What Happens If My Covered Call Stock Falls? Part 1
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- Опубліковано 12 січ 2022
- As we dig deeper into the mechanics of selling covered calls, it's important to see how we can develop a strategy if our underlying stock falls. In this livestream, I'll be going over what happens when our stock drops and one strategy that I've used to manage my positions.
Get a pencil and notebook, and be prepared to learn!
Ps: The answer to what ETF I shared on TikTok and Instagram is SPY
I will have a Q&A session towards the end to answer your questions. This is an interactive lesson, so I strongly encourage you to ask questions and participate in our discussion. 🙂
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Love that you start at the beginning, don’t assume that we know everything or even know it correctly. I like the beginning to end teaching. Thanks for the info!
Stumbled upon your channel, really enjoying it. You are a natural teacher.
Post #1 - Your content is always lively & easy to digest. Really enjoy the way you break down concepts for viewers 🙌🏽. The explanation of how to accepts shares being called away always frightened me but I totally see your point now! ATM/NTM makes perfect sense for neutral markets. Also your point on ETFs vs Stock premiums was killer. Again, great work Steve ✊🏽
Thanks for the encouraging message, Malik! This made my day! Thank you for tuning in!
Found this just now and I can't thank you enough for all of your teaching.
Great work you do, thanks again 👍👍👍
I've been doing covered calls for 6 years and use a longer timeframe strategy then what you suggest, but otherwise many of the same principles. I'm going to try these shorter 4 - 6 week expiration trades. Great video thank you.
I really like your teaching style
Do you ever choose to roll down n out if the underlying falls and do you rely on technicals to take that position?
Man, you're great! I just sold exactly 4 covered calls of the same at $300 each this morning. LOL I will stagger them next week.
Belive me you are the best teacher i saw explaining options, keep on doing such vieos
Your videos are simple and understandable I appreciate it .
Thank you! 🙏🏻🥹
You are the reason how i know about cover call!!! U r the best
Woohoo! Thanks for tuning into my livestream last week!
Thanks for being transparent & giving back. May god bless you more millions quick amount of time:). Thanks 1mil.
Thanks for this video. However, no one has explined "net credit" vs "market" vs "net debit" yet in terms of rolling a contract. If you can point me to an example of all this, including a few rules to go by, that would be great. I did read on it, but a definition is not enough.
I have a question about staggering. Would you recommend buying all 400 shares (in your example) at one time and then sell a contract each week, or buy 100 shares each week, then sell that contract? Buying 100 shares each week will get you in at different prices, but you didnt mention it that way. Which way would you recommend?
According to your video, You get $300 as a premium for selling a call at the strike price $101 (original purchase price is $100). Say you don't close your contract, and the expiration (2/11) your shares current market price is $97. Now what happens? Like what exactly you see in your account? Do you still have to sell your 100 shares (I'm guessing not)? Also what happens to that premium? Since the share price went down, do I owe money now? $300-$440=($140)?
You still get to keep the 100 shares and you see the value of the contract go down. You’ll see an unrealized loss from you shares and an unrealized gain from the contract.
If the underlying stock is one I want to keep forever, isn't it totally fine if the stock drops in value? I don't actually want my option to be called away because I then lose those stocks, so I prefer for the stock to go down in value in the short term so I am more guaranteed to keep the stock, and the premium. Is my thinking incorrect?
Wow, impressive explanation and great visuals …you have my vote for teacher of the year!
Thanks, Georgia! This means a lot to me! I'll make sure to keep adding the visuals in the future!
Thank you for explaining the staggering contracts concept. I understand that one can sell a contract every week, but what would be the expiration date. In your specific examples it seems like they would have an expiration date of four weeks. Is this correct? If so, do you recommend that this be 4 weeks if you have four contracts, 5 weeks if you sell 5 contracts and so on? I hope my question makes sense. Thank you.
Hi Eron! I typically like to sell 4-weeks out since I tend to find that’s the sweet spot of collecting enough premium to ride through the volatility and for theta to decay the option value the fastest.
Post #2 - If possible can you one day discuss ways for people to get started that are accumulating shares? Especially in the $75-$125 range? (Something like KO or BBY?) I know you’ve spoken about apple and AMD but at their current price it’s more difficult. Just a humble request. Thanks again! 🙏🏽
That's a great point! I personally don't like KO because I don't see the company having explosive growth with the products they sell. I think the market favors more stocks that expand the digital economy. With BBY, the 1-year trend worries me as it shows me that there isn't as much institutional conviction in the stock. I recommend investing for the long-term for now and once you have more capital, you can consider reallocating some of the capital to creating a covered call trade on a stock that Wall Street favors.
Now in theory you the only way to lose money is when you miss the gain (over the strike price)? And if the strike is $100 and the contract expires when the stock is $80 what happens?
The goal is to stay slightly below your strike price so you shares don't get called away. From there, you can sell another covered call to collect more premium. If you buy a stock for $100 each and it drops to $80 each, you'll have an unrealized loss. Remember that we like to choose stocks from the guidelines I mentioned, so the stock has a higher chance of upward retracement.
@@CalltoLeap Ah great! Excellent explanation! I'm subbing
Please talk about Greeks in the next Webinar! Also, keep this video on UA-cam, please! :)
That's a great idea, Palen! I can probably host a webinar towards the end of the month that talks more about advanced topics, such as the Greeks. Stay tuned!
Thanks, Steve for the great lesson. Can you talk about a Covered Call that went against you - deep in the money?
Marcelo from NYC - Thank you so much for your tutorials.
I have to say that you are a very good teacher. Your explanations are very clear and easy to understand.
Do you ever buy calls or puts short term? Or only for LEAPS?
Thank you! I only buy call LEAPS during bullish markets and short term calls to set up as credit spreads during downward markets.
@@CalltoLeap thank you , btw i love your vids.
i am a little confused....When we do a covered call, do we need to close it out......Sell to open, sell to close?. I did a sell to open and the call expired so do i need to do anything else. Love your videos!
When you sell a call to start your covered call trade, you “sell to open.” You can wait until expiration and the contract will close automatically if it expires worthless.
In your example if i buy 100 shares $100 thats $10,000. if the stock drops to $80 i still collect my covered call premium however the stock is now only worth $8000. How would you proceed if the the stock is expected to come back to $100. Would you do a covered call with a lower strike risking your 100 stocks to be taken away are a lower price... say I set a covered call for $85 and the stock goes to $90 i would lose my shares at $85 and lose $1500 in stock?
I would still sell at around the $100 strike, but further in expiration date. I would most likely wait for the stock to retrace back up while collecting premium (and hopefully dividends).
I like to watch your videos that I can learn from you 🙂☺️
for doing 4 contracts one each week, must we buy 400 shares of the stock or just 100 shares
Each contract is 100, you will have to own 100 to sell one covered call. If the length of your contract is a week, and each week your shares don't get assigned (strike price hits), then you can keep using the same 100 shares to sell a cover call.
Why would you not sell puts (including cash secured) in a neutral market?
I like selling CSPs in a neutral market too. However, with the given environment (rising interest rates, inflation, etc.), I am playing it more safe by selling covered calls on my originally owned shares and setting up credit spreads.
How does the current environment affect the market? New to this.
I hope you do more videos 😊
Plz do ITM CC examples. expiring above and below strike price.
Do you know a way to deal with a stock that appreciates after you sell covered calls? I believe there is a method to profit from this situation.
Where can I fun in specific what company are part of the S&P500 or the Down30?????
great job explaining.
Glad it was helpful!
@@CalltoLeap I am new here so you might have made videos with step by step choosing 1 week, 2 weeks, 30 days and past differences in Delta, Theta, premiums, advantages and disadvantages of doing one way over the other. Also, step by step in open to sell, buy to close. these are still a little confusing to me. Just ideas, but then again you may have videos made on these topics.
I bought call option and I am worried the RSI is 27 and it’s down trend
Currently I am up in profit do I hold or sell
Any profit is good profit 👍
good job.
Great to know pal
1- i tried my first one after i watched this
I kind of dont understand why it's good to give up my shares? lets say I have 20K apple stock, and I sell 2K worth of covered calls, why would it make sense to me to buy ATM/NTM calls with a high risk of losing my 20K worth of Apple shares to gain just 2K worth in premium, thats a 18k loss?
is this on the same stock?
Yes. You need 100 shares of the same underlying stock.
2 -i recently started selling covered calls
Nice! How do you like it!
Is there anyway we can see your entire portfolio your cash secured puts and covered calls and positions?
hi from Panama
Morris, in Ohio
Steve I’m lost
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最高良かった致します👍👍👍👍👏👏💯
😊✌🏻
Kelly new york
Nicola hi
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Hi!
curtis
if people don't know what option is ...then they need to watch a different video for beginners
Wes I
#1 😅
U mention capital gains repeatedly. Would be helpful to your viewers if u clarify that these are short term capital gains taxed at one’s normal tax rate and not at the capital gains rate.
if your going to talk about a car accident...you don't have to tell us how to drive a car for 30 minutes
So boaring
Oh?
please stop! you do not have to explain what a call option is and etc etc... just start telling us about the subject a covered call gone bad
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