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Strikeimprovement

Rolled (IRA): QQQ September 16th 278 Short Put to October 21st... 268 short put for a 1.23 credit. Comments: This wasn't quite at 50% max yet, but thought I'd take the opportunity to do some housekeeping since I could realize a gain, strike improve, and receive a credit here by rolling for duration. Total credits collected of 14.09 (See Post Below) plus the 1.23 here for a total of 15.32 relative to a price of around 2.83 for the October 21st 268, so I've realized gains of 12.49 ($1249) so far.
NASDAQ:QQQLong
by NaughtyPines
ROLLING (IRA): SPY DECEMBER 18TH 255 SHORT CALLS TO 260... and selling the 250 short puts to finance for a net 2.90/contract credit. (See Financing Strike Improvement Post, Below). Notes: My original thought process behind just rolling my 255's out "as is" over time was that I (a) didn't have all that much time until retirement; (b) have experienced a couple of those 40% sell-offs and didn't want to endure another one of those here; and (c) just plain ass slept better at night knowing that I had a ton of down side protection on in the event of a massive sell-off, even though I knew that my shares could literally be called away at any time. Naturally, I didn't expect that this would continue with its up grind ad infinitum (or so it seems), so am throwing a little caution to the wind here to improve those short calls strikes by 5, while getting paid some premium to do so, all in a high volatility environment. I would also note that I overwrote some calls via a laddered call diagonal, so am net delta short on my SPY position in the IRA at the moment. Consequently, I am less hesitant to add back in some long delta, particularly where the calls are buried so deeply in the money (the 260's are at the 81 delta at the moment). Naturally, doing this here comes at a price, just as overwriting calls did, but I'm not doing a ton here in the IRA at the moment, and this gives me a way to deploy some idle capital, albeit at the risk of potentially acquiring additional SPY shares at 250, which I'm not particularly keen on.
AMEX:SPY
by NaughtyPines
1
TUTORIAL: COVERED CALL STRIKE IMPROVEMENT VIA ROLL AND FINANCINGOne of the primary reasons people poo-pah covered calls is because they cap out max profit. There are two things these naysayers overlook and they are (a) you can roll out your short call for duration and credit, thereby decreasing your cost basis and increasing your potential max profit; and (b) you can always "finance" short call strike improvement, albeit at the cost and risk of doing an additive adjustment trade in the event that you can't improve the strike satisfactorily. Pictured here is a deep in-the-money SPY December 18th 255 covered call. If I do absolutely nothing, my SPY long shares are going to be called away, if not at expiry, then earlier by someone exercising their long calls. Say, however, I want to stay in the stock, as well as improve my cost basis and the short call strike such that my max profit potential is increased by the amount of strike improvement. As previously mentioned, there are a couple of ways to do this. The first is to look at merely rolling the short call out in time and examining whether the strike can be improved while still getting a credit. One thing you'll immediately notice when you do this with the December 255's is that the strikes are five wides so that if any improvement is going to be made, it will have to be from the 255's to the 260's or higher. With the December 18th 255's going for 50.85 at the mid, I'll have to look at 260's in an expiry in which they pay more than 50.85 to get a credit on the roll, and the first expiry in which that occurs is in January of 2022 where the 260 is paying 51.00 at the mid price. In other words, I'd have to roll the calls out a whole year to improve them by five strikes, all for a measly .15 ($15) credit. That being said, I also increase my max profit potential by the width of the improvement (5.00) plus the credit received (.15) or for a total of 5.15, so that is not entirely a bad thing were I to do that. It is also the most straightforward way to improve your short call strike without adding risk or tying up additional buying power. If, however, I'm not big on rolling out that far out in time, I can also looking at financing the strike improvement via an additive trade for which I receive a credit that exceeds the cost of the strike improvement, with the down side being that any additive trade has its own buying power effect and side risk. Here are a couple of examples: Roll the December 18th 255 up to the December 18th 265 for a 7.40 debit and sell the December 18th 240 put for a 7.64 credit. I improve the short call strike by 10.00 and receive a net credit of .24 (7.64 - 7.40). Net delta of the position increases from 20.99 to 42.18. Roll the December 18th 255 up to the December 18th 269 for 10.37 and sell the December 18th 240/343 short strangle for 10.44. Here, I improve the short call strike by 14.00, and receive a .07 credit to do it. The net delta of the position increases more modestly from 20.99 to 28.02 because the short strangle is delta neutral, with all of the net delta pickup coming from the roll of the short call.
AMEX:SPYEducation
by NaughtyPines
5