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Coveredcalls

Rolling (IRA): MJ October 15th 18 Calls to January 21st... for a .39/contract credit. Comments: The October 15th 18 short calls appeared to be no bid, but stuck an order out there anyway, which got filled. Here, rolling my MJ 18's out to January, since there isn't a December and November isn't paying particularly well at the 18 strike. Current cost basis is now 17.13 (See Post Below) minus .39 or 16.74, so I can potentially look at rolling my calls down to the 17 strike if I want to going forward.
AMEX:MJ
by NaughtyPines
$AAPL covered calls still an optionThe market always knows.. as we mentioned a few days ago $AAPL front month vol got bid up above 2-month vol in contrast to the market.. and that forecast in increased vol has already shown up today.. AAPL fell 3.31% the most in months on almost double average volume and a whopping 2.4m contracts traded.. if you’re a long term holder you can still sell some covered calls here to take advantage of elevated premiums.. OCT’15 20-Delta $160 (above all time high) calls bid at 26% IV above 30 Day HV of 18%.. and stock price still above 50 Day MA..
NASDAQ:AAPL
by Click-Capital
Rolling: SOFI September 17th 20 Covered Calls to October... for a .41/contract credit. Notes: Rolling my covered calls from September to October here with a resulting cost basis of 16.17 (See Post Below) - .42 or 15.76/share. I wanted to do this before more volatility pisses out post-earnings announcement. Still have the September 17th 15 short put on, which I'm intending to run to expiry, since this is a relatively small position and am fine with picking up additional shares if that happens.
NASDAQ:SOFI
by NaughtyPines
Closed (IRA): TLT August 20th 143 Covered Calls... for a 142.60 credit/contract. Comments: Hit my order to take this off at or near max today. (The max would be 143.00, so the order I stuck out thereI took it off .40 short of that). An über long-running covered call setup with the last acquisition of shares around $110/share. (See Post Below). Unfortunately, I didn't keep good track of short call premium over the years (yes, years), but I made at least the difference between the last acquisition at $110 and what I got out of it today or 32.60 ($3260/contract) plus the 7.93 in credit per contract I kept track of since the beginning of the year. 32.60 + 7.93 = 40.53 ($4053/contract) (plus, of course, those smidgeonly monthly divvies). I'll look to re-up if it ever starts paying decently again (e.g., >3.0% annualized), but I may be waiting a very, very long time for that happen. It's paying a scant 1.481% annualized now.
NASDAQ:TLT
by NaughtyPines
Rolling (IRA): TLT July 144 Covered Calls to August 143... for an .80/contract credit. Notes: With the 144's at 50% max, rolling out and down to the 28 delta strike in August. Total credits collected of 7.93/contract (See Post Below) versus a short call value of 1.61 = realized gain of 6.32 so far. I last acquired at around 110/share, so am fine here with being called away (even though I don't think that's going to happen). Similarly, I'm fine with collecting short call premium + the dividends, which are nothing to write home about -- the May 3rd dividend was a whopping $20.31 per one lot.
NASDAQ:TLT
by NaughtyPines
The Wheel Options Strategy: 29 Things You MUST KnowI’m Markus Heitkoetter and I’ve been an active trader for over 20 years. I often see people who start trading and expect their accounts to explode, based on promises and hype they see in ads and e-mails. They start trading and realize it doesn’t work this way. The purpose of these articles is to show you the trading strategies and tools that I personally use to trade my own account so that you can grow your own account systematically. Real money…real trades. Those of you who have been following me know I love trading The Wheel Strategy, in fact, with my $500,000 trading account that I’ve been trading on since mid-January, I just $50,000 in REALIZED profits for the year. The Wheel Options Trading Strategy is a powerful trading strategy that can be fairly low risk IF you know what you’re doing. This is why, in this article, I wanted to give you a complete squad of trading tactics for trading The Wheel Strategy. I look through all of the comments on my YouTube videos & the questions that I get in my live streams, and I have compiled a list of the questions I get most often. So today we’re going to talk about the 29 things you must know when trading the Wheel Options Strategy. The Wheel Strategy Overview So let’s briefly talk about the basics, and the basics of the Wheel Strategy, are actually pretty simple. So let me just tell you the three steps that we need to do when trading this strategy. Step Number One: We want to sell put options and collect premium. Step Number Two: Here, we may or may not get assigned. Step Number Three: If we are getting assigned we will sell covered call options and collect more premium. If we are not assigned, then we will just stay at Step Number One, and keep selling put options to collect more premium. So as you can see, it’s really not that complicated. I mean, wouldn’t you agree? Now I divided this into 3 sections: The Basics, then Picking The Right Stock, because there’s a lot of questions about this topic, and then we will also talk about Selling Calls After Getting Assigned, as well as What To Do When a Trade is in Trouble. The Basics 1.) I have around $30,000 in my Interactive Brokers account. Is it enough to start trading the Wheel? Here is my recommendation. You should have at least $10,000 in cash so that you can get $20,000 in margin. I highly recommend that you are trading a margin account. If you have less than $10,000 in cash, I do not recommend that you trade with the Wheel Strategy. Now, if you have a smaller account, I recommend that you do a maximum of three positions in your account. As your account grows, you can go up to five positions in the account. 2.) What is the best expiration date when selling options? What I personally like to do is go 1 to 2 weeks out, so this also means that I like to trade weekly options. So I’m looking for a really short fuze here because I believe that this is where you have the most control over the prices here. The idea is actually to collect so-called “weekly paychecks,” and I put this in quotation marks because it always sounds so glamorous, right? However, it’s really important that you know what you’re doing here. Now, the next question that I receive all the time. 3.) Should I use margin to increase my buying power? My answer to this is yes, absolutely. I highly recommend this, however, keep in mind that margin is a double-edged sword, which can work for you as well as against you. 4.) How do I know if I have enough capital if I get assigned? It’s easy. So let’s say that you are selling a 100 put, which means a put with the strike price of 100. This means that when you’re getting assigned you have to buy 100 shares at $100 each totaling $10,000, so this is how much capital you would need. So all you need to do is basically just take the strike price that you are selling of the put, times 100 because options come in 100 packs, and multiply this number by the number of options that you’re selling. Let me give you an example. I recently sold 8 put options of Apple at a 133 strike price. So how do you know whether you have enough money in your account? Well, this is where we are taking the strike price, 133 times 100, times 8. This means you would need to have $106,400 in your account. So please make sure that you are sizing your account appropriately. The good news is, if you do have the PowerX Optimizer, which is the tool that I’m using, it will show you exactly how many shares you can trade. So what you need to do here is that you are actually filling in your buying power, and again, your buying power might be different. How many positions you want to take, and this is where I said if you have a smaller account fill in three, if you have a larger account you want to fill in four or five. Then based on the strike price that you are selling here, it will tell you exactly how many options you should trade, and based on how many options it also tells you how much money you need, and how much margin is required if you were to get assigned. I highly, highly, highly recommend that you do use a tool, because you see, if you do all the math in your head, it can go horribly wrong. The tool that I personally use is the PowerX Optimizer. Many of you already have the tool, many of you are familiar with it. 5.) Is there a certain percentage you buy to close at? Some people say 50% profit is best statistically to close. I like to close a position at 90% of the max profits. So as an example, this morning (March 10, 2021) I sold puts on DKS, Dick’s Sporting Goods, and I sold them for $0.75. So this is where right now I have a working order in there to buy this back at $0.07, which is 90% of $0.75. So, yes, if I can get 90% of the max profit here, this is when I want to exit. 6.) So is there a rule of thumb of what percentage this account is tied up with the strategy? It really depends on how many trading strategies you use, right? So right now I trade two strategies. I trade the PowerX Strategy and The Wheel Strategy. The PowerX Strategy is perfect for a trending market, but the markets right now, are far from trending. They are super choppy going up and down, so, therefore, right now I’m dedicating all of my money in the account to the Wheel Strategy. Once I start trading the PowerX Strategy again, this is where I would just decrease the buying power here and say instead of using the $500,000, I might just use, let’s say 400K, and use 100k for the Wheel Strategy. 7.) What screening criteria does the PowerX Optimizer use for the Wheel Strategy? The PowerX Optimizer has a built-in scanner to find the best candidates for the Wheel Strategy, and there’s a conservative scanner as well as an aggressive scanner. For my criteria, we are looking for stocks between $5 and $300 here. We are also looking for stocks that have a down day because when you’re selling put to collect premium, you want to make sure that you’re selling when the market is going down. We are also looking at the implied volatility because want to make sure that there’s enough premium there. Then most importantly, we want to make sure that the annualized premium is actually at least above 30%. There are a few other minor criteria. First of all, we only look for stocks that have weekly options. This is what I explained briefly a little bit earlier, I’m not interested in trading stocks that only have monthly options. 8.) What can I expect? 30% yearly annualized based on what capital? The capital here this would be based on is the buying power. So in my account, I have a $500,000 buying power. This means if I’m looking for 30% based on the buying power, so this would yield into 60% based on the cash that I put in the account because the cash that I put in the account was $250,000. So when I’m talking about the 30% yearly annualized, it’s based on the buying power. If you don’t trade with margin, then this would be based on your cash. Picking The Right Stock: 9.) Do you have a defined universe of stocks that are your “good list?” Well, first of all, I want to make sure that I’m trading the stocks from the PowerX Optimizer Scanner, and then I just look for stocks that I like overall. These are some of the stocks I've traded thus far this year: There's been DBX, DKS, GDXJ, HAL, HAS, IBM, JWM, LL, MARA, MNST, NIO, RIDE, RIOT, SNAP, and many more others. These are stocks that I really like to trade, and as you see, most of them are very well-known names so I’m not trading any exotic stocks. You also will not find meme stocks like GME or AMC on this list here. 10.) Is there a certain level of IV, implied volatility, on a stock that you won’t go to? I’ve traded some 200% plus of IV is that too high? Just as a rule of thumb, the higher the IV the higher the risk. This means that now stock can really swing back and forth. So for me, what I feel is a sweet spot, I like to see at least 40% IV, but no more than 100%. Sometimes I do take trades that are higher than 100 but honestly, for me, the sweet spot where you find most trades that are fairly safe is anywhere between 60% to 80% implied volatility. This is where I don’t have hard rules here, but I need to like the stock. 11.) Markus, have you changed from your “When I started I just wanted to know the symbol. I did not want to know anything about the company, as it might cloud my view. Trade what you see, not what you think” mentality? My answer is NO, for the PowerX Strategy. I absolutely do not want to know anything about the symbol. However, for the Wheel Strategy, the answer is YES because when trading The Wheel Strategy I only want to trade super solid stocks. 12.) So I noticed that some of the stocks on your list for the Wheel have very illiquid weekly options. Do you watch for options liquidity or just the credit limit and hope to get filled? For me, I don’t care about open interest and volume, and here’s why. I am selling premium and I’m fine letting the option expire worthless, so I don’t need to buy it back. If I can buy it back I will, otherwise no. So this is where here I don’t care about the open interest. But again, it really depends on the strategy. I mean, if you’re trading a different strategy, open interest and volume might be very important to you. For me, it is not. 13.) Besides technical support/resistance levels, how do you objectively decide which are the best stocks? Do you take into account any fundamental analysis to filter out which underlying to trade? No. So here is what I do, and this is it’s pretty subjective, so I don’t have objective criteria here. I must like the company, because the point is, you must be OK owning this company, and I must like the story of the company. Yeah. This is where I always use Peleton as an example because I know that many are trading Peleton and it has lots of premium in there. But you see for me, Peleton, it’s a company that I believe can easily be ripped off, and at some point, a major competitor might swoop in. So I must like the company and the story of the company. This is fairly subjective here because the key is that you must be OK owning that stock at the strike price. 14.) Since you are suggesting not to sell puts on leveraged ETFs, why are they then included in the Wheel Scanner? You know what? This is a great question and we actually might exclude them in version PXO 2.0. So right now I thought you’re all adults, and as adults, you can do whatever you want. I did not want to restrict you, so but we might exclude it or, we might add an asterisk as a warning sign. It’s a good suggestion, and I know that some get blinded by premium on leveraged ETFs. So I do not trade leveraged ETFs, anything that has 2x or 3x in the description I stay away from this. 15.) Why do you select growth stocks only instead of a mix of value and growth stocks? Seems that growth is in trouble due to interest rates. Growth stocks offer attractive premiums, but value stocks rarely do. I want to give you a very specific example here, and let’s actually go to IBM, because IBM is one of the value stocks that I have traded. I traded IBM after a massive drop where I sold the 117 strike. Usually in IBM, you won’t find enough premium in there. The implied volatility lately, is usually around 34 or 29. So this is the very simple reason why I’m going for growth stocks because I’m looking for a minimum of 30% annualized in premium. Selling Calls After Getting Assigned 16.) If you sell a call lower than your original put strike price can you still make money? This is actually super dangerous, and here’s why. So when you sold a put you got assigned, and you had to buy stocks at the strike price. I’m using an example of AAPL, and I was assigned Apple at $133 per share. Now, if I’m now selling a call, it means that I have to sell stocks at the strike price, so if I’m selling, let’s say a 125 call, it means that I have to sell the shares for $125. Now here’s the challenge with this. I bought them for $133 and now I’m selling them right now for $125. This means that I’m losing $8 per share. Now when you’re trading options, they come in 100 packs. So this means that you would lose $800 per option. So this is where you need to be careful when you’re selling a call lower than your original strike price. If you do this, make sure that it is above your cost basis, and we’ll talk about the cost basis here in just a moment. 17.) Why are covered calls more profitable in your experience than cash-secured puts? Are you targeting a different percentage return? No, I do not. Here’s a rule of thumb for what I do. Let’s jump to PowerX Optimizer and go to the Wheel Income Calculator. Here is something that I did today (March 10, 2021) where I sold calls on RIDE. Yes, and let me, let me quickly double-check before I do this, what did I sell on RIDE? So on RIDE I sold calls that expire March 19th, and I sold them for $0.35, and the calls that I sold were at 23. So by doing this, this actually gave me an annualized return. By default, I am not going as many strikes out, because all I need here right now is a rise in 7%. So if you are rising seven percent here, then I will be able to make money not only on the premium that I collected, the 16.45, but also an additional $7,000 on the stock, right? So this will be a total of $8,500. It’s just the nature of the beast because when you are selling calls you’re usually closer to the strike price, and therefore, usually higher premium for a higher ROI. This is why I keep telling you, I’m always looking forward to getting assigned because selling calls is actually more profitable. 18.) When you sell calls to reduce the cost basis, do you also include the premium received from selling first the put to reduce the cost basis? Yes, I do include the premium. 19.) Is there a risk of the portfolio becoming nothing but stocks and not being able to sell covered calls out of the money (OTM) to hit your targets? The answer to this is absolutely yes. When trading there’s risk, and there is a possibility that you own a bunch of stocks and you cannot sell calls against. So you have to hold on to these, and so for a few weeks, it could absolutely happen that you’re not making any money. I was recently assigned shares of AAPL, and have not been making any money with them because I have not been able to sell calls. But you see, even though I have one dud in my account, it’s only one of my positions, and I still have been able to make almost $51,000 in about 8 or 9 weeks. So, therefore, it’ll even out. So is there a risk? Absolutely. When trading there is always risk. If you are not willing to accept the risk when trading, do not trade, because there’s always the risk of losing money. 20.) Markus, if you haven’t sold a call against the Apple 103 strike price haven’t you been missing out on money? Not really, and here’s why. Right now, if I would try to sell a 133 call on Apple, that is, for example, expiring this week, I would get $0.01. I’m not missing out on any money, right? $0.01 translates into $1. So, no, I’m not missing out. Even if I would go out next week and I’m looking at the 133, I would only get $0.14. That’s $14. For me, it’s not worth it, and again, everybody’s different, so you might have different rules. For me, however, it’s not really worth it. 21.) When running a rescue mission on margin, how does one sell a covered call? My broker requires cash for any call that I sell. If this is true, change the broker immediately, and here’s why. So I own Apple shares, and if right now I want to sell calls against these Apple shares, let’s say 8 calls, it would not have any effect on my buying power. It’s the opposite So here I highly recommend you change the broker if this is true. Your margin requirements should be reduced when selling a covered call, this is how it works. 22.) Why not still sell calls at your cost basis after the stock drops? Because sometimes there’s not enough premium. If there is enough premium, I will do it, but sometimes there is simply not enough premium and then you are sitting on your hands. This is why I said I have this, the one dud in my account, AAPL, is not making me any money, but everything else IS making me money. I was able to sell calls against GDXJ and RIDE. With DKS, MARA, and SNAP, I sold puts. So everything else is making me money. I mean can’t change the wind, I can only adjust my sails and this is what I’m doing here. What To Do When A Trade Is In Trouble 23.) What do you mean by “rescue mission” for those who have not heard it before? But a “rescue mission” is where you have been assigned shares, and now the trade is going against you. You sell more put options below the assigned strike price. By doing this you collect more premium. If you are assigned, you lower your cost basis, making it easier to get out of that trade. You only should consider flying a “rescue mission” if the stock is down at least 30% from your assigned price. 24.) Why not still sell calls after your stock drops? Because there might not be enough premium in there. So very simple, right? If there is, we will do it, if not like with AAPL for me right now, then it is what it is. 25.) What happens when you run out of buying power and can’t sell calls at your target? So first of all, you can always sell covered calls, because you will not run out of buying power for selling covered calls. What they probably meant is what about not being able to sell puts, and there are two things that you can do. Number one, you can either wire more money into your account, which is probably not always feasible. Number two, you can simply close some positions to free up some buying power. 26.) Is it possible to buy options rather than sell options because selling options is supposed to be very dangerous? Well, of course, and that would be the PowerX Strategy. So with the PowerX Strategy, you are buying options if this is what you prefer to do, and if you’re trading the Wheel Strategy, this is where you’re selling options. So pick your poison. I mean, you got to do one thing, either you’re buying options or you’re selling options. So I have a strategy for each of these. 27.) Any point in waiting to make sure that the market has stopped dropping before flying a rescue mission? Yes! You don’t want to try to catch a falling knife. Wait until you see that the market or the stock is stabilizing here. 28.) I understand starting the rescue mission when the stock drops 30%, how do you determine the new put strike price to enter? The next support level? Yes, absolutely. This would be the next support level that you’re looking at. I got assigned at 21.50, and the next possible support level is right around 12,13, so this here it would be a strike price of 12–13, so this is where I would do it. If we go to Apple, which is another stock that I have, I did get assigned here at 133 and the next support level is around 108, right? So I would probably be most interested in selling the 108 strike price. 29.) It’s hard to make money on a small account unless you get assigned. Yes, it is hard to make money on a small account, period. I know that many want to start with a smaller account, like $500 or $1,000, but honestly, it is super, super, super difficult to make money on such a small account. In order to do this, you would have to trade this account way more aggressively, which means that you are basically risking a whole lot. So if you want to try to double a $500 account, you basically have to risk the full $500. This is what many Robinhood traders and these YOLO’ers do. It’s all-in and maybe it doubles or you lose all of the money. So, yes, it is absolutely difficult. So this is why the capital requirements, I highly recommend that for the PowerX Strategy if you want to trade it, that you have at least $5,000, and if you want to trade the Wheel Strategy, that you should have at least $10,000 in cash, which gives you $20,000 in buying power we talked about this at the beginning of the show here. So this is super important. If you do have smaller accounts, there might be trading strategies for you. I want to be honest with you though if there are, I don’t know them. When I started trading, I started with an $8,000 account and I saved until I had $8,000. Now, I shredded that account into pieces, down to $1,600 and then I saved money up again. Then the second account that I was trading was $16,000. Now that one, I also lost more than half. So I lost, I traded this down to $8,000 and this is when I put some more money in, brought this up to $12,000, and this is when it finally clicked. So again, if right now you have a smaller account, good luck, there might be strategies out there. I wish I had some for you. I promise, if I knew how to grow a $500 account I would tell you. If right now, if all I had to trade was with $500 to trade, I wouldn’t do it. I would probably find a way to save money or make extra money with Door Dash, Insta Cart, or something like this until I have at least $5,000. I wish that I could tell you something different, and unfortunately, I can’t. I’m not saying that it is impossible. All I’m saying is that I’m not the right person to teach you these strategies because I don’t know them. Summary If I didn’t cover a question here in this article that you may have, I promise I’m reading through all of the questions that you have, and I will answer them in one of the upcoming Coffee with Markus episodes. I hope that you enjoyed this article because I love talking about trading. Anyhow. Have a fantastic rest of your day and I’ll see you on the next one.
TVC:NDQEducation
by rockwelltrading
Rolling (IRA): TLT May 21st 148 to June 21st 145 Covered Calls... for a .92/contract credit. Notes: A continuation of my TLT covered calls. (See Post Below). With the May 21st 148's at greater than 50% max, rolled out to the June 145's. Total credits collected of 6.42/contract with the June 21st 145's currently valued at around 1.60/contract, so I've realized gains of around 4.82/contract on the call side so far this year. With a cost basis of sub-110 (the last time I acquired), I remain fine with either being called away or continuing to work covered calls. My natural preference would be for the underlying to settle so that I wasn't constantly chasing calls down the ladder, but you can't have everything.
NASDAQ:TLT
by NaughtyPines
Trading The Wheel Options Strategy — 3 Reasons Why You’d Lose MoI’m Markus Heitkoetter and I’ve been an active trader for over 20 years. I often see people who start trading and expect their accounts to explode, based on promises and hype they see in ads and e-mails. They start trading and realize it doesn’t work this way. The purpose of these articles is to show you the trading strategies and tools that I personally use to trade my own account so that you can grow your own account systematically. Real money…real trades. So, as you know, I love trading the wheel options trading strategy, and this past week was a roller coaster for this strategy. Friday morning I woke up and my account was down $25,000. Now I’ve been trading a larger account. It’s two hundred fifty thousand dollars in cash, five hundred thousand dollars in margin, so $25,000 is not that much, but still. So in this article, we are going to talk about the Wheel Options Strategy. We will talk about the three reasons why you would possibly lose money with this strategy and also how to avoid these mistakes. So here we'll talk about my account. As you know, this show is about real money and real trades, and at the time of this writing, I am still down about eighteen thousand dollars. So it has gotten a little bit better since this morning, but down eighteen thousand dollars. So we’ll take a look at these trades in detail. But first of all, let’s talk about the three reasons why you would lose money with this strategy and then also how to avoid them. 3 Reasons You Would Lose Money So there are three big mistakes that you can make when trading The Wheel strategy. So the first is panicking. If you are somehow trapped in a position and you say, what the heck do I do now? I often see traders who say, “What do I do now?” So solution number one is don’t panic. Easier said than done, right? But not panicking is so important. This is what one of our members posted in our community. “It’s not a loss if you don’t sell.” so the worst thing that you can do going back to this is panicking and closing your positions at a loss. Don’t do this. Don’t close your positions, & evaluate what’s happening. The second mistake is not having a plan. Mistake number three is not having the right trading tools. So, now I will go through my positions that I had and then I will show you how I handled them with my plan. Then we will also talk about the third mistake in more detail, and then some more solutions. My Positions So five positions that I had in my account were (On February 26, 2021): AAPL AMD DBX GDXJ RIDE So let’s start with AMD first. If AMD were to stay above 83.50 until the remainder of the trading session (at the close that day), I’d make money. Everything that happens with my positions, I write this down, and I recommend you do the same thing so that you know of what’s happening to your positions. You will know which ones are actually in trouble and which ones are good to go. So if AMD closed above 83.50 nothing would happen, and I would keep the whole premium. For this trade, this was $576 in premium for the week. Not bad at all. The second position is DBX which is Dropbox. So Dropbox needs to stay above 21.50 and it was trading at 22.85. So it seemed that we were pretty good there. You might be wondering why I am talking about the positions that are OK? You see, in order to stay calm and to make sure that you’re not panicking, focus on the positive first. I know if you’re taking a hammer and you smack one of your fingers, what do you focus on? The finger that hurts. Right? But you have four other fingers that are absolutely fine. So it’s important to focus on what’s going right for us. So if DBX stays above 21.50, which is very likely. So I sold 47 of these options for $13 totaling $611 in premium, so not bad at all. So what’s happening with GDXJ? So the week prior I got assigned because it expired below my strike price. So I got assigned 2,100 shares at $48. Now, here’s what I did with this. So let’s forget these shares for just a moment and let’s again focus on the positive of what’s working well for it. I sold covered calls at the 49 strike price, and I collected premium. So how much premium did I collect for these calls? I sold 21 contracts for $75 each. So I collected for this trade, $1,575 in premium. So we are OK there, and I still have the shares, because they expired worthless. So the next position is RIDE. So if it stays above 21.50 I just collect the premium and nothing else happened, but the price stayed below. I got assigned 4,700 shares at $21.50 so this position is in trouble, we will deal with that at some point, but here’s the good news. I still collected $1,974 in premium. So the last position here is AAPL, and I did get assigned these shares a week prior. So I have 800 shares and I’ve not been able to sell any calls against it. So here I have 800 shares at 133, and also these shares are in trouble because Apple right now is trading at $124. So I got assigned and now AAPL is down. Not good. I still collected all this premium and it all added up. So because overall, it was a pretty darn good week, collecting $4,736 overall. I don’t know about you, but this is not bad at all. And I know you might be saying, “oh my gosh, you’re talking about making some money here, but what about all of these red positions?” Why You Shouldn’t Worry About Being Assigned We’ll take a look at these starting with RIDE This is where it goes back to what is the worst thing that you can do? Panicking. Like if I were to sell for example. If I would sell these shares instead of collecting the premium that I have here, I wouldn’t have made any money on RIDE, I would have lost $8,272 instead. I don’t know about you, but I would rather keep the premium of $1,974 instead of losing $8,272. For me personally, I will not worry about it. So here is where it goes back to. What do we do? Follow your plan. So you got to follow your plan, and this point I’m about to make is very important. I’m actually excited to get assigned, and in a moment you will see why. Your reaction should be, “Yes! I am assigned because I want to own the stock.” I’m really, really happy about this. I’m happy about having stocks. Or your reaction might be this where you say, “oh my gosh, what have I done?” If this is your reaction, then you violated the number one rule of “The Wheel Club,” and here’s the number one rule of the wheel club: "Don’t sell puts on stocks that you don’t want to own". OK, wrong movie, but you get the idea right? So let’s take another look at my positions. Am I happy to own AAPL stocks? Yes, I am. Am I happy to own GDXJ and RIDE? Yes! Would I have been happy to own AMD stocks if I was assigned? Of course! Absolutely! OK, so let’s take a look here at the stocks that I’ve traded thus far year to date. And as you can see, my profits year to date, around $43,000. Take a look at all the stocks. These are the stocks that I would not mind owning at all, and this is really the number one rule of The Whale Club. So Apple, AMD, DBX, GDXJ, HAS, IBM, LL, WYNN, ect. All of these are good, solid stocks that I wouldn’t mind owning. So let’s talk about what do we do with RIDE. Why am I so excited to own it? This is where it goes back to having a plan. So my plan is just to follow The Wheel strategy, and this means that after assignment, I will sell covered calls and collect premium. Very, very easy. This is where we go back to mistake number three, not having the right tools. I use the PowerX Optimizer and I will show you right now how to use it and why it is so important. So PowerX Optimizer supports two separate strategies. The PowerX strategy as well as The Wheel strategy and part of the PowerX Optimizer is the real income calculator. I set my buying power to $500,000 because that is the buying power that I have in the account. So the stock I want to use as an example is RIDE. Let’s plug in some numbers and see what our premium is on this one for if I get assigned these shares, and start selling calls. So getting assigned 4,700 shares at 21.50. Now, the option strike price that I’d try to sell would have to be at the price that I bought at or above. The last traded price was $0.43, so let’s assume we’re selling the shares at that same price. So I’m using the strike price here of 21.50 and I’m selling calls for $0.43. If I did this I would get $2,021 in premium! Wholly Cannoli, are you getting excited about this? I’m excited about this. Now you see why I’m excited to get assigned. If you add this with the premium I’ve already collected on RIDE from selling puts, which was $1,974, that’s almost $4,000. You get the idea right? So I would not make any money on the stock but that is OK. So is this stock really in trouble if I make 4000 dollars in two weeks? I don’t think so. So one trade that I had last week that wasn’t doing so well was AAPL. I got a signed AAPL at 133, so I need to see if I would get enough premium to sell calls. This is why it is so important & I can’t even stress this enough, how important it is to have the right tools. Having the right tools help you make the best decisions instead of panicking. Back to AAPL, I was assigned 800 shares at $133. How much premium could we get for selling calls? So right now, if we sell calls with expiration for the end of this week, at the 133 strike price, we would only get about $0.13, and I would only make about $104 which is nothing. So out of all these positions, Apple is the only one that right now is kind of in trouble because I not yet able to get enough premium when trying to sell calls, but that is OK. All I need to do is just be patient and wait until AAPL goes up. Summary In the meantime, I do believe that Apple is a solid company, and I don’t mind owning the shares. This is where we go back to rule number one of The Wheel Club. “Don’t sell puts on stocks you don’t want to own” because if you do this, then you probably sitting there today, like, what have I done? But I hope this helps you see how to deal with being assigned and that you also see, how to handle things when a trade is in “trouble.” Just sell covered calls, and collect premium. If there isn’t enough premium available to sell calls, just wait until it bounces back, it’s really not a big deal. I am absolutely OK making $4,736 last week with the potential to make another $3,000 this week. Not bad at all, as you know. My goal is to make $15,000 per month. If I can make $7,000-$8,000 in two weeks. I’m well on my way.
NASDAQ:AAPLEducation
by rockwelltrading
1
The Poor Man’s Covered Call ExplainedWhat Is The Poor Man’s Covered Call? Questions we’ll answer in this discussion: - What is it? - Who is it for? - When to use it? The Poor Man’s Covered Call is a very specific type of spread. As you know, we’ve been covering option spreads for several Coffee With Markus Sessions. We’ve also covered the Covered Call’s strategy in-depth on our YouTube Channel. In this article, we’re discussing the difference between trading stocks, covered calls, and the Poor Man’s Covered Call. Trading Stocks Let’s take a look at trading stocks first. Let’s say that you’re bullish on a stock like Boeing BA . If you were bullish on this stock, you might purchase a decent amount of stock, let’s say 100 shares. At the time of the original writing of this article, this stock’s strike price was $180. If you purchased 100 shares of BA , at $180 dollars each, this would require $18,000 in purchasing power. If the stock increases by $10, to $190, you stand to earn $1,000 in net profit. So you’ve risked $18,000 to earn $1,000. If the stock price increases to $200, you’ll earn $2,000 and so on. This is pretty basic and you probably understand this concept. A profit picture is a sliding scale that moves to the right as the stock price increased. It is a visual representation of your profits. or losses depending on the movement of the stock. In this example, the price of the stock is increasing so the scale is moving to the right. Selling Covered Calls In this example, let’s say that you’re still bullish on BA . And in the short term, you expect an upward movement in price. Since you already own the 100 shares of BA stock, you can sell a $200 Call Option against these shares (again, this is based on the price of BA at the time of writing this article). If the stock price increases to $190 like you expect, you’ll earn an additional $450 on top of the $1,000 you’ve already earned. If we see a decrease in stock price, the covered call acts as a hedge. In this example, if we saw a downward movement to $170 you would lose $1,000. But because you sold a $200 Call option contract and received a premium of $450, your net loss would only be $550. Covered Calls VS Poor Man’s Covered Call Poor Man’s Covered Call When would you trade a Poor Man’s Covered Call? That’s easy! When you don’t have the $18,000 to buy 100 BA shares! And When do you trade a covered call? When you expect the stock to stay above the current price and move slightly higher. Instead of buying a stock, you would purchase a deep in the money call option at a later expiration. When looking for a call option deeper in the money, we’re trying to find one with a Delta of 0.95. his means for every dollar the stock moves, the call option is gaining .95 cents in value. Deep “In The Money” Calls For this example, We’re buying a deep ITM call at $71 which means the capital required to take this position is only $7,100. As you can see this is a fraction of the price to purchase the stock outright. At the same time, we will sell the $200 Call option. Similar to the covered call. But instead of owning the stock at a price of $18,000, we purchased the ITM call option and sold a $200 call option. if the underlying stock price moves from $180 to $190 you would make $1335 because the Delta is 0.95, which means it’s only increasing 95% of the value. The profit on this type of position isn’t as high as a covered call, but it’s much more than owning the stock outright, with much less risk and less capital. This sounds too good to be true right? The perfect strategy! BUT… there’s a downside associated with this strategy. Your profit is limited. If you see a huge movement in the underlying stock, you’ll only benefit from a portion of the total gains. In this example, if the underlying strike price gained $40, the stockholder would earn $4,000. The covered call would earn $2450, and the Poor Man’s Covered Call would earn $2,320. Many traders use this strategy because of the limited capital involved with taking on a position, and the limited risk associated with a potential downward movement of this stock.
NYSE:BAEducation
by rockwelltrading
2
Covered Calls For BeginnersI’m Markus Heitkoetter and I’ve been an active trader for over 20 years. I often see people who start trading and expect their accounts to explode, based on promises and hype they see in ads and e-mails. They start trading and realize it doesn’t work this way. The purpose of these articles is to show you the trading strategies and tools that I personally use to trade my own account so that you can grow your own account systematically. Real money…real trades. Covered Call For Beginners For good reason, the covered call strategy is one of the first option strategies that new traders start trading. This is an effective strategy that options traders often use to provide income on stocks they already own. Questions to be considered in this article: - What Is A Covered Call? - Should You Trade It? - Specific Example Can You Do It In A Retirement Account, EG, IRA? What Is A Covered Call? A covered call is an options strategy used traders to produce income on stocks on long stocks held in their portfolio. This strategy is used by traders who believe that stock prices are unlikely to rise in the short term. A covered call strategy is defined as holding a long position in stock while simultaneously selling a call option on that same asset. This strategy can provide income to a trader who is long term bullish on stocks but doesn’t believe there will be a significant increase in price immediately. A covered call will limit a trader’s potential upside profit if there is a significant move in the price of the stock upwards. This strategy provides little to no protection if the asset price moves downwards. Covered Call Example For the specific example that we’re going to cover today, we’ll take a look at JP Morgan JPM . The price information reflects the price of JPM back in July at the original time of writing for this guide but is just being used as an example If you were holding JPM stock in your portfolio before the pandemic, chances are that you are currently underwater. DISCLAIMER ***For the purpose of full transparency, I do not own or hold any JPM stocks*** I typically only hold stocks between 5 and 25 days. Stock Price Movement Recap For this example, we’re going to assume that I own 100 shares of JPM . If I were to purchase 100 shares for $96 it would mean that the capital requirement for this position is $9600. You’re probably familiar with the way profits move in relation to stock prices… but just to be safe: - If the stock increased to $106, or $10, I would earn $1000. - If the stock increased to $116, or $20, I would earn $2000. - If the stock decreased to $86, or -$10, I would lose $-1000. How Does A Covered Call Work? Sell one call option contract for every 100 shares of the underlying stock in your portfolio. The contract selected would ideally have a short expiration date of 7 days. You would choose an “out of the money” call at a higher strike than the current price of the stock. When choosing this strike price, you would typically choose a price at least one standard deviation away from the current strike price. In other words, choosing a strike price that you do not believe the current strike price will exceed before the date of expiration. If you’d like to learn more about this options strategy, or options in general, I have an awesome Options 101 Course. What’s the benefit of having a Covered Call for the stocks in my portfolio? It’s simple really. When you sell a call option contract, you will receive a premium. This strategy generates income when you don’t expect to profit from the movement of the underlying stock price. In this example with JPM , I received a premium of $55 for selling a call option contract at the price of $116. Provided that the underlying strike price does not move above $116, the contract will expire worthlessly and I will keep the premium I collected by selling the options contract. Let’s take a look at how a covered call will affect your portfolio with the same stock movements. - If the stock increased to $106, or moves $10, I would earn $1000 plus the $55 - If the stock increased to $116, or moves $20, I would earn $2000 plus the 55 - If the stock decreased to $86, or moves -$10, I would lose $-1000 but keep the $55 for a total loss of -$945 Why does this work? If you take the entire amount of premium you received and divide it by the number of days between no and contract expiration, you come up with a number like this: $55 dollars in 7 = $8(ish) per day. This covered call contract is paying us $8 dollars per day. If you take the $8 dollars, divide that by your total capital investment of $9,600 it equals 0.08%. This may not sound too incredible, but… If we do some basic arithmetic and take 0.08% and multiply that by 360 trading days per year, you end up with a return of over 30%. This is in addition to what you earned from the growth of the stock. On some stocks, it’s possible to earn upwards of $20 per day. This could increase annual returns in excess of 40% to 50% Does this sound a little more exciting? YES! Should you trade it? ABSOLUTELY! BUT…. There is a risk associated with this strategy. If there is a large movement of the underlying stock price that surpasses the strike price of your call option contract, you will be forced to sell your shares at this price. This would limit your upside potential to the difference between the current stock price and the price of the call option contract. Example: If the price of the stock went up to $117 (past the $116 call option) and the options contract expires, your stocks will be sold $117. This means you would earn $1,100 + $55, or $1,155. In other words, you would lose $100 for every $1 the strike priced moved above your call option contract. The silver lining is that you can probably buy your stock back the next day if you wanted to hold them long term. This type of trade can be taken inside of your retirement account such as an IRA, which provides you with another way to grow your account conservatively.
NYSE:JPMEducation
by rockwelltrading
$RIOT - Monday Covered Calls / Tuesday Long CallsOn Monday, Sell highly inflated out of the money call options on Mondays utilising the "recalibration/catch up" from RIOT compared to BTCUSD which runs all weekend. On Tuesday, Dip Buy weekly long calls, ride the wave up, flip em for profit. If Friday sell-off (like often), go long calls and flip them on Monday morning at the top, flip them + add your covered calls. Rinse, Repat every week. These options are not part of a spread and can be closed separately. Good luck ! Started a YT channel recently on which I mostly focus on passive income strategies selling weekly covered calls (Including $RIOT, $MARA, $PLTR, $SRNE, etc) Feel free to stop by : "Brenn Capital"
BITSTAMP:BTCUSDLong
by l3renn
ROLLING (IRA): TLT JAN 15TH 165 COVERED CALLS TO FEB 19TH 163... for a 1.00/contract credit. Notes: A continuation of my TLT covered calls. (See Post Below). Rolling out at >50% max to the strike paying around 1% of the strike price, which is the 163 in February, currently valued at 1.66. I'm fine with being called away, since my last acquisition was around 110, and I think the buying power could be better utilized in something with higher implied volatility (30 day is currently 14.9% here). By the same token, that 1.66 for the 163 short call is 7.67 annualized or 4.9% as a function of stock price. That isn't hugely sexy, but when you add that to TLT's current yield of 1.56%, I could think of worse places to park my money for a little bit while I ramp up other positions in the new year.
NASDAQ:TLT
by NaughtyPines
Options Idea: Sell The Sep. 2020 PSTH/U Synthetic Covered CallIf you trust Bill Ackman, his new SPAC Pershing Square Tontine Holdings looks like a great candidate for a very short-term covered call position. Ackman has been on fire lately. Last year his flagship fund Pershing Square Holdings was up 58% and this year to date he’s up 46% after he turned a $27 million hedging position into $2.6 billion as markets tanked in March. What’s a SPAC? A SPAC (Special Purpose Acquisition Company) is a blank check company used to take a private company public. Instead of raising capital in a public offering, a private company can merge with a SPAC and get a guaranteed injection of cash at a predetermined price. Transaction costs and uncertainty are much lower. Management at a company looking to go public should prefer to go public via a SPAC as long as Ackman gives them the same valuation they would get from a traditional IPO. You can do this trade by simply buying 100 shares and then selling a call against it, but we did this trade synthetically using 3 options: Bought the March 18, 2021 $20 Call @ 3.90 Sold the March 18, 2021 $20 Put @ 1.75 Sold the September 18, 2020 $25 Call @ 0.35 Synthetic Covered Call A synthetic covered call is constructed by buying an at the money call and selling an at the money put and then selling another out of the money call. You get the same profit and loss graph as a normal covered call, but with no dividends (not a problem here) and with reduced capital outlay. PSTH.U closed at $21.83 on the day of our trade, so instead of using $2183 in cash for 100 shares, we used $862 in margin and took a position twice as large as our normal position size by going synthetic for the same capital outlay. We sold a short-dated out of the money call to help reduce our initial cost basis to the current trading price of PSTH/U, since the March 2021 options don’t have much liquidity. We may sell a few more covered calls against this position to bring our cost basis down to $20, which was the price of the SPAC's IPO and the redemption value of the SPAC's cash in trust. Redemption Value : PSTH.U shareholders have the option to redeem their shares for the $20 IPO price after the merger is announced. Let’s assume the market doesn’t look favorably on Ackman’s deal, PSTH.U shareholders can redeem their shares for $20 and exit before the merger is completed. Read the full prospectus for details (including scenarios where you might get less than $20, its complex). However, for us, this puts an effective floor on PSTH.U’s value at $20. If we want to stay conservative (and we are), we’ll sell calls to get our cost basis closer to $20. However, if you are bullish on Ackman like we are, we do not recommend selling calls against this position for an extended period. If a merger announcement is positively received by the market, the price will gap up instantly as investors realize they can immediately participate in the newly merged company’s equity via a position in PSTH.U. Those of us invested in PSTH.U have looked on in envy as KCAC (another SPAC) just struck a deal to take Quantumscape (an EV battery-maker) public. Shares in KCAC closed up 87% the day after merger news. This is why you don’t want to be stuck with a short call in PSTH.U when the merger news comes out. If the news is extremely positive, you might give up a huge windfall. Since SPACs have a limited lifespan, 2 years usually, as time continues it becomes increasingly dangerous to have a short call open on PSTH.U if your ultimate goal is to have a long position in Ackman’s merger pick. Our objectives for short call income generation against this position are as follows: Initial Objective: $0.32 (Recover Liquidity Loss) Secondary Objective: $1.83 (Reduce cost basis to the Redemption Value) We completed our initial objective by selling the Sep 18, 2020 call at $0.35 and we entered this trade $0.03 below the cost of going long. Again, our goal here is simply to increase our buying power on a trade we consder low-risk due to the redemption option. We may continue to sell calls for a limited time until we get our basis to $20. We don’t want to have a long call open at the time the merger is announced. 20-PSTHU-01 Opening Date: Sep 4, 2020 Expiration Date: March 19, 2021 DTE: 196 IV: 33.29% IV Percentile: N/A (less than 1 year trading) Odds of Winning: 54.55% Odds of Losing: 45.45% Win: > 21.80 @ Expiration Loss: < 21.80 @ Expiration Reg-T Margin: $862 Chart Legend Green Area: 100% Win Zone. If we finish above or in the green area, we’ve made a profit on our synthetic covered call. Since our position has a long call that means our potential gain is unlimited after Sep 18, 2020. Up to Sep 18, we are limited in our gain by our short $25 call. Red Area: If we finish in this area we have a loss. The size of the red area is the size of our maximum loss. Since we’ve sold a naked put we have losses all the way to $0. 1 standard deviation, 2 standard deviation, 3 standard deviation projections from Opening Date to Expiration Date are included.
PLong
by OptionsCoach
PBCT Covered CallPBCT is pushing higher and I believe the stock is cheap and will continue to go higher in the couple months. As their is a good amount of upside, I do see some resistance near $14.00. To protect my investment and to capitalize on upward move, I bought 200 shares @ $12.53 and sold 1 call @ 12 strike and sold 1 call at $13 strike. My net profit potential is $159 or max profit (6.3%) if the stock goes above and stays above $13 per share. Earnings is on July 15th, so I'll most likely remove my risk before then and close out these July 17th calls by then. Also, if the stock is deep in the money around $14 per share by the end of the month, I'll close them early and trade will reach close to max profit. Hit the like button if you want to be updated on how I'm using covered calls to make 4-5% per month and how to reduce my loss potential and how I increase my probability.
PLong
by TheBulltrader
WFC Covered CallWells Fargo has taken a beating in 2019 and 2020. With stock falling significantly, I believe the stock is due for a bounce. I bought 100 shares on 6/3/2020 @ $28.86 and due to volatile expectancy of this stock, I sold an ITM 28.50 sell call for a credit of $2.12. My max profit is $212 - intrinsic value ($36) =$176 or 6.09% max profit at expiration on July 10th, 2020. I do think the stock could go up 6% in the next 30 days, but it also could be very choppy. To limit my risk, the covered call protects my position to the break even price of 26.74. I will also reach my max profit as long as the stock stays above 28.50; In this scenario, I have a higher probability of success than just by the shares, at the same time, I do limit my profits. Hit the Like button if you want to be updated. Goodluck.
NYSE:WFCLong
by TheBulltrader
MU BreakoutIn May, I was bearish on micron as we were trading in a sideways action and I thought that the S&P500 would have some form of meaningful selloff and that high volatile stocks would sell off the most. To my surprise, this stock hasn't really done anything in the past few weeks and today, I noticed that stock broke up resistance wedge. With this wedge breakout, I bought 100 shares at $51.14 and sold a ITM $50 strike call for a credit of $3.60 = $360. My max profit is my premium ($360) - intrinsic value of the option (51.14-50.00 = 1.14 x100 shares =$114 intrinsic value). Therefore, my max profit is $360-$114 = $246 or 4.8% in a little over a month. By using the covered call, I am able to protect my investment at the same time as limiting my profits. I do expect this stock to go up more than 4.8%, but I prefer to also limit my losses or increase my probability of profit and that's why I chose a covered call. Hit the like button if you want to know how this turns out. On a side note, the stock does have earnings on 6/29/2020 or in 25 days and I will most likely either close my position if its deep in the money or I will cover my position even deeper to lock in any gains in the next 25 days. Goodluck guys.
NASDAQ:MULong
by TheBulltrader
CLOSING (IRA): SPY MARCH 20TH 319, 320, 322 SHORT CALLS... for a .31/contract debit. Notes: Hard to believe that these were well in the money a few days ago, but they've largely done their job. Over time, I collected 11.70/contract in credits, and am closing out here for .31, so made 11.39 ($1139)/contract, all while protecting my SPY position from most of the bruising it got over the last week. (See Overwriting Post, Below). The downside (if it really is one) is that the entire position has returned to net delta long, although I've still got a QQQ long put diagonal hanging out there (See Post, Below) providing me with some short delta that was erected as a secondary hedge against. The 370's have gone no bid, so will just leave those on to expire ... . Generally, I like to erect these on strength, but may re-up if I can sell calls clear of those all-time-highs and get paid to do so.
AMEX:SPYLong
by NaughtyPines
TUTORIAL: BUYING POWER EFFICIENT CC OVERWRITINGLet's face it. Being in a net delta long covered call in a market downturn can blow. Typically, the vast majority of covered calls are 70-80 net deltas long per one lot, depending on how aggressive your are with your short calls. There are a number of solutions to cutting that net delta to something more tolerable: (a) sell calls; (b) sell short call verticals/diagonals; (c) buy long put verticals/diagonals; or (d) drive your short calls to at-the-money or into-the-money. This post discusses overwriting your covered calls with short call diagonals. While selling calls against is the most straightforward of approaches, many brokers won't allow naked call selling, particularly in cash secured environments like IRAs. Moreover, selling naked against may not be the most buying power efficient of approaches. The short call diagonal not only provides a work-around to the "no naked call" prohibition, it may also afford some buying power relief over going naked. Pictured here is a laddered, short call diagonal, overwrite setup (say that quick three times) in the September, December, and March expiries of SPY with the short options camped out at their respective 20 delta strikes, the longs at "cheap." It pays 6.31 in credit, has a theta of 5.49, and is -53.77 delta. It's naturally applicable to any underlying and can be modified to afford you the amount of overwrite/delta-cutting that you want, even where you're not in a one lot.* You can naturally also just ladder out short call verticals with the short legs at the 20's and the longs at "cheap"; my preference, however, is for getting into the longs once so that I can work the calls as though they were naked if they have to be managed, as opposed to managing a spread. Moreover, I can leave the longs alone throughout the life of the setup and re-use them even if they're no bid as buying power effect cutters, thus saving a bit on fees, since I'm only in and out of a single contract, as opposed to two, as I would be with a spread. As usual, there are pluses and minuses to the setup. The pluses: (1) it flattens net delta, thus smoothing out your P & L in a downturn; (2) it provides additional cost basis reduction on top of any dividends you might be receiving by being in shares and/or with the short calls you've already got covering your shares. The minuses: (1) It ties up buying power to the extent of the width between the short call and long call strikes minus any credit received; (2) the additional short calls have to be managed if tested. * -- For example, the pictured setup would flatten the net delta of a 53 share SPY position to virtually flat, since 53 shares of SPY are 53 delta long and the setup is 53.77 short.
AMEX:SPYEducation
by NaughtyPines
OPENING: ANF "MONIED" COVERED CALLHere, I'm going covered call because ANF has a small divvy that I want to attempt to grab (.20/$20 per 100 shares), so I need to own the shares to do that. The record date is 3/3, so I will need to hold the shares until at least then. I'm going monied because I just don't trust this thing not to implode somewhat post earnings ... . Metrics: Probability of Profit: 73% Max Profit: $52/contract (+$20 dividend) Max Loss: $948/contract (assuming the stock goes to $0) Break Even: 9.48 Notes: Naturally, I'm hoping that the 10 short call stays ITM post-earnings. If it doesn't, I'll be rolling that out to reduce cost basis in my shares. I'll otherwise look to take the trade off as a package for $10 after the date of record, since that's cheaper than being called away (for which there is an onerous fee).
NYSE:ANF
by NaughtyPines