Covered Calls for Income: How To Effectively Generate Consistent Monthly Income
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- Опубліковано 20 вер 2024
- Covered Calls for income is a great way to dramatically expand monthly income derived from your investment portfolio. In this video, we detail how covered calls work.
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6:02 Cover call actual start
I figured he would talk about nothing for more than half the video.
Agree. And try to talk as much "simple" words as possible to confuse beginners.
You da real MVP
Thanks
Thanks--yack, yack
One other thing to consider when selling covered calls is the ex dividend date- make sure you get both the dividend and call premium. I normally sell out-of-the money call options about 2 months out and on days when the stock price is up (makes call premiums higher)
Thank you for the tip!
that’s a good tip. thx
How many strikes away from the current price do you sell to lower the chances of getting exercised?
@@shivamkashan4056 Around 10 delta
Can't you make just as much or more doing weekly trades?
Thank you. Options get pretty complicated for unsophisticated investors and I know a lot of people who have tried trading options without knowing what they are doing and losing money without understanding the nuances. This strategy is simple enough for almost anyone and selling premium is a lot less risky on the call side. I appreciate your clarity.
I have an account with about 100k in it and had been just accumulating dividend stocks, but now write one 30 day contract per month, on 20 percent of the portfolio value and generate an additional 1-2 percent per month.
and you only write one??what stocks u got??
Thanks Seth. I like writing the weeklies. Depending upon market conditions, I change the strike. Nice way to generate income n also hedge against some pot'l downside....
Love this strategy. Especially with dividend stocks!
Thanks for the video!
G S eating so good, you make money in the premium the dividend and the execution of the call 🤯
Is that because if your shares don’t get called away you still possibly get the dividend?
would ATT be a good strategy with this?
You will need 100 shares of whatever in order for the call to be 'covered' correct?
Michael Snyder Correct, if you do not own the stock, it will be considered “naked”.
Selling calls to shares you don’t own is extremely risky.
@@joshspringsteen4367 ya doing that is how u fuck up bigtime and lose a lot of money. Don’t sell calls until u have 100 shares of that stock, at the end of the day the only way to lose money is not owning 100 shares or selecting a strike price below the price you bought those shares
Yeah. But you can do a spread and substitute the 100 stocks with a purchased call option. Start with that...Poor Mans Covered Call. You're welcome.
Yes covered calls can be great and they're the least risky type of option for the retail investor... BUT there is still risk. He painted a rosy best case scenario.
Thank you I did look the ones I had 100 lots and I've been leaving $8,870 on the table each year. I will be doing this going forward being mindful of dividend dates but I'd expect to get most of those fees because that number was just the bid prices after the close. Thank you again. I had absolutely no idea what I was missing.
@Guy Redares It's not "my take" it's math! They have exactly the same P&L graph as selling covered calls. "Professionals" consider the two plays to be identical. Now...that's the "bumper-sticker" summary. What are the relative pros and cons? Well; a few. Selling NPs of course requires a higher level of options permission. Selling NPs of course requires a margin account and consumes considerable buying power (depending upon exactly how your broker treats them)
but this can be massively reduced by buying protective puts. Selling CCs, I believe can be done in a strictly cash account.
This (reducing the buying power hit that selling NPs consumes) can be done by either opening a credit spread or a debit spread. A cr spread might be: sell 50 put, buy 48 put. I like to aim for receiving a credit roughly equal to 1/3rd the distance between strikes. On a $2 wide spread, I'd kind of like to get 60-65-70 cents. This might occur if the stock is say 51.50. What's the max risk? It's the $2 spr width less your opening credit, so this could lose say $1.40 but that is an absolute maximum. If the stock was 55, you would not be able to get 60-70 cents for such a spread. You might get 30-40 cents, but that 30-40 cents would be lots less risky, because your 50 short strike is a lot farther away from 55 than it is from 51.5. Another way is via debit spread, and this can be done in a calendar spread kind of way (or not) You can buy a distant put and try to sell closer in puts against it several times. Kind of like Cov calls, upside down. I have this on VZ. I have Jan '20 60 puts. I consider VZ to be highish at its recent high of 61 (it was 54.5 on 8/05) and I consider its normalish price to be 56-57. It is a stodgy stock which acts more like a bond with its nice dividend. (Keep in mind that in a crappy market, VZ could acquire more following than your ordinary stock.)
So my hope is to be able to sell close-in 59 weekly or 2-weekly puts over and over against the distant 60 puts. Perhaps 6 times to Jan. This requires ZERO buying power because if the stock goes to zero and I am assigned @ 59, I can sell it for 60. Is there risk? Sure, if VZ ramps to 63-5, I'll be losing money.
Lastly; it is my own recommendation that in a crappy market if you want to do credit spreads...do yourself a favor and buy some extra of the protective puts. Say you open the spread 5*5, 5 long, 5 short. Buy let's say three extra of the protective ones. (Of course you could buy more) I have taken to doing this lately on cr spreads. Will you make less? Of course. It's not unwise to buy insurance.
rsa108ify
rsa is correct, naked puts and covered calls have the same economics.
The thing he should mention is that if the underlying goes above the strike price, your shares are gone. Therefore you can't make more money those shares.
True, but you get the money you had in the market back in return to re-invest and do it all over again.
@@Babymem15 Except the money you get back isn't enough to re-buy those same stocks. Not a huge problem, but overall the returns would not be as high as this video suggests.
But if it's a stock you ready to get out of if it goes above your price you make money and got the premium only do stocks you not worried if they get sold
Not true. You made 5% on the shares. You just don’t make any more than that if the stock remains above the SP. but this is an income strategy NOT growth.
@@goldengriffon Correct me if I’m wrong but you at least get the money of (100 x the strike price) x (amount of contracts) back?
I still don’t understand
Great video seth. I do sell covered calls quite a bit. I dont like to go one month out on the options as I love to watch theta collapse in the final week. I usually trade weekly, sometimes I am forced to go 2 weeks to get more premium but most of the theta collapse happens in the last 3 trading days before expiration. Someday very soon I plan on becoming an elite trader.
Thanks for the response! Great that the strategy is working well for you. What stocks are you selling the covered calls on?
Curious as to what stock/s you're doing weekly covered calls with? I'm doing it on AMD as the shares are cheap and the premium is pretty good.
@@yousajiveturkey1 how'd that work out for you?
Made 1400 in premium this week without having to sell any shares. This shit crazy!!
Lemme guess. You are optioning around 30k in stocks. With 113k I make around 4.3k a month
guinness1987x brooo it’s scary you know my exact number lol
guinness1987x you use margin as well ?
Elliot King what stocks do you sell options for normally?
Elliot King how long do you have to hold your stocks for?
SLV is trading at $21.99. Would you sell a covered call on this options trade each month?
Thank you for the video. But selling a call 5% above the current market price with 1 month expiration is impossible on regular basis. It can work out in the bear market, but in the correction or bull market the options will be called from you. What is the profitable standard deviation u use for covered calls? When do u roll the call up if the stock is rising?
Seth, Great video a bit of a coincidence since this week I wrote some covered calls on my stock holding.
I managed to make $1,425.00 and all the calls were out of the money so I'll make a tidy bit of profit if they get called away. If not I'll roll them over at the end of February and start all over again.
One thing you may want to mention to your viewers is this strategy also manages to lower your cost base on the underlying shares.
This also gives you downside protection in the event of a major market correction.
what u mean roll them over??
What about covered call etf’s? Is that a good option for someone that just wants passive income?
There’s a ton of videos on the topic. Pluses and minuses, like everything else.
Yes ETFs are definitely much less volatile, so you'll have less risk trading these. However, because of that reduced volatility, the option prices will also be very small...which means less income. Just keep that point in mind.
SPDN is trading at 15.86. Would you sell a covered called on this options trade every month?
Can we do covered call for all investment, or only for big companies like Apple Netflix, Tesla?
could work for lower prices companies but usually higher share priced stocks work best for the strategy
Nice presentation.
When shares go up on the expiry day so that you need to sell them, do you actually have to sell them or they sell themselves? Basically how do you exit the trade when shares go up and you need to sell them?
Thanks
I may be wrong but I'm pretty sure the shares sell themselves if the buyer exercises the option.
You also exit that trade/obligation when the option expires.
if the share price is above the strike price on the call option that you sold, then the stocks will be automatically "called" away from you. you will log in to your account and see that the stocks will not be there, but you will have money deposited into your account from the person who "called" away your stock. To avoid this, you would have to buy back the call option before the options expire.
@@10010x0x0x01101XX0X1 gotchu, what strategy do u use ??
I love Writing Covered Calls for Cash Flow!!! It's like my favorite trading Strategy
Terry do you do this on stocks that are already in your personal investment portfolio?
@@sethfreudberg4750 at this moment I don't have an investment portfolio I'm in a cash position
Selling Puts is something that I'll wanna start doing more
@@terrywilliams2349 You can sell the 70 Delta Put, when maintain your cash position (cash secured.) If the option is ITM at expiration, you will own shares at the strike MINUS premium received and can start a covered call program from there.
@@scottsomer4150 good ideal bro.....and that's what I'm gonna start doing.
I have done this but I need to do more of it. My account is growing too slowly for my investment size.
Excellent training, thank you!
Who disliked this video? It was well explained
this strategy can be layered with other long term portfolio techniques as well, great video thanks
Absolutely!
Would you still sell your covered call at 5% over market if your stock cost basis is 10% above that price? My cost is $184 current market price is $168 so 5% above would be $175. Would you still buy the covered call?
Depends on your objectives. If you aren't afraid to take a loss, then yes. If you believe the stock will recover and you rather preserve capital, then no.
No. At the very least I'd want my original investment back. You can always sell call option further out of the money
You can set your strike price at your cost $184 or even more but you will collect less premium.
The answer is Yes. You sell the call at the price you DONT think the stock will reach and then repeat the process. If the stock rises towards your strike price the pin you can ROLL the Call UP and OUT (i.e. a higher strike price and a later expiry date). You will most likely receive another credit if you go far enough out in time. Keep selling Call options to bring in premium which will reduce the cost base of your shares - cover the $16.00 shortfall. You can eventually recover the cost base from premium received AND share price appreciation. Hope this helps
SMB Capital has consistently excellent commentary!!
Thought this was Dave Ramsey.
Dave Ramsay if he had good investment advice
NEWBIE QUESTION: Can I sell covered calls with an index fund like JEPI or does it have to be an individual growth stock of 1 company?
So if I sell a covered call get the premium and they exercise it at a higher price than what I bought it don’t I still make a profit?
Yes you do. You keep premium and you sell your shares at the strike price you selected.
Yes. but you just lost the upside. so depend on the stock. If a stock stable you can generate profit like he said, a stock is volatile, this does not seem like a strategy to generate income because you can loose the upside if stock shoot up.
Just choose a strike that you’ll be happy to sell at. Profit is profit, don’t worry about “lost gains”
Wait so, if the buyer of the option wins, you have to sell your stock, so if enough win you gradually lose your stock?
that is correct. the danger of covered calls. and you are selling at the strike price which is below the actual price the stock is trading at.
Yup. That’s the risk.
You can avoid getting assigned and losing your shares by rolling the short call to the next expiration cycle. Basically buy back the initial call and then sell a new one with the same or similar strike in the next expiration. This new call option will have a lot more extrinsic value, so it would not make any sense for the buyer to exercise it early.
I don’t understand something , if you sell one call , and if the stock price goes higher , then what happened?
Your stock gets assigned and sold at the strike price of the call.
As to whether I would do it, I have a problem understanding the commission schedule.
WOW!! He’s really good at educating on options.
I mean sure, you're making $2,058 each month but you also have to have like $100,000+ to generate that monthly income, which not a lot of people starting out in options have. 1 contract = 100 shares. Company that trades at $100/share, you must have $10,000 to cover that call.
Yup you're correct. Unfortunately, it takes money to make money. But you can still definitely get started with covered calls with significantly less capital...a few thousand dollars is all you need.
For my ADD friends out there, set the playback speed to .75
Can't you do it where you sell the contract on a Monday and it expires on a Friday? So you would make the premium every week instead of every month?
Premium would be too low. Premium is a function of time and volatility.
Theta would diminish the option premium pretty quickly
Yes yes yes. Choose desirable high growth stocks with high premiums, ones you would like to own. I often get over 2%.
@@markguitarlfk like which ones?? so u do this already??
@@Eastbaypisces Yes I do, use any options screener or look at any growth stock. Even today when the market is in a black hole of despair, TSLA has a 2.3% premium for a one-week option. In a good market that will be over 3%.
No normal person own 200 shares of each stock listed so how do you'll even get started in this ? Year over year growth? Inheritance? Time ?
Great video as usual. Could you please have a video on Delta Hedging or Dynamic Hedging of SPX with Futures (i.e. E-Mini futures)?
RSA I'll try to do something like that in the future. Thanks for watching!
@@sethfreudberg4750 hello seth , do you play any option strategies on dowjones which is very volatile.
Wait… what happens if your shares get “called away” and now the stock is at a higher price so you don’t want to buy back in?? How are you making money then? Just buy another 100 shares at a loss?? Need more info thanks!!! All of your estimates came if the shares never get called away!!!??? Thanks!!
You can avoid getting assigned and losing your shares by rolling the short call to the next expiration cycle. Basically buy back the initial call and then sell a new one with the same or similar strike in the next expiration. This new call option will have a lot more extrinsic value, so it would not make any sense for the buyer to exercise it early.
OK...got my interest, I'll do the homework assignment. I currently own 100+ shares LLY. Currently trading at $263.87. 30 days out, Sept 24, 2021 with strike price of $275 (slightly less than 5%) is $3.50. Not sure I'm willing to sell $26,000+ worth of LLY shares if stock is over $275 for the potential of collecting $350 in premium if it falls short of $275. It's just too much volume of $ and stocks that could potentially happen for again...a chance of pocketing of $350.
You also get the money from the rise in the share price. You’ll make your 5 percent plus the 350 bucks.
Sweet video as usual Seth.
I'm no Options expert but I feel comfortable writing Covered Calls because I don't see how capital can be lost writing them unless of course you write the calls at a strike that is less then what you own the shares at and then to have the shares called away. I've been writing calls for a few months now; I write 1 - 4 week Covered Calls depending on how my stock/sector/market are behaving. I usually write them on Monday or Tuesday, usually as soon as we get a stock/market pop so that I receive more premium on my covered calls - I always have my Limit Orders in place at the Ask in order to catch these pops. Sometimes I write calls after Tuesday that expire the Friday of that week, and of course I don't collect much premium but something is better than nothing.
I prefer writing weekly calls with a strike that returns me reasonable premium regardless of what the strike is in relation to where I own the stock. For example, I own a 29.00 stock and sell the weekly 29.50 or 30.00 strikes for that stock as I don't mind that the stock getting called away because I'm still making $ on the shares + collecting the premium. I'll just buy that stock back if it gets assigned. (I still have yet to get assigned with my call writing)
If possible, I'd like you to show us how to roll Covered Calls. What confuses me are the nuances of credit/debit for doing so.
Angelo, I'd be happy to do a video on rolling calls, but please be more specific as to the situation that you'd like me to address. What is the situation where you are inclined to roll the call?
@@sethfreudberg4750 Hello Seth,
I own AMD at 29.00 and last week wrote the 10/25 31.00 Covered Calls. I now realize that AMD reports Q3’19 around that date. (ER date not yet announced but it’ll be close to that date) I’m anticipating positive ER results and so expecting the share price to pop post ER; I’m targeting 34ish post ER.
So I’ve been contemplating rolling up my calls from 10/25 31.00 to 11/1 33.00. What I’m not certain on what do in this situation is which price type to select for this spread.
Net Credit? Net Debit? Even? Of course I will not select Market.
Thanks.
@@AB-jr9ny sounds like you need to enter what is known as a "diagonal spread" buying the earlier lower expiration and selling the higher later expiration. Look at that and see if it accomplishes what you are looking to achieve.
@@sethfreudberg4750 Thanks Seth,
I'll try to enter a diagonal spread this week.
I choose stocks that have weekly expiration dates instead of monthly. It allows me to constantly be using those stocks weekly for money coming in instead of having to wait 4 weeks or more. Then there is also doing calls undoing calls under the stock price which puts you in the money but takes a bigger risk of you losing your shares.
Example stocks?
@@MuzixMaker not sure of your question?
I have found many stocks to do calls in the money.
But I don't do Calls or Puts because of possible downside.
excellent video. I just invest in covered call etf's to achieve the additional income. I know there is an mer to pay, but i find it easier and hopefully mistake free.
whats an mer ?? how it been going so far??
what strategy u use??
@@Eastbaypisces mer is the management expense ratio. it is what the investment manager charges to be in the fund. something like 1/2 of 1%. markets have been very tough so far in 2022 with the S&P down over 15% this year and the Nasdaq down over 25%. I have been doing better than that, being only down under 7%. I do very little tech stocks. mainly dividend paying stocks, dividend paying etfs including covered calls, closed end funds. I am looking for yields of 10% or more.
What about selling covered calls deep itm?
Doesn't make any sense to do this...yes you'll collect a much higher credit, but you'll be giving back a lot of it when you very likely get assigned on the call.
How do you tell what OTM price to sell a covered call at ? The current market price might be way lower than your cost price. The end goal is for the call to expire worthless but some stocks fluctuate like crazy and your shares might just get called off if the strike is too close to the market price you buy at.
You can avoid getting assigned and losing your shares by rolling the short call to the next expiration cycle. Basically buy back the initial call and then sell a new one with the same or similar strike in the next expiration. This new call option will have a lot more extrinsic value, so it would not make any sense for the buyer to exercise it early.
@@scottreesetradinginvesting7936 Thanks Scott. When you say 'next expiration' , are we looking at the same time frame? i.e. weekly for example?
@@RR-yj7yt If you generally sell Weekly contracts, then yes just keep rolling to the next Weekly cycles. Same for Monthly contracts by rolling to the next month.
@@scottreesetradinginvesting7936 thank you
I don't get the incentive of the buyer. If a stock is $90 and I think it can get to $110, why buy a call at $100? Why not just buy it at $90? I guess you're hanging back to see upside movement before you spring?
Simply because the $100-strike call is way cheaper for the buyer. Also, at-the-money options have the most extrinsic value, so buying those options is extra costly since you always lose that extrinsic value.
Don't the weekly trades add up just the same or more than only doing 1 a month?
Interesting perspective on covered calls. I understand your video to presume that the investor will not be exercised throughout the year and therefore hold on to the stock every time, as well as keeping the call option premium. Secondly, I also presume that you are discussing returns under simple interest with no re-investment of the premium paid up front to the portfolio owner. Thirdly, no discussion is given as to the volatility of the options market and better prices on days of higher growth of the stock. My First question: If the investor were to receive 5% on his entire portfolio each month, from call option sales, are you saying that through simple interest the investor could presume 60% return of capital? Second question: Should the investor be exercised every month, and therefore have to let go of his stock, would he not be gaining the premium from the call option, but then either buying many less shares next month and therefore less income on the new covering call option or failing to realize the capital gain on the stock itself? Third question: The investor that makes the premium in the first ten months and is fully exercised on stock that grows strongly every other month would he not fail to gain all the returns he had originally hoped for? My conclusion to your excellent teaching is that the investor wishes to realize an income and pray hard to be exercised every month. Failure to achieve this would give the investor a discount of 5% on his shares. Fourth question: if the investor is exercised does he not lose the dividend income?
well these numbers sound good if you have that kind of $ but lets b honest i highly doubt over 12 mos u gonna make $ on each option trade, u gonna lose some due to market fluctuation
selling covered calls are automatically hit wit short term capital tax gains right
Any gains after close or exp are Short term gains,yes.
Uh, what happens if all the stocks u wrote covered calls on actually close above the strike at expiration, how much would you lose?
This is terribly misleading. Two major flaws are inherent. First, if you pick a strike only 5% above the trade price, chances are significant the shares will be called away. You will be forced to buy the calls back at break even or worse. Second, if the stock price drops below your original purchase price, and you continue picking strikes only 5% above the current market price, you are now forced to buy back shares or loose the difference, which could be severe. Basically, this strategy only works when the all factors play out in your favor... which is much less than half the time in my personal experience. At best, I've made 12% writting covered calls in this fashion. Typical market circumstances simply don't allow for the setup to work in your favor as described enough times to produce such results. He is only talking about the best case scenario and none of the downside risk. Not to mention the amount of work and monitoring and stress created by putting on risk consistantly throughout the year. It makes the passive 2% gain look more attractive...believe me.
@@andreasmelkersson3592 Because why?
David, I was thinking the same thing. I would think that all you can do when your underlying stock plunges (like I'm sure a lot of stocks did this week) is to just pocket your premium from the current covered call and the wait until the underlying climbs back up to make more cc's above your basis. That is why you would choose a dividend paying stock so at least you can collect that while you wait. Would love to see some backtesting on the stock he showed in his video to see how it actually would have turned out.
I consider covered calls the single worst play in the stock market. I could give you 10 reasons why; but the simplest three are: 1: with CC's you can NEVER hit a home run but you remain exposed to greasy losses; unless you produce what's known as a collar...by the addition of long put. And then it's not (just) a covered call play. 2: CC's are in general the very first play a stock-only trader does when they first start exploring options. Do we think that a beginner's play is one Wall St. will let you "earn as you learn" on? Think about it. 3: CC's can *only* be sold intelligently when IV is high; and frankly, this is a concept that beginning CC sellers generally do not understand. Beginning CC sellers fall in love with selling calls because they view it as "free money". Hence; they sell a call against stock and wait for the outcome and can't wait to sell a call again. But they then get into the habit of selling calls NOT when the market is in a favorable condition to sell calls, but "as soon as they can" after the prior expiry is concluded, however it works out. But selling options under conditions of low IV is a recipe for getting thrashed. I've probably done 3000 CC plays in my trading career, so I think I know at least a little about it. There are times it works nicely; but the beginning CC seller DOES NOT KNOW how to discern those times. A habitual CC seller will find the number in the lower right of his/her account statement WILL FALL, OVER TIME, in the great majority of cases.
I will say the same thing I say to all excited CC sellers: Go do this play 50 times and get back to me with whether you still like the play.
@@guyredares It's not "my take" it's math! They have exactly the same P&L graph as selling covered calls. "Professionals" consider the two plays to be identical. Now...that's the "bumper-sticker" summary. What are the relative pros and cons? Well; a few. Selling NPs of course requires a higher level of options permission. Selling NPs of course requires a margin account and consumes considerable buying power (depending upon exactly how your broker treats them)
but this can be massively reduced by buying protective puts. Selling CCs, I *believe* can be done in a strictly cash account.
This (reducing the buying power hit that selling NPs consumes) can be done by either opening a credit spread or a debit spread. A cr spread might be: sell 50 put, buy 48 put. I like to aim for receiving a credit roughly equal to 1/3rd the distance between strikes. On a $2 wide spread, I'd kind of like to get 60-65-70 cents. This might occur if the stock is say 51.50. What's the max risk? It's the $2 spr width less your opening credit, so this could lose say $1.40 but that is an absolute maximum. If the stock was 55, you would not be able to get 60-70 cents for such a spread. You might get 30-40 cents, but that 30-40 cents would be lots less risky, because your 50 short strike is a lot farther away from 55 than it is from 51.5. Another way is via debit spread, and this can be done in a calendar spread kind of way (or not) You can buy a distant put and try to sell closer in puts against it several times. Kind of like Cov calls, upside down. I have this on VZ. I have Jan '20 60 puts. I consider VZ to be highish at its recent high of 61 (it was 54.5 on 8/05) and I consider its normalish price to be 56-57. It is a stodgy stock which acts more like a bond with its nice dividend. (Keep in mind that in a crappy market, VZ could acquire more following than your ordinary stock.)
So my hope is to be able to sell close-in 59 weekly or 2-weekly puts over and over against the distant 60 puts. Perhaps 6 times to Jan. This requires ZERO buying power because if the stock goes to zero and I am assigned @ 59, I can sell it for 60. Is there risk? Sure, if VZ ramps to 63-5, I'll be losing money.
Lastly; it is my own recommendation that in a crappy market if you want to do credit spreads...do yourself a favor and buy some extra of the protective puts. Say you open the spread 5*5, 5 long, 5 short. Buy let's say three extra of the protective ones. (Of course you could buy more) I have taken to doing this lately on cr spreads. Will you make less? Of course. It's not unwise to buy insurance.
@@guyredares YT cut a lot of my reply off. I will try to repost my full rant as a direct reply to the main video.
so once u sold covered calls, there is no way to get out of it early? u have to wait till the option expires to get back your stock?
you could always buy back the call to close it out. If you sold the call for 2.00 you could always buy back the call if it trades down to 1.20 for example.
@@smbcapital I noticed this when selling my original covered call. The buyback price dropped to ~20% of original premium a week later. I felt like this was a good buy-back opportunity. Then re-write a new contract. Is this just a preference?
@Jaykumar Desai no, bad suggestion, u a completely wrong, tested it I was able to buy back my covered calls, and get my bitcoin back, then wrote two more covered calls options with a much higher strike price, they are out of the money as well, I should be able to get my bitcoin back when they expire. there is no chance of these executing. I would think same process for stock options.
@Jaykumar Desai u made a bunch of stupid, unnecessary assumptions. buddy go away.....
I sold my first cover call, now my question is what happens if the buyer sells for a loss or a win do I get back my shares
no you don't
Another great video thanks Seth
My pleasure, Ed. Let me know if you ever trade a covered call and how it turns out!
Do you have to buy 100 shares of a stock or can you buy less?
has to be 100 shares or more
@@smbcapital thank you!
@@smbcapital I don't understand something. Does it all have to be on the same trading platform?
As an Europoor there are no German brokers who would leave me gamble with options. So I thought I might buy 100 shares of let's say KDMN on my Europoor Broker, and then sell a covered call on an another international broker? Would this work out? Or do I have to own the share and option in the same broker account?
I think Pfizer may be a good candidate.
Homie called it
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*TERESA JENSEN WHITE,* that's her official page name you can do a web search to get in touch with her
Wow! I just looked up this person out of curiosity and I'm super impressed with her qualifications. Thanks for sharing.
I have a question for those who sell covered calls. I sold a put that has a high chance of being exercised. I am ok with that because im just going to sell a covered call at the stike price i had to buy it at, breaking even and just collecting another premium. I noticed that the further out you put the expiration date the more premium you get. Is there a downside to putting an expiration date six months in advance eventhough im going to sell it at the current price of the stock?
You can normally sell calls weekly and they’ll add up to make more premium over time than just selling the one call further out.
The real question would be how often does the 5% call finish in the money and get called away from you? Without that knowledge there is no way I can answer the question you asked at the end. Sure, if I look at all my positions and look at that 5% call, I'm sure I'd like to have that money each month.... but if it means that 50% of the time my stock gets called away, or I have to buy back the call at a loss before my stock gets called away, then that changes my answer.
David, of course you can always re-buy the stock if you want to continue to hold it and possibly begin a new covered call program, or simply own it as an investment. But you may or may not be able to buy the stock back for the original price once having been called away of course.
It's fairly easy to determine the probability of a 5% move in a given stock. Just Google "calculating expected move".
To add to my previous comment below on LLY. Tried another stock I own PM. Currently trading at $101.24. 30 days out strike price of $106 is 66 cents. Again...not sure I'm willing to give up $10,000+ worth of PM stock for the potential of making 66 bucks. I must be missing something.
You would also get the 5$ per share. So 66dollars plus 500. $566. If the shares are called at just over the strike price you just buy your shares back. If it’s under 106 you just made beer money for the week. So you were missing something, the 5 bucks!
It would have improved this video substantially to have spent just 5-10 seconds with the obvious qualifier that "of course, your real profits would not have been this high, because at least some of the calls would have been exercised along the way". I'm concerned how this basic fact wasn't even acknowledged, and how few people in the comments section seem to be aware of it.
Bullet point #5 at 7:11 and it was up about 21 seconds.
You can avoid getting assigned and losing your shares by rolling the short call to the next expiration cycle. Basically buy back the initial call and then sell a new one with the same or similar strike in the next expiration. This new call option will have a lot more extrinsic value, so it would not make any sense for the buyer to exercise it early.
I sold 6 calls deep in the money and the premium boosted his break even price on the shares so I’m guessing unless the stock runs my calls will expire and I’ll get the shares back right...?
Sorry for the bad question was just looking up videos around the topic and couldn’t find anything 🤷🏻♂️
I have question about how much money will I lose with my following example. Let see if I currently have 600 apple stocks cost at $125 and I want to sell 6 covered calls strike price at $150 and premium at .50 expires in 1 month. I am okay with my strike price if calls gets expired above the strike price even if stock price goes to $175. What if my stock price falls to $105 how much will I lose? Even I don't mind waiting for few years for apple stocks to come back to my purchase price. Will I lose any of my shares? Since I am new to this I want to know my potential losses on this. Thank you
you will gain the premium and only lose if you chose to sell the stock at that $105. if you wait for it to go back up you will be good.
The problem I have is the ridiculous commissions my bank charges on options. Not only that but they won’t allow me to write puts. I want to change brokers, but I don’t know how to do that without selling the stock and moving the money. How do you go about switching brokers with minimum hassle?
You can transfer your account to another broker, there is a fee though and it takes a few days. Also tax implications have to be considered if it is a smaller account your tax liability may be less the broker fees for an account transfer.
transferring brokerage is not easy...I would recommend sell your stocks and rebuy in the new account...unless u have long term options..then u dont have options lol..
@@praslisa It really depends on how big your account is, you have to pay taxes on any stocks you sell, it may be cheaper to pay the fee and transfer the account.
Ask your new brokerage about doing an "ACATS transfer" of your positions from your old brokerage. It usually costs around $50 to $150, and most receiving brokerages will credit you for the expense if you transfer in enough assets. Doing the transfer this way will avoid triggering a taxable event.
TD Ameritrade covered my transfer fee of $75 from RH to TD
If I have 500 shares at 50 a share and I sell 70 dollar strike call. And it goes to 75 and they exercise does that mean I get the premium plus the difference of 50 to 70 dollars in share price in profit ? because they buy the calls. My exit was to sell at 70 anyway so if I sell a call at 70 strike its win win? So the only money I would loose if the price went to 75 80 is the potential profit?
when you sell the call against the shares you own, you are essential picking your exit price on the shares at 70 dollars. Your stock would be sold at 70 if they were called away from you. BUT you also keep the premium on the calls you sold. 10K profit on the shares plus the premium from selling calls. If the calls weren't exercised by the buyer than you just keep the premium and still have your shares
@@smbcapital I have a question, if at the time of expiration of the contract, the price has reached 75 USD, the buyer can choose NOT to buy the shares at 70 USD that he had agreed?
In that case, the seller keeps the initial premium and the buyer "loses" that premium? It is right?
Not that easy. What happens if you loose your share????
Video actually starts at 6:00
More than 50% of this content is useless, and somehow you think your options courses will be appealing? If there’s that much filler in your content then your product probably isn’t worth it.
and the Risk ? If Shares Gap Up ?
Evey random 5%+ OTM weekly call I'm looking at (just for the hell of it) is like .05. You'd have to sell a hell of a lot to hit that 2k a month figure.
@David Garza yea think was given it a go I did my first weekly option and only got 6 bucks in premium lol
Focus on Delta rather than % would be my recommendation. Delta takes time into account and will automatically vary based on the time until expiry (so it's a constant, unlike %). In this monetary environment 25 Delta. Normal market conditions more like 40 Delta. What matters isn't if it ends up ITM, but rather how far ITM. As long as you capture most of the upside that's all that matters. Try interactive brokers for low commission and assignment fees.
What would you do when you have to sell your 100 shares? would you buy them back to keep that same portfolio ? you end up with less shares.
If you have to deliver the shares then you sell them to the buyer at a price you were okay parting with anyway. You can always buy back the shares lower in the future
Hi, question here: if the price of the underlying stock goes higher than the strike 2 weeks before expiration date, can the buyer of the call exercise the option and call away your stock without waiting for expiration date? Or does the buyer have to wait for the expiration date to see whether the price of stock crossed over the strike or not before deciding to exercise option to buy or not? Thanks for clarifying this for me.
PurePositivity . The call can be purchased. You may sell the call for $1 & buy it back @ 1.50 IF yr concerned about yr stock being called away fm u @ stock option expiration .
the buyer of the call can exercise the option AT ANY TIME before the expiration
If I sell a covered call to a stock that pays dividends, will I receive the dividend, while under contract?
Yes you will, as long as you still own the stocks.
Of course, you still own it unless the option is exercised
Covered calls seem (to me) best for reasonable volume, low volatility (stable), flat, veteran penny stocks.
1) (Naked covered calls are never feasible ... unless I claim to be "professional trader" (TDA))
2) You need a minimum of 100 $hares (not really feasible with AMZN, TSLA, etc.)
3) The stock is boring, non-sizzling, has reasonable volume-liquidation
4) The stock is proven to be relatively flat over the months and years (if 6+ month premium is sold)
I currently covered 51 call-contracts (5100 shares) of NERV (Minerva) for 6+ months (Strike @ $5.00 (30% above the share price)) and received $5000 for the $18000 stock collateral. Lord-willing NERV won't change to much. I bought TSLA shares with the premium.
I'm considering covering QEP ... which has an even higher premium yield.
That example smells like bs to me, you are telling me that someone bought an option expiring in under a year where the breakeven price was 66% above the current price of the stock? And to top it all, he was so sure of it that he even paid a 27% call premium for it......
How safe is this strategy and how about buying the Covered call ETF if one dont have enough money to buy enough shares to play with this strategy individually
You have to buy the 100 shares in order for the call to be "covered." A covered call etf is okay, however, the share price will decline over time. Just look at the chart of qyld, for example. I prefer to ignore the dividend of qyld and just trade it from time to time. SPXX is pretty good as it writes covered calls on only about half of their total shares, so there could be some growth along with a dividend anywhere from 5 to 7%. USA pays 10% and has been since 1987, but they don't use covered calls; you have to research it.
There is some miss-understanding imho. Covered calls were intended to protect investor’s profit when market is weak(!) When it’s strong enough investor makes profit from dividends and price rising. There is no sense to exit from a rising stock (forced by a sold call) when you are an investor.
@Joe Batters Rolling options which have not generated any profit (because market moves against them) is like an assembling a martingale position imho. My be there is some investor who rolls calls since 2008, who knows.
@Joe Batters Any specific reason behind this?
I was just really debating, should I go get me a lame job? or learn more about covered calls for easy income? lol the answer was obvious
What about taxes?
One of life’s certainties!
Will this strategy work: Sell weekly calls and in the scenario it is increasing or coming close to the strike price, I buy the call for the same strike price. In the event it crosses the Strike price and shares gets reassigned or sold, I will use the premium + strike price money + the profit to minimize the loss of potential gains and buy back my 100 shares
maybe sounds like a small loss to fees but do it with a div payout and should be ok . i could be wrong lol
Nobody said you had to keep the stock you’re selling calls against :) Wheel strategy anyone?
The wheele is great for stocks that are stagnate or plan for very little growth. The stock he picked here are very growth oriented
I've been selling covered calls 10% over current price because I'd rather now get assigned. Is there a reason why you choose 5%?
5% for more premium
Closer you are to the money, the more premium you’ll get
@@whateverreally1347 yea, but then won't your shares be called away when the option buyer exercises it? A stock going up 5% within a month is very likely
@@YouMakeItHappen Yep. You still make a profit tho, the BIG premium and the samm 5% bump on the shares.
Basically the closer the strike price is to being ITM when you sell the call, the more premium you collect, the more the stock price has to drop for you to be losing money, but your profit is more capped and you're more likely to see your shares called away.
The more OTM your sold call is, the less premium you collect, the faster your P/L is in the red if the price drops, but you're less likely to see your shares called away and your profit is capped higher.
If you love the underlying stock, you should sell more OTM. If you don't min holding onto it long term but don't love it either, you should sell closer to ATM (still a bit OTM).
You have to consider that you would miss the upside when the asset passes the call strike.
Yeah. Therefore you have unlimited loss potential because the stock can theoretically go up to infinity.
No this is not a naked call.
I always think it is funny how they say unlimited. There is not unlimited money in the world so that isn't that case. It is just an undetermined cap
It’s weird hoping your stock doesn’t rise, but I basically got my stocks half off at this point.
many weekly options are available, and it's easier to predict what will happen in 7d than in 30 so if you really are worried about getting called out of a position consider shorter duration calls.
I would not do covered calls around the time of earnings dates. Also If you are truly looking to hold onto the stock and just want passive income, i would only do options trades within the week. I personally do covered calls on wednesday for the coming friday. and safely out of the money. less premium but safe and just extra income for you long term holdings
It's more complicated than that. You risk losing the natrual stock increase because your call might be issued. You'll make your premiums, but you don't get that nice natural increase in portfolio value with the flow of the market. That being said, the risk is low and you can hedge that if you reinvest the premiums you make every week/month.
what stops you from chosing higher strike then? By doing this you will gain from possible rise as well
This is an income strategy not growth but most stocks won’t go up 5% in one month anyway. If the stock gets called away you can sell puts to buy back in. If you are looking primarily for growth Dont sell covered calls to begin with.
@@richardthorne2804 Yes, this is an INCOME strategy. You want growth, buy SPY.
@@MuzixMaker not necessarily you could stick round a delta rate of around 0.1 which gives you I believe long term over a year about an extra 3% yield this can be used for boosting a long term yields. Yes when you are about to lose the stock you pay the premium to buy it back which you loose on however on average you make an extra 3% per year taking the losses into account. So it can be used for income and for long term growth
Does anyone know the best broker that you can use in the UK that offers covered calls?
Interactive broker
If i were to buy 100 shares of zzz stock is rhere a waiting period before i could sell the covered call
if you own 100 shares and sell a covered call against it you can choose what call date you want to sell so it could be this week/ next month/ or a year from now expiration. Whatever timeframe you want really
@@smbcapital i meant to ask if i bought 100 shares on monday do i have to wait till wed when the shares settle or can i sell the call monday
Can you tell me a good broker that allows option trading with no commission charges.
No good option broker is commission free. TD Ameritrade has one of the best platforms for options and charges a very small contract fee
What if the stock doesn’t go up?
thanks for the video. i'm new to covered calls and have a basic question: if i sell a covered call for a date 3 weeks from now, and the stock get to this price after 3 days, my shares will be sold automatically or only if the option buyer wants to Exercise the option? thanks,
Avi Eda By end of the 3rd week Friday if it crosses the strike price that you sold then your stocks will be sold automatically.From 3 days now even if the stock price crosses the strike price that you sold your stocks will NOT be sold.
@@shivareddy1398 hi, thanks ! what if the stocks crosses the strike price and then go down below it again , whats the rule then? do i have to wait for the last day of the option life ?
@@shivareddy1398 thanks !!
@@avieda the price can cross over & under the strike price many, many times. But the call won't be exercised until the expiration date. If it's over strike price everyday, but the last day the stock price closes below the strike, it is not exercised and you keep the stock.
How often to the buyers actually exercise the shares though?
I’ve literally never had one expire itm and not been assigned.
definitely would be nice to see a more nuanced take on the potential of losing large gains when the strike pice is reached on a breakout
I do this rather aggressively and this has happened to me. Why complain about money left on the table when you already captured the premium + what price you agreed to sell. Take your pile of cash the next week and sell a put.
@@holysmokes6709 because you're not going to be a winner on all trades and you're counting on some to compensate for the losses, so if that profit margin isn't consistently large enough covered call might not be as solid as they're presented
@@jwolfe890 I'm just telling you what been working for me. I "lost" a couple trades but I didn't care because all you are doing is selling someone else your upside in the event of a big move. I don't care about capturing every last penny on the upside when I can lock in profits and collect premium every week.
@@holysmokes6709 ohhh i gotta think about that
@@chirpthird pulled just under 1k with a tiny account using that strategy now I'm switching it up a bit but it worked that whole year.
So I have to own the shares to write covered calls,right? I'm not so sure I fully understand what you have said in this video,but I am sure of one thing,there is no free lunch!
selling options is potentially very risky, make sure you understand it well.
Covered calls are slightly less risky than just owning the stock alone, but you do give up stock appreciation beyond your call strike price in exchange for the premium
well explained.
What strategy do you recommend when the call is triggered?
Good question, the lesson is incomplete. If the stock price moves up where the calls are in the money a few days before expiry, do an options roll up. Buy back the options and resell at a new strike price to break even. You won't make any cash, but you will be doing what's called 'harvesting losses' which are actually paper losses only. I use the paper losses to reduce my short term capital gains taxes I have to pay. Also writing calls 30 days out is too near term, should be 40 to 45 days so that if you do have to roll up the transactions will be 30 days apart allowing you to take the tax benefit. Also selling call options on your investments has the added benefit of reducing downside risk on your investments so if there's a price drop short term, you still make money. It's a great strategy if executed properly and on the right stocks.
don't sell covered calls of you're married to the stock. if you're selling AMD CCs, you collect 50 bucks a week in premium, but if you get exercised, you get the cash for selling the option.
Think of covered calls as a kind of Limit order you get paid for entering, even if it doesn't go through.
consider if you buy 100*AMD at 29 dollars. if you sell a $30 covered call, and AMD jumps to 32, the option buyer gets $100 profit and your shares, but you get $3000. he made$100, but you didn't lose 100. you made 100 selling AMD, there was just 100 dollars you didn't make. now you have a big pile of money. buy 100 shares of a company you're a little bearish out neutral about and sell covered calls. it's a cycle
buy shares (go to step 2)
sell calls (if options expire, repeat step 2)
get exercised (go to step 1)
whenever the options expire, you make money. when you get exercised you sold the stocks for more than you bought them for and you make money. don't worry, don't marry your stocks, collect premium all the time
Look up the wheel strategy, which adds sellings puts to enter stock positions at a discount
@@averagejoey2000 hi , i'm new to all this. but thinking the way you think, i mean, if i get exercised its good news, i make money both ways. in fact, why not write covered calls to a close by strike price, when my target is to get exercised ? the thing is do i have to wait to the option last day or will it get exercised the minute the price crosses the strike price?
@@avieda the option buyer doesn't have to exercise ever, and he may exercise whenever. he may exercise an out of the money option because he feels like it. he is under no duty to act rationally.
generally, your options get exercised when there's very little time remaining, so that you don't lose any time premium. I sell calls to get rid of stock, but don't forget that if the stock drops, you lose the value of the stock, even if you keep your call premium.
Needs to mention going above strike. Not guaranteed yield
Yes selling covered calls can cap your gains if the stock really sky rockets, but you are still guaranteed the profit on the premium + the difference in your cost basis to the strike.
What do you think of the poor man's covered call for smaller accounts?
David Kamnitzer do it! Extra income is extra income , I do some covered calls for 5 dollar premiums. Get every penny you can
Get in where you fit in. BOL
With a poor mans covered call, would your call get called away if your short call expires in the money? How would that work? Thx
But what if the stock rise 5% during this time?
if the stock rises more than the 5%, the option is exercised and the stock is sold to the buyer at the strike price which you receive for the shares.
The dividend for Pfizer is 36 cents or 12 cents a month. The Jan3 40C is 8 cents, so in this case it probably is not worth it.
One hundred SHARES times 80 cents.
$80.00