First time I've run across one of your videos. Thank you for calling out the people who say retire with 100k. I appreciate your realistic approach, 1 to 3 percent, everything else is gravy on the cake.
Hi Tom great video. Do you have any idea how much you would have made trading just this over the last 5 years? I can see if you are flat to up every week, you can collect 20k (which is about 150%). But I’m always leery of CC because you cap your weekly upside at $400 and can’t take full advantage of +5% weeks but on -5% weeks you lose maybe $1500? The math doesn’t work for me. But maybe I overestimate the number of down weeks. I will look into joining the discord. Do you share all your trades? The +80% in 2022 would have been a game changer for me. I was happy to lose only 19% LOL.
Thank you for calling out Trading with Ashley, someone hawking exactly what you’re saying about retiring on Palantir calls. Also, thanks for showing an example of how to put a trade like this on.
Hi Tom, great strategy! Many thanks. Two questions 1) What is your exit strategy for the long term call position eg at 3 months before expiry or depending on if you're up, down or around breakeven? 2) Do you trade this on ES futures?..I guess no assignment risk/headaches. Thanks 🙏
How do you manage the position if the short Call ends up ITM right by expiration? Do you roll out another week, higher strike for a bit of credit while leaving leap untouched? Or…do you close them both the short and leap so that the leap increased $ offsets the short loss, and then reopen an entire new leap + short at the deltas that you like?
My first leap/short set up might be itm this friday, not closing Leap since it just got from the bottom. Will by back short call, previous premium almost covers it. Writing new short call on Tuesday
@@redeyes5568 I think you are correct. You have to calculate break even price first, which is around $538. If your shares are called away below this price, you are losing (since you have to deliver 100 shares)
@@redeyes5568 You're right, it wont necessarily be a "large" gain if the underlying only moved a couple $ and your short call is only ITM by a couple $. But I suppose it would be gain enough (or almost enough) to cover the loss from the short call going ITM or the loss from buying back the assigned short shares. I still don't see how this would be profitable at the end, unless all we care about is that weekly income while turning the blind eye to the overall position P/L.
Your BE on the trade is your long call strike + premium paid. 400 + 135ish for 535. If you sell atm for 4 and Q's are at 513 you are collecting 517, that's a locked in ~$18-20 loss if it gets assigned and you execute you long call. Hard to stay alive taking hits like that, especially weekly!
Hi Tom As I understand your description of PMCC it is buying a one year out LEAP at 80 delta, then sell a weekly call option that is At the Money ..... if I do this in SPY what if your short call ATM is exercized by the buyer. This would mean the LEAP call would provide the stock at a premium above the current price stock price. 0r i am thinking i would need cash in the account available over and above the LEAP to buy the stock to deliver to the assignment... I like the PMCC idea but this seems like an unusually high risk. Am i correct? Thoughts? Thank you, really enjoy your videos and info...
It would be a retarded move for a Spy call option buyer to exercise their ATM option because they would be throwing away their extrinsic cost they paid for the option which remains elevated in something like SPY until the very last moments of expiration so assignment risk is super low.
@@CostasCrete1 Assignment risk is very small. Especially out in time and with low extrinsic remaining. But always possible. If assigned, I would close the short shares and keep selling CCs.
@@TommKing13 if you do this weekly why you go out 1 year on the leap, seems like you would go in and out somewhat often maybe you can go 6 months on the leap? Just curious. How you calculate your portfolio allocation for these?
@@sergebrosseau2593 assignment is extremely rare. But if assigned short shares from the CC, I would simply close them. This would not affect the long calls.
you would have to deliver 100 shares at your short strike, and you would lose money. LEAPs can be confusing, you have to calculate break-even price first, otherwise you can lose a lot of money
you pocket the premium, have unrealized gains on your leap have unrealized losses on your short call and roll next weeks call up to $523.hopefully for a credit . This last comment is wrong .
Quick question…why would you sell your long calls down 30%? Your short calls would continue to buy down that cost until they were paid for. Your weekly ITM CC, will continue. In your example with QQQ, it would take approximately 35 weeks to pay off the entire cost of the long call.
I think its because he wants to limit further downside exposure. If the long call is down 30% that means something else is happening in the overall market and perhaps this is his "stop loss"?
Problem is the short calls would provide less and less premium as he d be unable to selling at the money anymore but way up on the option chain higher up so the purpose of this strtaegy would be at a failed state at that down 30% moment I suppose is another reason
Thanks for this video Tom. I currently just have full covered options access in my accounts (level 0?) , and I assume that you need spread access (level 2?) to do this PMCC strategy, am I correct? Is that generally easy to get? I do have a portfolio value over $1M. Thanks for any help you can give.
at least level 2. super easy to upgrade. Just klik on the highest level experience boxes for all questions. W that much money they ll probably bump you up to level 4/5 Thats the level where you can really blow your account up so be careful
Poor Man's Covered Calls work great in a bull market, but they're a disaster in a bear market. Personally, I don't trade them, but if you do, make sure to allocate only a very small portion of your portfolio!
Great example of a PMMC Tom! I'm going to try this using the SPY....One important Question...when the Index blows by your covered calls your account will show that you are SHORT the SPY 100 shares on Monday correct? So you will need to buy back that 100 shares Monday morning. And since your Leaps will appreciate and the premium is added to your account chances are your still making money.
Good Q. Your leap would appreciate but unless you close it then its just an unrealized profit which can quickly disappear if underlying moves back down.
@@rafalc17 Does it mean that when the shorted leg becomes ITM, it is a recommended practice to always sell the LEAP call before Friday market closes vs. wait for the following Monday (and at the same time put on a new LEAP & covered call pair on the same Friday)?
@@jessleed100 I wouldn't say "recommended" just another flavor of the PMCC management. If the short leg goes ITM right before expiration and there is risk of assignment, what some ppl do is then close the entire position (which will most likely yield a small realized loss since the leap made up some of the $ from the short leg loss). Then simply reopen the whole position again that same day (long and short) at the original deltas that you like. I think the logic behind doing this is that it prevents you from taking a realized loss on buying back the assigned 100 shares and not getting any REALIZED profit from the leap to offset those losses. Yes, the leap will have appreciated in value but its unrealized profit, if over the next couple of days the underlying moves lower, your leap may give all of that unrealized profit back and you end up at a total overall loss for your PMCC for that week. At least thats how I understand it but anyone else please correct me if I missed something.
I guess I am missing something. If you buy the 400 strike and pay $138 aren't to sell the call option at the 400+138 = 538 strike so as to not lose money? Even if QQQ goes up and thus your LEAPS call option will as well - you are still being forced to sell your LEAPS call at 400.
That math is correct but only at expiration of leap. You have a ton of extrinsic time value on your leap that will buffer it for a long time thats why he s able to sell at the money yet still make money .
@@tdiler12 but what happens when you open up a long LEAPS call option and immediately sell a call option a week out and it goes in the money. Let's use his example of buying the 400 strike and selling the 513 strike. Let's say in 1 week the stock closes at 513.10. The LEAPS call option will probably be at the same price (assuming no vol crush). How does the math work in this situation?
@@redeyes5568 You are absolutely correct. If you sell short call at lower price than 538 (your break even 400+138) and your shares are called away you are losing money. LEAPS can be quite confusing, the key is to find break even price first (which you correctly calculated as 400+138=538).
@@redeyes5568as i understand, if it goes higher, and your short call goes into the money, it will gain in intrinsic value but still will lose all the extrinsic value which is ~= all the premium you collect on the short/short time side when you enter the position (as it's at the money). E.g qqq costs 500 now and you short the at-the-money call expiring in a week, collecting $3 per share ($300 per contract). All this premium is extrinsic value. In a week QQQ is up 5% ($525) so your short call will cost $2500 at expiration ($0 extrinsic + $25 per share intrinsic). As you collected $300 when you sold it, you are "only" down $2200 on the short side. However your long LEAP is up around $2500 as its price is mostly intrinsic value (cause deep in the money, very low percentage of extrinsic value) and behaves roughly like it was 100 shares of stock. So at the end you collect the extrinsic value of the short option.
The risk is on the downside here but the idea is that if you do it systematically every week, even if the underlying goes down, in the long run the total amount of collected extrinsic prenium on the short side overweighs the money lost on the long side. Given that "a quality underlying" hopefully won't drop 10% every week, in the long run (!) the long LEAP side losses should be compensated by the collected extrinsic value on the short side. (That's why the short side is at the money: near zero intrinsic value, maximum extrinsic value). All this being said, frankly I still need to think of all this before starting to trade it. The issue is that it's not a one-shot trade but a campaign style series of trades (some gain, some lose but on average it should be a money printing machine). This requires some careful design and sizing + a good understanding of the risk mechanics.
Ha! From what I can tell, this pmcc variant is not selling naked calls, but it is selling partially naked calls. Did this dude just invent selling topless calls!?
Why not just go out 45 days on the long? There is no advantage to going so far ouut, it is just more capital intensive. If the market stays flat, roll it at 21 days and your loss is minimal.
w a 45 day purchase 88 deltas are like QQQ 470. One bad week you could be down there and out the $4800 cost. $ 8000 more you get a QQQ way down at 400 and have an entire year to absorb volatility. So the “ there is no advantage to going out so far” is an incorrect statement ..xoxo
I was not even looking at your delta, just your capital exposure. Was your intention to be a bit bearish on a covered call? My preferred delta would be long 70, short 30 roll at 21 days if the market doesn't move.
@@andrewdiener3011I cant speak for the authors intentions I was merely stating the advantages of going out 1 year but I totally agree with you about the capital intensive aspect . $ 13K is a big number for the 1 year where 45 days out you can get 3 contracts at your 70 delta . Clearly the much higher payout & higher risk bet vs the 1 year.
If the price moved against me I would scale until I reached a max of 4 ,45 day positions. The fact that it is defined risk, it would still be more capital efficient and would be profitable along a greater range of price action.
This is like what mark yagge does but i still cant comprehend because when you sell in the money and the stock still moves up i dont understand how you profit off that. I keep watching different videos hoping it will click but its not lol 😭🤦
Leap ITM has 0.8 delta. Sold call has -0.5 delta. If underlying moves by 1$, then LEAP ITM gains 80 cents and short call increases by 50 cents. You profit 30 cents.
First time I've run across one of your videos. Thank you for calling out the people who say retire with 100k. I appreciate your realistic approach, 1 to 3 percent, everything else is gravy on the cake.
Huh, 10% a month! I would be trout fishing in Vancouver. Hey Tom, thanks for the videos. I think Trump may have just gave us something to work with.
Hi Tom great video. Do you have any idea how much you would have made trading just this over the last 5 years? I can see if you are flat to up every week, you can collect 20k (which is about 150%). But I’m always leery of CC because you cap your weekly upside at $400 and can’t take full advantage of +5% weeks but on -5% weeks you lose maybe $1500? The math doesn’t work for me. But maybe I overestimate the number of down weeks. I will look into joining the discord. Do you share all your trades? The +80% in 2022 would have been a game changer for me. I was happy to lose only 19% LOL.
Thank you for calling out Trading with Ashley, someone hawking exactly what you’re saying about retiring on Palantir calls. Also, thanks for showing an example of how to put a trade like this on.
Hi Tom, great strategy! Many thanks. Two questions 1) What is your exit strategy for the long term call position eg at 3 months before expiry or depending on if you're up, down or around breakeven? 2) Do you trade this on ES futures?..I guess no assignment risk/headaches. Thanks 🙏
How do you manage the position if the short Call ends up ITM right by expiration? Do you roll out another week, higher strike for a bit of credit while leaving leap untouched? Or…do you close them both the short and leap so that the leap increased $ offsets the short loss, and then reopen an entire new leap + short at the deltas that you like?
Simply execute your long call. Large gain
@ I guess I am dense, I don't see how this is a "large" gain, please help me understand
My first leap/short set up might be itm this friday, not closing Leap since it just got from the bottom.
Will by back short call, previous premium almost covers it. Writing new short call on Tuesday
@@redeyes5568 I think you are correct. You have to calculate break even price first, which is around $538. If your shares are called away below this price, you are losing (since you have to deliver 100 shares)
@@redeyes5568 You're right, it wont necessarily be a "large" gain if the underlying only moved a couple $ and your short call is only ITM by a couple $. But I suppose it would be gain enough (or almost enough) to cover the loss from the short call going ITM or the loss from buying back the assigned short shares. I still don't see how this would be profitable at the end, unless all we care about is that weekly income while turning the blind eye to the overall position P/L.
Your BE on the trade is your long call strike + premium paid. 400 + 135ish for 535. If you sell atm for 4 and Q's are at 513 you are collecting 517, that's a locked in ~$18-20 loss if it gets assigned and you execute you long call. Hard to stay alive taking hits like that, especially weekly!
Hi Tom
As I understand your description of PMCC
it is buying a one year out LEAP at 80 delta, then sell a weekly call option that is At the Money ..... if I do this in SPY what if your short call ATM is exercized by the buyer. This would mean the LEAP call would provide the stock at a premium above the current price stock price. 0r i am thinking i would need cash in the account available over and above the LEAP to buy the stock to deliver to the assignment...
I like the PMCC idea but this seems like an unusually high risk. Am i correct?
Thoughts?
Thank you, really enjoy your videos and info...
It would be a retarded move for a Spy call option buyer to exercise their ATM option because they would be throwing away their extrinsic cost they paid for the option which remains elevated in something like SPY until the very last moments of expiration so assignment risk is super low.
Assignment risk on the short? Or will you close for a loss and open again 7 days out?
@@CostasCrete1 Assignment risk is very small. Especially out in time and with low extrinsic remaining. But always possible. If assigned, I would close the short shares and keep selling CCs.
@@TommKing13 if you do this weekly why you go out 1 year on the leap, seems like you would go in and out somewhat often maybe you can go 6 months on the leap? Just curious. How you calculate your portfolio allocation for these?
Hi tom, do you provide access to your spreadsheet? Id like to use the template for my own trades
I have a question. If u buy a leap an u are assign whit your short call do u have to short the stock or u only lose ur leap. Thx nice vidéo
@@sergebrosseau2593 assignment is extremely rare. But if assigned short shares from the CC, I would simply close them. This would not affect the long calls.
What to do if QQQ rises to 523 in 2 days?
you would have to deliver 100 shares at your short strike, and you would lose money. LEAPs can be confusing, you have to calculate break-even price first, otherwise you can lose a lot of money
you pocket the premium, have unrealized gains on your leap have unrealized losses on your short call and roll next weeks call up to $523.hopefully for a credit . This last comment is wrong .
Not sure why "Maximizing" was part of the description. Other than that, good video :)
Quick question…why would you sell your long calls down 30%? Your short calls would continue to buy down that cost until they were paid for. Your weekly ITM CC, will continue. In your example with QQQ, it would take approximately 35 weeks to pay off the entire cost of the long call.
I think its because he wants to limit further downside exposure. If the long call is down 30% that means something else is happening in the overall market and perhaps this is his "stop loss"?
Problem is the short calls would provide less and less premium as he d be unable to selling at the money anymore but way up on the option chain higher up so the purpose of this strtaegy would be at a failed state at that down 30% moment I suppose is another reason
Thanks for this video Tom. I currently just have full covered options access in my accounts (level 0?) , and I assume that you need spread access (level 2?) to do this PMCC strategy, am I correct? Is that generally easy to get? I do have a portfolio value over $1M. Thanks for any help you can give.
at least level 2.
super easy to upgrade.
Just klik on the highest level experience boxes for all questions. W that much money they ll probably bump you up to level 4/5 Thats the level where you can really blow your account up so be careful
@@tdiler12 OK thanks Tom. Yea I'll be careful for sure, only my life savings! Will paper trade this first to get the hang of it.
Poor Man's Covered Calls work great in a bull market, but they're a disaster in a bear market. Personally, I don't trade them, but if you do, make sure to allocate only a very small portion of your portfolio!
Selling atm calls 7 dte seems to high probability of getting assigned
too much extrinsic value w something like Spy for assignment risk atm 7 days.
+ assigment is really not that big a deal
Great example of a PMMC Tom! I'm going to try this using the SPY....One important Question...when the Index blows by your covered calls your account will show that you are SHORT the SPY 100 shares on Monday correct? So you will need to buy back that 100 shares Monday morning. And since your Leaps will appreciate and the premium is added to your account chances are your still making money.
Good Q. Your leap would appreciate but unless you close it then its just an unrealized profit which can quickly disappear if underlying moves back down.
@@rafalc17 Does it mean that when the shorted leg becomes ITM, it is a recommended practice to always sell the LEAP call before Friday market closes vs. wait for the following Monday (and at the same time put on a new LEAP & covered call pair on the same Friday)?
@@jessleed100 I wouldn't say "recommended" just another flavor of the PMCC management. If the short leg goes ITM right before expiration and there is risk of assignment, what some ppl do is then close the entire position (which will most likely yield a small realized loss since the leap made up some of the $ from the short leg loss). Then simply reopen the whole position again that same day (long and short) at the original deltas that you like. I think the logic behind doing this is that it prevents you from taking a realized loss on buying back the assigned 100 shares and not getting any REALIZED profit from the leap to offset those losses. Yes, the leap will have appreciated in value but its unrealized profit, if over the next couple of days the underlying moves lower, your leap may give all of that unrealized profit back and you end up at a total overall loss for your PMCC for that week.
At least thats how I understand it but anyone else please correct me if I missed something.
I guess I am missing something. If you buy the 400 strike and pay $138 aren't to sell the call option at the 400+138 = 538 strike so as to not lose money? Even if QQQ goes up and thus your LEAPS call option will as well - you are still being forced to sell your LEAPS call at 400.
That math is correct but only at expiration of leap. You have a ton of extrinsic time value on your leap that will buffer it for a long time thats why he s able to sell at the money yet still make money .
@@tdiler12 but what happens when you open up a long LEAPS call option and immediately sell a call option a week out and it goes in the money. Let's use his example of buying the 400 strike and selling the 513 strike. Let's say in 1 week the stock closes at 513.10. The LEAPS call option will probably be at the same price (assuming no vol crush). How does the math work in this situation?
@@redeyes5568 You are absolutely correct. If you sell short call at lower price than 538 (your break even 400+138) and your shares are called away you are losing money. LEAPS can be quite confusing, the key is to find break even price first (which you correctly calculated as 400+138=538).
@@redeyes5568as i understand, if it goes higher, and your short call goes into the money, it will gain in intrinsic value but still will lose all the extrinsic value which is ~= all the premium you collect on the short/short time side when you enter the position (as it's at the money).
E.g qqq costs 500 now and you short the at-the-money call expiring in a week, collecting $3 per share ($300 per contract). All this premium is extrinsic value. In a week QQQ is up 5% ($525) so your short call will cost $2500 at expiration ($0 extrinsic + $25 per share intrinsic). As you collected $300 when you sold it, you are "only" down $2200 on the short side.
However your long LEAP is up around $2500 as its price is mostly intrinsic value (cause deep in the money, very low percentage of extrinsic value) and behaves roughly like it was 100 shares of stock. So at the end you collect the extrinsic value of the short option.
The risk is on the downside here but the idea is that if you do it systematically every week, even if the underlying goes down, in the long run the total amount of collected extrinsic prenium on the short side overweighs the money lost on the long side.
Given that "a quality underlying" hopefully won't drop 10% every week, in the long run (!) the long LEAP side losses should be compensated by the collected extrinsic value on the short side. (That's why the short side is at the money: near zero intrinsic value, maximum extrinsic value).
All this being said, frankly I still need to think of all this before starting to trade it. The issue is that it's not a one-shot trade but a campaign style series of trades (some gain, some lose but on average it should be a money printing machine). This requires some careful design and sizing + a good understanding of the risk mechanics.
Ha! From what I can tell, this pmcc variant is not selling naked calls, but it is selling partially naked calls. Did this dude just invent selling topless calls!?
Why not just go out 45 days on the long? There is no advantage to going so far ouut, it is just more capital intensive. If the market stays flat, roll it at 21 days and your loss is minimal.
w a 45 day purchase 88 deltas are like QQQ 470.
One bad week you could be down there and out the $4800
cost. $
8000 more you get a QQQ
way down at 400 and have an entire year to absorb volatility.
So the “ there is no advantage to going out so far” is an incorrect statement ..xoxo
I was not even looking at your delta, just your capital exposure. Was your intention to be a bit bearish on a covered call? My preferred delta would be long 70, short 30 roll at 21 days if the market doesn't move.
@@andrewdiener3011I cant speak for the authors intentions I was merely stating the advantages of going out 1 year but I totally agree with you
about the capital intensive aspect .
$ 13K is a big number for the 1 year where 45 days out you can get 3 contracts at your 70 delta .
Clearly the much higher payout & higher risk bet vs the 1 year.
if you buy a call at 45 days the theta decay will be very fast.
If the price moved against me I would scale until I reached a max of 4 ,45 day positions. The fact that it is defined risk, it would still be more capital efficient and would be profitable along a greater range of price action.
This is like what mark yagge does but i still cant comprehend because when you sell in the money and the stock still moves up i dont understand how you profit off that. I keep watching different videos hoping it will click but its not lol 😭🤦
I kind of get it in that qqq trade because by expiration ext value should be gone then you can just roll from there?
Leap ITM has 0.8 delta. Sold call has -0.5 delta. If underlying moves by 1$, then LEAP ITM gains 80 cents and short call increases by 50 cents. You profit 30 cents.
@@giedriusrumsys7642 but the 80 cents from the log leap is unrealized, no? That leaves you with the 50c loss. what am I missing?