Calls to July... for a .27 credit.
Comments: Beginning to slightly hate this position, but it isn't exactly taking up a ton of buying power, so rolling out the April 14th 16's at >50% max to July to reduce cost basis further. Cost basis in my shares now 14.09.
Closing (IRA): UAL November 19th 48 Covered Call... for a 47.62 credit.
Comments: With a cost basis of 45.56 (See Post Below) and only .38 of extrinsic left in the short call, taking profit on this puppy here on this up move. 47.62 - 45.56 = 2.06 ($206) profit. Still have the January 47's on.
Rolling (IRA): MJ November 19th 16 Short Calls to January... for a .33/contract credit.
Comments: Rolling the short call aspect of my MJ 16 Covered Calls to January here. My cost basis is now 15.05/share minus .33 or 14.72/share, so I can conceivably contemplate rolling the short calls down to the 15 strike, since that would still be above my cost basis.
Closing (IRA): SOFI November 19th 17.5 Covered Calls... for a 16.92/contract debit.
Comments: There's still about .50 of extrinsic in the short calls here, but earnings are in 22 days, and I'm taking the money and running here. My cost basis in the shares covered by the short calls is 14.74 (See Post Below), so closing out here results in a realized gain of 16.92 - 14.76 = 2.16 ($216)/contract. This is about "neatening up" and/or simplifying my portfolio a bit more than anything else.
Rolling (IRA): UAL October 15th 48 to November 19th 48... short call for a 1.37 credit.
Comments: Trying to milk a little more out of this covered call by rolling the short call aspect out a month to November while the implied is >50%. My cost basis in my shares was 46.93 (See Post Below); rolling out the short call reduces that to 45.56 with a max profit potential of the short call strike (48.00) minus my cost basis (45.56) or 2.44 ($244).
