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You didn’t “lose” any money on the covered calls in the last scenario. You kept the entire premium. That’s not a loss. You just didn’t make all of the upside of the stock. It was still profitable. Every scenario is profitable. Some just more than others.
Depends upon your objective, if you were hedging a downside and don’t mind selling the stock it’s a profit but if it is a high conviction stock and you loose the potential future upside it’s a loss.
🎯 Besides, you should never sell calls on shares you aren’t willing to lose. Trying to play both sides of the fence is not typically a winning strategy. I never mix my long positions with my options trading account. I may use the same stocks, but you can’t be mad if you get assigned. That’s part of the game.
@@matt_h_27 Being assigned is a good thing isn't it? I liked making just 15% on Gamestop even though it made a lot more months later. I don't have anything else returning 15% in the year except the Gamestop stock!!!! Your quote: (Besides, you should never sell calls on shares you aren’t willing to lose. Trying to play both sides of the fence is not typically a winning strategy. I never mix my long positions with my options trading account. I may use the same stocks, but you can’t be mad if you get assigned. That’s part of the game.)
@@matt_h_27 Pro tip: Double down if share price begins rising above strike with stop loss set at strike. You’ll be sacrificing brokerage fees although if you’re passionate about your position than it’s a well worth it strategy.
In the last scenario, you could have profited way a lot if you didn't open a sell call position, but since you did then your profit is limited by the price range between the stock price at which you bought and the sell call strike price plus the premium you get from sell call itself
Not disagreeing here but you can always a) roll the calls out for premium if still bullish on the stock, b) buy 120-150 shares so you still participate on the upside even if the option is exercised.
@@JoesTowingBaltimore Rolling the expiration dates on the covered call options, which is basically closing one down for a loss (September expiration) and opening another one up for a credit (October expiration) and this way you are coming out of this in more credit than 900$ and also you have another extra month which might enable the stock to go back below the 280 strike price and hence why not having to sell your shares or sell your option for a loss. Hope that helps 👍🏼
Pick a strike price your happy with, collect your premium and wait. If your shares are called away, sell a cash secured put at a price you’d be happy buying them back for. Or just wait until the share price goes back down to a reasonable moving average.
I don't sell covered calls at prices that I am not comfortable selling, If the price get close to the strike and I change my mind about selling I roll it
You have the wrong mindset on Covered calls.. You seem to think getting your shares called is an issue.. First of all you don’t lose anything.. All you do is miss out on “unrealized” gain. That’s a concept you have to get into your head because I remember debating you about this in the past. SQ moves down just as much as it moves up. If the price was at $260, I would have sold a call at $265. I could care less if it goes to $280 because that’s unrealized gain.. It will just come right back down to $260 so what did you lose? Nothing! Those shares get called away from me at $265 then I turn around and sell puts at $260 until it falls under that and it will. Collecting premiums the whole time.. You have to get the concept of unrealized gain in your head because you are looking at unrealized gain as actual gain.
Two options to make up for loss of opportunity loss, if you have reserve you can simply buy another 100 shares or more to ride the blast off to the moon. Second option is to options call up in strike and into the future; buy back at a loss, sell back at some higher strike and often premium is more than the loss on your buy back. You do have to watch it and make your decisions sooner rather than later. As he mentioned, buying back increases average price on purchase price... but selling another up and out usually gives you even more premiums than the loss on the buyback. AND you get to enjoy a bit more higher price even if it does get to assignment still than otherwise.
@@ATLJB86 "I could care less if it goes to $280" means "I care if it goes to $280," which I don't think is what you intend. If you mean you don't care, you have to write "I could _not_ care less" or "I don't care."
More people need to learn the wheel strategy… Covered calls are one of the best things you can do combined with selling puts. Covered calls lower your price basis so I can’t imagine why anybody wouldn’t use them.. You sell a call at a higher strike price than you paid.. Now you are getting 2 forms of income. 1 from the premium of selling the call and one from price appreciation. You do that until the shares are called away. You then turn around and sell puts at a lower strike price until the shares are put back to you. That further lowers your cost basis.. Rinse and repeat… What’s the problem again???
@@iraqiboy IV needs to be decent on the stock, like 50+. You should be selling as many contracts as possible, own like 500+ shares of the stock for 5 contracts. Don’t set the strike price too far OTM. Lastly set the expiration date further out to collect more extrinsic value. There are several things that can increase premium collected.
I think you should have mentioned about rolling over the position. So, yes, buying back the calls at the same time as selling a new call position for another premium gain. I would add that to your video. Rolling over is key to managing this type of trade.
Four outcomes with covered call: Stock price down, flat, up slightly & up greatly. Three out of the four favor the covered call position. Those are better odds than trying to continually find a “home run”. Also, If one uses weekly options, the premium income will be higher and rolling over is less expensive.
You're right. The point here was to say that all positions shouldn't be covered calls if the investor has 100 shares. If you're really bullish on the stock then the upside shouldn't be sold. With weeklies, you can roll the short call more often, but you'll have to sell a strike closer to the current stock price to collect a decent premium. A short-term rally could easily leave the short call ITM in that scenario.
@@projectfinance have u done this w weeklies?? and what u mean u can roll the short call more often w weeklies?? why is that?? if u roll the short call u dont collect the premium on the original short call or do u? or can u roll short call and keep premium and get another premium from the roll??? still new to this
@@projectfinance Hedge the covered call by also buying options above the price of call if you think the price is going to rocket up. I have done this and gotten premium, stock gains and gotten right back into stock. It is very rarely the case that a stock rockets up however. It certainly depends on stock, but I am doing this with a huge portfolio and a lot or blue chip stocks. So, the volatility is lower that for high growth stocks. I am happy to make guaranteed return on different accounts with large balances. In fact, I think being more patient if starting with lower portfolio and building it into a sizeable portfolio it is more rewarding and guarantees viability long run. Searching for home runs is no way to live.
I think the secret is setting a call price that you’re happy selling your shares at. That way along with with premium it would still be better than just owning the shares. Or could just buy back your own call option?
It's one of many option strategies out there, it has its purpose...as you say, it has its opportunity cost, so true. One thing everyone needs to be aware of with Covered Calls...there is NO RISK with the option! All the risk is with the stock! Covered calls are for income generation from a stock, and to reduce cost basis. I like them (along with its cousin, the Cash Secure Put). Sometimes you have to let a stock run, and not write CCs against them, its all part of the game and the fun! Great video!
"So I Only Made $5800" - What the Hell Man - you picked the Strike Price and made $5800. Also you had 200 shares. Next time Ladder your Strike Prices. Have the second Covered Call be at the next higher strike (or only sell Covered Call on half your position). I make 1000's of Covered Calls trades a year on over 200 stocks in my IRA. Safest way to control risk management and create income. Covered Calls are another form of a Bullish Debit Spread - You Know this. So are you saying you are not a fan of Debit Spreads?
So, there's a fundamental problem with how you are describing scenario #4 (and there are actually two different versions of this scenario). And in general, I think you're presenting CCs way too narrow. Since your premium was $900/contract, your break even price is $289 on your $280 CC. Your math in the video checks out, but your risk graph isn't conceptually correct and your explanation is a confusing way to look at it. Of course, if you contrive an example of the stock shooting up to $325 or even $500, the CC looks like a braindead option. However, this produces a false dichotomy: this isn't the _only_ position you need to have and there would be entries for you to add back to such a strong position, further negating that potential upside "loss". Your scenario #4 doesn't talk about when the stock ends between $280 and $289. In this case, you're still better off with the CC. Lastly, you don't take into account the real-world applications of CCs. In all likelihood, you would have already collected the premium one, two, or maybe even three times before the stocks were called away (potentially more depending on your profit percentage: I typically close at 65% of target). Sticking with your $900 premium, I would be selling my CCs when I hit $585 of profit. If I've done this two times on these shares, that's an additional $1170 each contract @ 65% profit or $1800 if they went to expiration. So in your contrived example, the $7200 potential upside is even further reduced. 65% profit targets => $7200 - $2340 (existing CC profits) - $1800 (current premium) = $3,060 potential missed profits 100% profit => $7200 - $3600 (existing CC profits) - $1800 (current premium) = $1,800 potential missed profits Of course, the in-between premium values wouldn't have been the same, but that's not the point. The point is when you run CCs, you are collecting profit without selling shares (unless assigned) with the goal to do that multiple times on them. This limits both your upside potential loss **and** your downside potential loss if the underlying tanks.
I'm trying to learn to trade options but the video makes it very confusing, either I'm not getting it or he's not explaining it right. In his scenario #2, isn't it just unrealized lost if the stock goes down? If I intend to actually hold the stock and buy when it dips, wouldn't covered calls just end up being consistent form of profit. In his scenario #4, again isn't it unrealized lost in the form of potential gains? Sure anything is possible and the stock can go to 1 million dollars, but if it is that strong, you can just buy more. And what I don't understand is, what if the covered call strike price is a price I want to take profit from, wouldn't it just be profit taking as the stock goes up + premiums? Like if I own 1000 shares of a stock and I want to slowly take profit 100-200 shares at a time, then wouldn't CC be a perfect thing to do?
@Brian JC this isn't his best video, some of his others are better. Also, In the Money has some good videos as well. CCs can be a bit problematic for taking profits. Say your strike is $285 and the stock hits $290. Well, the your CC will most likely be in the red, so you are waiting for someone to exercise those options in order to take profit. If the stock drops back to $286 before the CC expires (or is exercised by a 3rd-party), then you do loose out on some gain potential here (e.g. the $4 difference from $286 and $290). Of course, the premium you collect might make up that difference, but that is something to think about. Sometimes you'll get stuck in a position that you might want to exit earlier in this scenario.
For the last scenario, I would roll up to a higher trigger price point event I have to pay some premium, this way I gain more upside room and still keep the premium.
I agree with the Jeramy. When you say 'lost' it only is a loss if you had the money in your account at some time and then it was removed. You shouldn't change the definition of a loss that is only demonstrated by a paper thought experiment. You need to talk about the gain from the premium at the same time: I gained X but missed out on a higher gain of Y. Missed out is not equal to lost.
A bird in the hand is worth 2 in the bush. You don´t have to allow your shares to get called away. You can roll out and up for net credit and repeat process until you are really ready to sell. This is much better than letting shares do nothing in your account. If the price of the shares move down, you can roll out and down for even more net credit. I have found Covered Calls to be a very flexible way to generate income on the shares I own.
I'm new to covered calls but there's a strategy called "roll up and out" that you need to understand. What it does is it allows you to take advantage of the upside but not the entire upside. Basically my understanding is you pay to roll that call option up to a higher strike price as the stock increases in value. Thus, you minimize the upside risk by paying for a higher strike price. You won't make as much as you would have if you had just held the stock but you won't lose like you are in the scenario you outline in the video.
Thanks for a great video once again but, but... Scenario #2 You did not incur any losses, you made $1800 and are now down $7000 on the stock but you still have the shares. This is only paper loss at this point not a real loss, you would now of course use the same shares to sell another call option. Scenario #4 In my opinion it's pointless to speculate how much you could have made. Every evening I could speculate how much money I, possibly, lost when I did not buy or short the biggest movers of the day. Once you sell CC that's the price and possible profit you decided to be happy with and whatever happens after that is irrelevant.
IMO and I am sure you will agree...You can't go broke taking a profit! To many get rich quick theories out there, people need to remember it was the tortoise that won the race, not the hare. Or another way to say it...Having the cake and eating it too! Peace from Australia...
Great video. I would add one another comment. The big advantage with covered calls is that your shares get called away sometimes and you realize the gain on the shares and collect the premium. Then you use a cash covered put to get back in at a lower price. If you just hold the shares as the price goes up and down and don’t sell the stock you never realize the gain. You just ride the roller coaster:)
Exactly! If you get in and out of the stock at the same prices in the options, you make premium and on calls the gains in price over cost basis. Simply owning stocks gets you nothing.
@@Eastbaypisces Do the wheel. Use 1-2 weeks (ie don't create covered calls or cash secured puts outside this time) as a time horizon to realize premiums quickly. I use this strategy and have consistently made large returns no matter what the market or stock are doing.
I haven't started trading yet but as soon as I heard about options trading I started to investigate it I found your 2.5h video where you explain everything in detail and it helped a lot, your videos are very easy understandable and the slide examples are cherry on top, thank you for all the effort and work🙏🙏🙏
Do more research on IV Crush, also if volume is not high or average do not purchase the option. Those were my two biggest struggles losses in options trading
Something to keep in mind, if you are selling options on a stock over a long enough period, getting some shares called away in less than ideal scenarios can still be net positive as your cost basis is continually being lowered via the premium you collect. If I've collected $1k of premium on a stock and it gets called away from me $400 below my last entry price, I've still got a $600 buffer before I'd be in the red for my all time cost basis
I think covered call has a lot of flexibility, I usually try to identify resistance levels and sell short term CC when approaching resistance. The if price breaks resistance I can either roll up and out or close for a small profit/loss (profit coz sometimes theta gain is bigger than delta loss). It had been working well for me.
As some comments said ,you don't lose money in the 4th situation but you would miss on the profit.The real problem when the stock tank, then you will not be able to use covered call as the periumim will very low plus big loss in the stock.
I've gotten away from selling covered calls to now selling call ratio spreads instead. I do give up some premium but now I've given myself the potential of capturing the upside move. Essentially, my short calls are paying for my long calls.
So are you buying two and selling one or selling two and buying one? Your statement seems confusing as you say your are selling a ratio spread but also say you can capture the upside move, if you are "selling" then you should be short a extra call but that means your short to the upside...
@@macman231 Sorry for the confusion. I'm buying 1 and selling either 2 or 3. When I say selling that means I'm receiving a net credit. To capture the upside what I do is 1 of 2 things. 1). If I don't mind my stock to be called away then I just sell the long leg for additional profit. 2). If I don't want my stock to be called away I would continue selling my long leg but roll the shorts for additional credit and maybe convert it to vertical spread.
You can always roll over your calls. You buy back the contract and sell another one. Not to mention the new contract almost always has a higher premium.
Exactly, if a stock falls a lot you should roll down the sold call to keep collecting more premium. No one should just sell a CC and let the delta roll all the way down to nothing. Roll it if it drops to 15 delta etc.
I think it depends on the market, cover calls are a good option if u hold stocks long term, and the market goes neutral or bearish, and than if the market goes bullish u can manage ur short calls according to time left on the contract and where do u think the market will go :) great video again btw!!!!
I have been doing them for the last three years but honestly they seem to be a “wash” for me because I win them 50% of the time and the other 50% I either buy my call back by paying more than I should have or I lose my shares to a price far higher than my strike. It’s just too hard to predict. They also cause me anxiety. Just not worth it. I make WAY more just sitting, doing nothing, and waiting for the stock to go up, sell when they hit my target price and rebuy later if I want
You own the stock period ! And sold a call above what you paid for the stock! You collect a premium and we’re NOT assigned nor did you buy the option back avoiding assignment so it’s a win win period! Why make it more complicated by countin money you could have possibly made!
Optimal factors to enter the strategy: - you don't foresee a short term upside on the stock (capped by a major resistance, market is overall neutral, this is usually a low volatility stock) - Implied volatility is relatively high at the moment of selling the call but you expect it to go down (a few days after the movements of earnings or major news) - selling the stock has negative implications (tax), no other more promising investment opportunities (ie there is no opportunity cost to own 100x the stock), legal or contractual obligations to hold. It is often said to be a passive strategy. An active approach is optimal: - monitor news and possible signals of the stock moving up to buy back your call early (at a loss on a call but to avoid squeezing profits on the stock) - Roll out regularly, on relatively short periods. If you own a stock it is because you expect mid to long term appreciation. The appeal of "free money" from the sale of a put should not contradict the core of your investment strategy.
Perfectly said and I agree with you 100%. I approached this past video more black and white and didn't factor in the active management/rolling possibilities. It's definitely something I see as a "pick your spots" strategy as opposed to a rigid perpetual strategy.
This is why I prefer hedging a 100 shares with a back ratio as opposed to selling a call or buying a put. A) if a stock plummets, the back ratio will profit alot more than a covered call b) if a stock rockets up, you can roll your back ratio up and lock in the profit. The opportunity cost though is if a stock stays in consolidation, since you pay for the back ratio. But I’ve never lost more than I paid for it in a month. Ie i at least break even after rolling up or down. Im usually up a good amount. You get far more protection out of a back ratio than a covered call though
Thanks for sharing this! In your last scenarios where the stock reaches $325, I’d say roll the covered call if possible. I’m sure you’re aware of this, it’s just another way of avoiding buying back your position.
There are a number of factors to weigh. I often look forward to my stock reaching the strike price and being called away because its an unexpected windfall profit augmenting the option premium already received. This clears the deck and gives the opportunity to purchase another stock. Or, if this same stock pulls back under the strike price later, perhaps I want to buy it again. So one consideration is how strongly do you wish to retain ownership in this stock. I normally select a strike price very unlikely to be reached, and seldom set expiration much beyond one month.
@@nixer65 what if you are ok with assignment .I think selling the call right ATM is smarter to collect higher premium. This strategy should work well with big blue chips that won't move much like a TSLA. Tsla in 2022 is not going to run 10 points in a week like it used to two yrs. ago.
That's not losing, my friend, that's failing to win, and it's very different. Moreover, the "covered call" is designed for stocks of solid and established companies, not rockets like some people look for. And in this case, you can ride the price increase by selling "call" contracts weekly, and in this way, the frequent premium, in addition to the stock's rise, is a fantastic gain in the medium and long term. Sometimes, ambition blinds us to the positives of truly golden opportunities. In any case, thank you for your video. Very enlightening.
Very true. I was hard on the strategy in this video and it’s been years since making it. The CC is definitely a great strategy to use, and can be used in ways the reduce the likelihood of getting assigned. Lately, I’ve come to think that selling short-term CCs into parabolic stock moves can offer huge short term yields capitalizing on an explosion in short term option prices due to the stocks recent run. Far OTM calls can be sold after such runs for huge premiums in short term expirations
You wouldn't sell your 200 shares @ 35. You keep the $1800 from the option and reposition you next call @ 37.50 on a shooter, then roll up or down depending on current market value of underlying stock.
Nice video. IMHO, you don't really loose $7K in that first scenario, unless you decide to sell those shares after the covered call expires. Otherwise, just wait and it will probably come back around. So, I'd keep writing covered calls and collecting the premiums and not worry about the price volatility (high volatility = higher premiums).
@@Eastbaypisces Wait for price to come back down to come in. You can wait to re-buy stock or better, use cash secured put to get back into stock and collect premiums that way.
They are great if you use them as synthetic puts, terrible if you think you can capture capital appreciation and call premium at the same time, you will eventually get caught.
I personally think they (ITM Covered Calls) are great as synthetic put spreads at the tops of ranges, etc. They (OTM Covered Calls) can also be used to generate income with room for some capital appreciation. Getting assigned is not the terrible fate it's made out to be, especially if you have a great cost basis.
Noticed you have smoothed and paced your videos. Much better. Now if I could practice and scale into trading options. Thanks so much. Got some TT blings recently. Love the cherry pin.
@@projectfinance No need to do that if the motivation to learn about options are there. Maybe do a video on that. How to motivate and give oneself small wins. Most people jump in and think that they're a trading God and then blow an account up trying to find the sweet spot where the small wins reward and then can go on to the more complicated and larger scale positions. Wanting to be a Karen in options not the Karen like on those Oblivion videos but the tasty trade Karen types that's what I aspire to be.
It seems like a lot of people write CC without looking at the charts , they only look at the chain. IMO CC’s shine when used in conjunction with solid technical analysis
If you have enough capital you could have a buy order at the strike price you pick and assign those new shares to that option, so you don’t lose out on the gains while also keeping the premium.
Great point, William. You're absolutely right. The possibility of buying back the short call at the strike was never mentioned in the the Cliffs Notes book on Covered Calls Chris Butler casually skimmed over prior to making this critical UA-cam video about why covered calls are not worth it. You clearly understand how covered calls work because you've actually sold them before. Chris Butler on the other hand...
@@Eastbaypisces let’s say you own a stock that you bought at like $30 and it’s not at $50. You sell a call at $52 to collect the premium. You then set a buy order of 100 shares at $52. So that if the stock does go up to 52 you will buy 100 shares and then assign them to that call. That way you can save the shares you bought a long time ago and not sell them. Obviously there is risk in this in case the stock goes down right after buying but the idea is to isolate the premium
@@wchristensen1024sorry to bother you on an old thread. Is the reason to assign the newly bought shares instead of old shares because selling the old shares would entail higher capital gain taxes? But how do you choose which shares to be assigned? I didn't know u can do that
Thanks so much for sharing your knowledge. Much appreciated. What about just rolling the option to time and price that allows you to break even or make a profit?
I do use them as: - partial hedge - sold with delta below 30 if weekly or 20-25 if monthly - try to sell after a recent run up - sell calls and buy stock on extrinsic premium rich instruments, example: VIAC vs. T, VIAC is quite “juicy” , T isn’t.
You should only sell the covered call if willing to give the stock up if it goes past your strike price. That is the name of the game! Can't cry over something you knew could happen!
I agree that it is confusing to call it a short position. Usually being short (a stock) suggests unlimited loss potential. But selling a covered call presents no loss potential, only profits. However, we do have the possibility of buying back the obligation (the call), so in that sense we were short the call. Once becoming familiar enough with these terms, we get used to them.
Really enjoyed the video( I know this is any older video) but in the 2nd scenario you list it as a loss but its only a loss if you sell it. Are you required to sell it? or you can still hold the shares and let them recover?
I definitely think this strategy is more for someone who is trying to add cash flow to a retirement situation more than trying to grow a portfolio because if you’re an older investor, you’re not really looking to own stocks for a long time you’re looking to just generally cash flow, and under that last scenario, it would be OK. You just moved to another position.
And I think this strategy is good for everyone growing a portfolio, not just retired folks. It is one of several very good income streams that all work synergistically.
Not a lot of people talk about the unrealised loss with covered call like you did. This is my biggest concern with covered calls. Specifically, with the uncertainty in the market with geo political tensions, your capital will be trapped. Unless you have a long term (many years) bullish position on a stock, don’t get into a covered call position.
when the underlying goes up big it is a huge disatvantage to have a covered call on that 100 share if you want to cash out, like the recent Apple and AMD jump:)
Buy 100 of any stock, buy a lot of a long dated (a year out) put 25-30%+ your buy position. Keep on selling otm calls. You can cover the entire cost of your hedge within 4-6 months. Keep on selling further otm calls. It's especially good for highly volatile stocks.
Covered calls are great for me I got burned out 3 times but keep working on it still in huge amount of profit by selling calls I think we have to be careful and close position in time to time.
There is no harm in managing your positions as per usual. I might opt for shorter time spans and avoiding earnings announcements. It kinda depends on your outlook on a particular stock.
I think the only problem in cover calls is if you dont own the stocks to sell them, thats basically what I think the only risk, other scenarios are positive.
THE VERY BEST option trading class on the UA-cam! Even math idiot like me can understand! Thank you. I practice cover call as soon as I purchase a stock, and set it at my target selling price just to squeeze a little more $ (never thought of my P/L or performance). The thing confuses me is that [on the cover call option chain, which one really is golden?] can you make a video of selecting golden scenario? Thx
why do you say you're going to make money on the shares in the "gold scenario"? Are you going to sell those shares and potentially have the share keep going, or possibly stay steady and you never get a chance to buy back in. Do you not realize that gains aren't realized until you sell? Or are you being purposely misleading?
No analysis of an option trading strategy is valid if it starts with this phrase: "if only I had done this, then....." To further that train of logic to an extreme, one could say, "If only I had done nothing but bought the shares, I would have gained X, " Or, " If only I hadn't bought the shares that fell from $20 a share to $.20 a share, I wouldn't have lost X" So, when you sell a covered call at about a 30 delta, there is about a 30% chance your shares will be called if held to expiration. Then you'd have to think, ok, what percentage of that time will that loss be significant, what percentage the loss be thousands of dollars? What I would find valuable is a discussion about WHEN is it statistically the best time to buy or roll a covered call when it is ITM? If that even is possible to ascertain.
when you select a strike to sell you need to look at the seasonality of the stock. If that is a hot time period, you need to go further otm or do shorter term expirations.
In the 4th scenario , the call premium will close at $ 45 , however since you have already collected 19 $ premium at the time of call writing so effectively you loose 26$ per call and not 45$. Pls correct me if am wrong.
you do not lose any money at all, however, you do miss out on the potential upside. he just misrepresented the way the strategy works. So, you will get paid for 100 shares at the strike price(SP) + whatever premium you earn - the potential upside; that is your "loss" but if you have the SP set above your cost basis you come net positive out of the trade.
Selling a call option is a bearish position. If you think its going up, wouldn't you try to sell a Put position and collect the premium for a bullish position.
the thing I don't understand is when people say they "lost" money if they share price goes above their strike price. Isn't it that you "missed out" on additional profit, you've still made money. I mean it sucks but you don't "lose" anything, right?
Fantastic explanation of covered calls of covered calls but I will say that I do think it's a good strategy except when there's a stock that you know will just take off
You might want to make a future video about what to do if your strike price gets blasted through and you don’t want to let your shares go at that price. For example, you can buy back your call and sell a future-dated call for a bit more premium, or sell a future-dated call at a higher strike for the same premium (which will pay you more if you finally do let your shares get called away).
Wouldn’t the shares be called away if it breaches the strike price and then you would stay with premium and appreciation of the stock if you chose a strike price above current stock? Then you could use sell put to regain your shares at a favorable price.
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You didn’t “lose” any money on the covered calls in the last scenario. You kept the entire premium. That’s not a loss. You just didn’t make all of the upside of the stock. It was still profitable. Every scenario is profitable. Some just more than others.
Depends upon your objective, if you were hedging a downside and don’t mind selling the stock it’s a profit but if it is a high conviction stock and you loose the potential future upside it’s a loss.
🎯 Besides, you should never sell calls on shares you aren’t willing to lose. Trying to play both sides of the fence is not typically a winning strategy. I never mix my long positions with my options trading account. I may use the same stocks, but you can’t be mad if you get assigned. That’s part of the game.
@@matt_h_27 Being assigned is a good thing isn't it? I liked making just 15% on Gamestop even though it made a lot more months later. I don't have anything else returning 15% in the year except the Gamestop stock!!!! Your quote: (Besides, you should never sell calls on shares you aren’t willing to lose. Trying to play both sides of the fence is not typically a winning strategy. I never mix my long positions with my options trading account. I may use the same stocks, but you can’t be mad if you get assigned. That’s part of the game.)
@@matt_h_27 Pro tip: Double down if share price begins rising above strike with stop loss set at strike. You’ll be sacrificing brokerage fees although if you’re passionate about your position than it’s a well worth it strategy.
In the last scenario, you could have profited way a lot if you didn't open a sell call position, but since you did then your profit is limited by the price range between the stock price at which you bought and the sell call strike price plus the premium you get from sell call itself
Not disagreeing here but you can always a) roll the calls out for premium if still bullish on the stock, b) buy 120-150 shares so you still participate on the upside even if the option is exercised.
Yep!
In laymans terms, what is "roll the calls out for premiums"? Not sure how to even google that 🤣
yes, roll is good but make sure youll not close/buy back later the rolled options:)
@@JoesTowingBaltimore Rolling the expiration dates on the covered call options, which is basically closing one down for a loss (September expiration) and opening another one up for a credit (October expiration) and this way you are coming out of this in more credit than 900$ and also you have another extra month which might enable the stock to go back below the 280 strike price and hence why not having to sell your shares or sell your option for a loss.
Hope that helps 👍🏼
@@Nates33 yes that makes sense. Thank you!!
Pick a strike price your happy with, collect your premium and wait. If your shares are called away, sell a cash secured put at a price you’d be happy buying them back for. Or just wait until the share price goes back down to a reasonable moving average.
"The Wheel" in action
I don't sell covered calls at prices that I am not comfortable selling, If the price get close to the strike and I change my mind about selling I roll it
Taxes !
@@xxIndridcold99xx No taxes for Roth IRAs.
@@JinTalzeus obv
You have the wrong mindset on Covered calls.. You seem to think getting your shares called is an issue.. First of all you don’t lose anything.. All you do is miss out on “unrealized” gain. That’s a concept you have to get into your head because I remember debating you about this in the past. SQ moves down just as much as it moves up. If the price was at $260, I would have sold a call at $265. I could care less if it goes to $280 because that’s unrealized gain.. It will just come right back down to $260 so what did you lose? Nothing! Those shares get called away from me at $265 then I turn around and sell puts at $260 until it falls under that and it will. Collecting premiums the whole time.. You have to get the concept of unrealized gain in your head because you are looking at unrealized gain as actual gain.
Oh look… SQ dropped to $247 today… Who would have thought…
Two options to make up for loss of opportunity loss, if you have reserve you can simply buy another 100 shares or more to ride the blast off to the moon.
Second option is to options call up in strike and into the future; buy back at a loss, sell back at some higher strike and often premium is more than the loss on your buy back.
You do have to watch it and make your decisions sooner rather than later.
As he mentioned, buying back increases average price on purchase price... but selling another up and out usually gives you even more premiums than the loss on the buyback.
AND you get to enjoy a bit more higher price even if it does get to assignment still than otherwise.
oh look SQ jumped up to $272 today…
@@ATLJB86 "I could care less if it goes to $280" means "I care if it goes to $280," which I don't think is what you intend. If you mean you don't care, you have to write "I could _not_ care less" or "I don't care."
@@Lawliet734 Clearly the conversation is going over your head. I made a point and my follow up comments confirm it… Try to keep up 👌🏾
More people need to learn the wheel strategy… Covered calls are one of the best things you can do combined with selling puts. Covered calls lower your price basis so I can’t imagine why anybody wouldn’t use them.. You sell a call at a higher strike price than you paid.. Now you are getting 2 forms of income. 1 from the premium of selling the call and one from price appreciation. You do that until the shares are called away. You then turn around and sell puts at a lower strike price until the shares are put back to you. That further lowers your cost basis.. Rinse and repeat… What’s the problem again???
some covered calls are not even worth to sell. if its not over $100 is not worth it.
@@iraqiboy If you say so.. Why people don’t understand the concept of lowering your cost basis is beyond me…
@@iraqiboy IV needs to be decent on the stock, like 50+.
You should be selling as many contracts as possible, own like 500+ shares of the stock for 5 contracts.
Don’t set the strike price too far OTM.
Lastly set the expiration date further out to collect more extrinsic value.
There are several things that can increase premium collected.
The wheel is awesome, but too capital intensive for most.
@@dudesalegend2356 If you own 100 shares, how is it capital intensive… All you are doing is selling and making money.
I think you should have mentioned about rolling over the position. So, yes, buying back the calls at the same time as selling a new call position for another premium gain. I would add that to your video. Rolling over is key to managing this type of trade.
Four outcomes with covered call: Stock price down, flat, up slightly & up greatly. Three out of the four favor the covered call position. Those are better odds than trying to continually find a “home run”. Also, If one uses weekly options, the premium income will be higher and rolling over is less expensive.
You're right. The point here was to say that all positions shouldn't be covered calls if the investor has 100 shares. If you're really bullish on the stock then the upside shouldn't be sold.
With weeklies, you can roll the short call more often, but you'll have to sell a strike closer to the current stock price to collect a decent premium. A short-term rally could easily leave the short call ITM in that scenario.
what u mean rolling over less expensive???what suggestions do u have ?
@@projectfinance have u done this w weeklies?? and what u mean u can roll the short call more often w weeklies?? why is that?? if u roll the short call u dont collect the premium on the original short call or do u? or can u roll short call and keep premium and get another premium from the roll??? still new to this
@@projectfinance Hedge the covered call by also buying options above the price of call if you think the price is going to rocket up. I have done this and gotten premium, stock gains and gotten right back into stock. It is very rarely the case that a stock rockets up however. It certainly depends on stock, but I am doing this with a huge portfolio and a lot or blue chip stocks. So, the volatility is lower that for high growth stocks. I am happy to make guaranteed return on different accounts with large balances. In fact, I think being more patient if starting with lower portfolio and building it into a sizeable portfolio it is more rewarding and guarantees viability long run. Searching for home runs is no way to live.
I think the secret is setting a call price that you’re happy selling your shares at. That way along with with premium it would still be better than just owning the shares. Or could just buy back your own call option?
It's one of many option strategies out there, it has its purpose...as you say, it has its opportunity cost, so true. One thing everyone needs to be aware of with Covered Calls...there is NO RISK with the option! All the risk is with the stock! Covered calls are for income generation from a stock, and to reduce cost basis. I like them (along with its cousin, the Cash Secure Put). Sometimes you have to let a stock run, and not write CCs against them, its all part of the game and the fun! Great video!
"So I Only Made $5800" - What the Hell Man - you picked the Strike Price and made $5800. Also you had 200 shares. Next time Ladder your Strike Prices. Have the second Covered Call be at the next higher strike (or only sell Covered Call on half your position).
I make 1000's of Covered Calls trades a year on over 200 stocks in my IRA. Safest way to control risk management and create income.
Covered Calls are another form of a Bullish Debit Spread - You Know this. So are you saying you are not a fan of Debit Spreads?
So, there's a fundamental problem with how you are describing scenario #4 (and there are actually two different versions of this scenario). And in general, I think you're presenting CCs way too narrow.
Since your premium was $900/contract, your break even price is $289 on your $280 CC. Your math in the video checks out, but your risk graph isn't conceptually correct and your explanation is a confusing way to look at it.
Of course, if you contrive an example of the stock shooting up to $325 or even $500, the CC looks like a braindead option. However, this produces a false dichotomy: this isn't the _only_ position you need to have and there would be entries for you to add back to such a strong position, further negating that potential upside "loss".
Your scenario #4 doesn't talk about when the stock ends between $280 and $289. In this case, you're still better off with the CC.
Lastly, you don't take into account the real-world applications of CCs. In all likelihood, you would have already collected the premium one, two, or maybe even three times before the stocks were called away (potentially more depending on your profit percentage: I typically close at 65% of target). Sticking with your $900 premium, I would be selling my CCs when I hit $585 of profit. If I've done this two times on these shares, that's an additional $1170 each contract @ 65% profit or $1800 if they went to expiration.
So in your contrived example, the $7200 potential upside is even further reduced.
65% profit targets => $7200 - $2340 (existing CC profits) - $1800 (current premium) = $3,060 potential missed profits
100% profit => $7200 - $3600 (existing CC profits) - $1800 (current premium) = $1,800 potential missed profits
Of course, the in-between premium values wouldn't have been the same, but that's not the point. The point is when you run CCs, you are collecting profit without selling shares (unless assigned) with the goal to do that multiple times on them. This limits both your upside potential loss **and** your downside potential loss if the underlying tanks.
I'm trying to learn to trade options but the video makes it very confusing, either I'm not getting it or he's not explaining it right.
In his scenario #2, isn't it just unrealized lost if the stock goes down? If I intend to actually hold the stock and buy when it dips, wouldn't covered calls just end up being consistent form of profit.
In his scenario #4, again isn't it unrealized lost in the form of potential gains? Sure anything is possible and the stock can go to 1 million dollars, but if it is that strong, you can just buy more. And what I don't understand is, what if the covered call strike price is a price I want to take profit from, wouldn't it just be profit taking as the stock goes up + premiums? Like if I own 1000 shares of a stock and I want to slowly take profit 100-200 shares at a time, then wouldn't CC be a perfect thing to do?
@Brian JC this isn't his best video, some of his others are better. Also, In the Money has some good videos as well.
CCs can be a bit problematic for taking profits. Say your strike is $285 and the stock hits $290. Well, the your CC will most likely be in the red, so you are waiting for someone to exercise those options in order to take profit. If the stock drops back to $286 before the CC expires (or is exercised by a 3rd-party), then you do loose out on some gain potential here (e.g. the $4 difference from $286 and $290).
Of course, the premium you collect might make up that difference, but that is something to think about. Sometimes you'll get stuck in a position that you might want to exit earlier in this scenario.
For the last scenario, I would roll up to a higher trigger price point event I have to pay some premium, this way I gain more upside room and still keep the premium.
what u mean trigger price? u mean strike price?? what u mean if u have to pay premium, he s selling cc u collect premium
I agree with the Jeramy. When you say 'lost' it only is a loss if you had the money in your account at some time and then it was removed. You shouldn't change the definition of a loss that is only demonstrated by a paper thought experiment. You need to talk about the gain from the premium at the same time: I gained X but missed out on a higher gain of Y. Missed out is not equal to lost.
A bird in the hand is worth 2 in the bush. You don´t have to allow your shares to get called away. You can roll out and up for net credit and repeat process until you are really ready to sell. This is much better than letting shares do nothing in your account. If the price of the shares move down, you can roll out and down for even more net credit. I have found Covered Calls to be a very flexible way to generate income on the shares I own.
I'm new to covered calls but there's a strategy called "roll up and out" that you need to understand. What it does is it allows you to take advantage of the upside but not the entire upside. Basically my understanding is you pay to roll that call option up to a higher strike price as the stock increases in value. Thus, you minimize the upside risk by paying for a higher strike price. You won't make as much as you would have if you had just held the stock but you won't lose like you are in the scenario you outline in the video.
Thanks for a great video once again but, but...
Scenario #2
You did not incur any losses, you made $1800 and are now down $7000 on the stock but you still have the shares.
This is only paper loss at this point not a real loss, you would now of course use the same shares to sell another call option.
Scenario #4
In my opinion it's pointless to speculate how much you could have made.
Every evening I could speculate how much money I, possibly, lost when I did not buy or short the biggest movers of the day.
Once you sell CC that's the price and possible profit you decided to be happy with and whatever happens after that is irrelevant.
IMO and I am sure you will agree...You can't go broke taking a profit! To many get rich quick theories out there, people need to remember it was the tortoise that won the race, not the hare. Or another way to say it...Having the cake and eating it too! Peace from Australia...
Great video. I would add one another comment. The big advantage with covered calls is that your shares get called away sometimes and you realize the gain on the shares and collect the premium. Then you use a cash covered put to get back in at a lower price. If you just hold the shares as the price goes up and down and don’t sell the stock you never realize the gain. You just ride the roller coaster:)
what suggestions u got for somebody new to options i got some stocks w 100 shares and wanna do covered calls
Exactly! If you get in and out of the stock at the same prices in the options, you make premium and on calls the gains in price over cost basis. Simply owning stocks gets you nothing.
@@Eastbaypisces Do the wheel. Use 1-2 weeks (ie don't create covered calls or cash secured puts outside this time) as a time horizon to realize premiums quickly. I use this strategy and have consistently made large returns no matter what the market or stock are doing.
@@mgm153 wym in n out of stock at the same prices in options?? u mean covered calls??
@@mgm153 yea i ve been doing cc and just continuosly been rolling them further out and i get premium like that, is that not a good strategy??
I haven't started trading yet but as soon as I heard about options trading I started to investigate it I found your 2.5h video where you explain everything in detail and it helped a lot, your videos are very easy understandable and the slide examples are cherry on top, thank you for all the effort and work🙏🙏🙏
Do more research on IV Crush, also if volume is not high or average do not purchase the option. Those were my two biggest struggles losses in options trading
Yahh do practice more and more on
Vix, adjustment of strategy and strategy
I thing u need not to learn anything else.
And besed on vix which strategy can be a better strategy
Something to keep in mind, if you are selling options on a stock over a long enough period, getting some shares called away in less than ideal scenarios can still be net positive as your cost basis is continually being lowered via the premium you collect.
If I've collected $1k of premium on a stock and it gets called away from me $400 below my last entry price, I've still got a $600 buffer before I'd be in the red for my all time cost basis
yup and even if its gets called away u can buy it back for cheap unless its above ur cost basis
The best comments are just explaining how to get the best results even further from covered calls. Great audience, thank-you.
I think covered call has a lot of flexibility, I usually try to identify resistance levels and sell short term CC when approaching resistance. The if price breaks resistance I can either roll up and out or close for a small profit/loss (profit coz sometimes theta gain is bigger than delta loss). It had been working well for me.
As some comments said ,you don't lose money in the 4th situation but you would miss on the profit.The real problem when the stock tank, then you will not be able to use covered call as the periumim will very low plus big loss in the stock.
The last scenario is not really a loss, it is what could have been a profit, a lost opportunity but not a loss
I've gotten away from selling covered calls to now selling call ratio spreads instead. I do give up some premium but now I've given myself the potential of capturing the upside move. Essentially, my short calls are paying for my long calls.
So are you buying two and selling one or selling two and buying one? Your statement seems confusing as you say your are selling a ratio spread but also say you can capture the upside move, if you are "selling" then you should be short a extra call but that means your short to the upside...
@@macman231 Sorry for the confusion. I'm buying 1 and selling either 2 or 3. When I say selling that means I'm receiving a net credit. To capture the upside what I do is 1 of
2 things. 1). If I don't mind my stock to be called away then I just sell the long leg for additional profit. 2). If I don't want my stock to be called away I would continue selling my long leg but roll the shorts for additional credit and maybe convert it to vertical spread.
You can always roll over your calls. You buy back the contract and sell another one. Not to mention the new contract almost always has a higher premium.
Exactly, if a stock falls a lot you should roll down the sold call to keep collecting more premium. No one should just sell a CC and let the delta roll all the way down to nothing. Roll it if it drops to 15 delta etc.
I think it depends on the market, cover calls are a good option if u hold stocks long term, and the market goes neutral or bearish, and than if the market goes bullish u can manage ur short calls according to time left on the contract and where do u think the market will go :) great video again btw!!!!
Good video. To address the fourth scenario, you could buy an additional far OTM call around the time of earnings to hedge your tail risk.
to off set it?? what do u do usually???
I have been doing them for the last three years but honestly they seem to be a “wash” for me because I win them 50% of the time and the other 50% I either buy my call back by paying more than I should have or I lose my shares to a price far higher than my strike. It’s just too hard to predict. They also cause me anxiety. Just not worth it. I make WAY more just sitting, doing nothing, and waiting for the stock to go up, sell when they hit my target price and rebuy later if I want
You own the stock period ! And sold a call above what you paid for the stock! You collect a premium and we’re NOT assigned nor did you buy the option back avoiding assignment so it’s a win win period! Why make it more complicated by countin money you could have possibly made!
Thank You for all of your videos that you did. I am enjoying all of them.
Optimal factors to enter the strategy:
- you don't foresee a short term upside on the stock (capped by a major resistance, market is overall neutral, this is usually a low volatility stock)
- Implied volatility is relatively high at the moment of selling the call but you expect it to go down (a few days after the movements of earnings or major news)
- selling the stock has negative implications (tax), no other more promising investment opportunities (ie there is no opportunity cost to own 100x the stock), legal or contractual obligations to hold.
It is often said to be a passive strategy. An active approach is optimal:
- monitor news and possible signals of the stock moving up to buy back your call early (at a loss on a call but to avoid squeezing profits on the stock)
- Roll out regularly, on relatively short periods. If you own a stock it is because you expect mid to long term appreciation. The appeal of "free money" from the sale of a put should not contradict the core of your investment strategy.
Perfectly said and I agree with you 100%. I approached this past video more black and white and didn't factor in the active management/rolling possibilities. It's definitely something I see as a "pick your spots" strategy as opposed to a rigid perpetual strategy.
all scenarios turned out to be positive. As long as you know what you’re doing & you agree to the possible outcomes it’s a win win.
Exactly, yeah there are some missed profits but you still get the premium and some benefit from the long stock position.
This is why I prefer hedging a 100 shares with a back ratio as opposed to selling a call or buying a put. A) if a stock plummets, the back ratio will profit alot more than a covered call b) if a stock rockets up, you can roll your back ratio up and lock in the profit. The opportunity cost though is if a stock stays in consolidation, since you pay for the back ratio. But I’ve never lost more than I paid for it in a month. Ie i at least break even after rolling up or down. Im usually up a good amount. You get far more protection out of a back ratio than a covered call though
Thanks for sharing this! In your last scenarios where the stock reaches $325, I’d say roll the covered call if possible. I’m sure you’re aware of this, it’s just another way of avoiding buying back your position.
so would u do that?? also what platform ru using??
outstanding description! as always.
There are a number of factors to weigh. I often look forward to my stock reaching the strike price and being called away because its an unexpected windfall profit augmenting the option premium already received. This clears the deck and gives the opportunity to purchase another stock. Or, if this same stock pulls back under the strike price later, perhaps I want to buy it again. So one consideration is how strongly do you wish to retain ownership in this stock. I normally select a strike price very unlikely to be reached, and seldom set expiration much beyond one month.
Exactly as you should look at this.
@@nixer65 what if you are ok with assignment .I think selling the call right ATM is smarter to collect higher premium. This strategy should work well with big blue chips that won't move much like a TSLA. Tsla in 2022 is not going to run 10 points in a week like it used to two yrs. ago.
That's not losing, my friend, that's failing to win, and it's very different. Moreover, the "covered call" is designed for stocks of solid and established companies, not rockets like some people look for. And in this case, you can ride the price increase by selling "call" contracts weekly, and in this way, the frequent premium, in addition to the stock's rise, is a fantastic gain in the medium and long term. Sometimes, ambition blinds us to the positives of truly golden opportunities. In any case, thank you for your video. Very enlightening.
Very true. I was hard on the strategy in this video and it’s been years since making it. The CC is definitely a great strategy to use, and can be used in ways the reduce the likelihood of getting assigned. Lately, I’ve come to think that selling short-term CCs into parabolic stock moves can offer huge short term yields capitalizing on an explosion in short term option prices due to the stocks recent run. Far OTM calls can be sold after such runs for huge premiums in short term expirations
You wouldn't sell your 200 shares @ 35. You keep the $1800 from the option and reposition you next call @ 37.50 on a shooter, then roll up or down depending on current market value of underlying stock.
Nice video. IMHO, you don't really loose $7K in that first scenario, unless you decide to sell those shares after the covered call expires. Otherwise, just wait and it will probably come back around. So, I'd keep writing covered calls and collecting the premiums and not worry about the price volatility (high volatility = higher premiums).
what u mean wait tho??
@@Eastbaypisces Wait for price to come back down to come in. You can wait to re-buy stock or better, use cash secured put to get back into stock and collect premiums that way.
@@mgm153 yea , which strategy do u use?
Holy fuck dude thank you I was looking for someone with this response I’m glad I’m not the only one who thought that
They are great if you use them as synthetic puts, terrible if you think you can capture capital appreciation and call premium at the same time, you will eventually get caught.
I personally think they (ITM Covered Calls) are great as synthetic put spreads at the tops of ranges, etc. They (OTM Covered Calls) can also be used to generate income with room for some capital appreciation. Getting assigned is not the terrible fate it's made out to be, especially if you have a great cost basis.
Noticed you have smoothed and paced your videos. Much better. Now if I could practice and scale into trading options. Thanks so much. Got some TT blings recently. Love the cherry pin.
Thanks for watching and commenting! It did take me a while to slow things down. It’s unfortunate because now I have to redo some old videos :(
@@projectfinance No need to do that if the motivation to learn about options are there. Maybe do a video on that. How to motivate and give oneself small wins. Most people jump in and think that they're a trading God and then blow an account up trying to find the sweet spot where the small wins reward and then can go on to the more complicated and larger scale positions. Wanting to be a Karen in options not the Karen like on those Oblivion videos but the tasty trade Karen types that's what I aspire to be.
It seems like a lot of people write CC without looking at the charts , they only look at the chain. IMO CC’s shine when used in conjunction with solid technical analysis
If you have enough capital you could have a buy order at the strike price you pick and assign those new shares to that option, so you don’t lose out on the gains while also keeping the premium.
Great point, William. You're absolutely right. The possibility of buying back the short call at the strike was never mentioned in the the Cliffs Notes book on Covered Calls Chris Butler casually skimmed over prior to making this critical UA-cam video about why covered calls are not worth it. You clearly understand how covered calls work because you've actually sold them before. Chris Butler on the other hand...
what ? explain that
@@Eastbaypisces let’s say you own a stock that you bought at like $30 and it’s not at $50. You sell a call at $52 to collect the premium. You then set a buy order of 100 shares at $52. So that if the stock does go up to 52 you will buy 100 shares and then assign them to that call. That way you can save the shares you bought a long time ago and not sell them. Obviously there is risk in this in case the stock goes down right after buying but the idea is to isolate the premium
Brilliant
@@wchristensen1024sorry to bother you on an old thread. Is the reason to assign the newly bought shares instead of old shares because selling the old shares would entail higher capital gain taxes? But how do you choose which shares to be assigned? I didn't know u can do that
I hate it when people refer to losing unrealized gaines/losses. A gain or a loss is not a gain or a loss unless you've actually sold.
Hahaha! Try telling that to Kamala or Elizabeth Warren!
Thanks so much for sharing your knowledge. Much appreciated. What about just rolling the option to time and price that allows you to break even or make a profit?
that's the fastest shirt change I have ever seen!
Managing the position is important. Only short if you don’t mind losing the underlying
this was a great explanation. thank you for using graphics. Trying to pass my SIE
Thank you and good luck to you!
@@projectfinance do u have one like this ☝️ for protective puts?
@@ibadidas17 I do not! Haven't done a video on that strategy in a while.
Best explanation on UA-cam, and looks like you’ve been hitting the preacher curls. Keep up the good content brother!
I've been slacking on the weightlifting since this video... gotta get back to it.
Thanks for the comment brother!
I do use them as:
- partial hedge
- sold with delta below 30 if weekly or 20-25 if monthly
- try to sell after a recent run up
- sell calls and buy stock on extrinsic premium rich instruments, example: VIAC vs. T, VIAC is quite “juicy” , T isn’t.
Newbie doing this so I'm doing small stuff. I'm glad I'm learning this.
Roll over your position to a different expiration date and take advantage of the volatility to receive a higher credit
You are amazing, thank you a million times for your videos ;) !!!
in the 2nd senario if you do not sell the shares you do not loose it right?
Either exit the position and reposition another CC or roll the short position up and out.
????
You should only sell the covered call if willing
to give the stock up if it goes past your strike price.
That is the name of the game! Can't cry over something
you knew could happen!
Newbie question here, is shorting a covered call the same as writing a covered call?
Yes, diff terms for the same thing.
@@Coda1850 thank you for clearing that up for me! 👍🏻
I agree that it is confusing to call it a short position. Usually being short (a stock) suggests unlimited loss potential. But selling a covered call presents no loss potential, only profits. However, we do have the possibility of buying back the obligation (the call), so in that sense we were short the call. Once becoming familiar enough with these terms, we get used to them.
Really enjoyed the video( I know this is any older video) but in the 2nd scenario you list it as a loss but its only a loss if you sell it. Are you required to sell it? or you can still hold the shares and let them recover?
I definitely think this strategy is more for someone who is trying to add cash flow to a retirement situation more than trying to grow a portfolio because if you’re an older investor, you’re not really looking to own stocks for a long time you’re looking to just generally cash flow, and under that last scenario, it would be OK. You just moved to another position.
That's a great point and I agree with that scenario
And I think this strategy is good for everyone growing a portfolio, not just retired folks. It is one of several very good income streams that all work synergistically.
Not a lot of people talk about the unrealised loss with covered call like you did. This is my biggest concern with covered calls. Specifically, with the uncertainty in the market with geo political tensions, your capital will be trapped. Unless you have a long term (many years) bullish position on a stock, don’t get into a covered call position.
when the underlying goes up big it is a huge disatvantage to have a covered call on that 100 share if you want to cash out, like the recent Apple and AMD jump:)
Rất cảm động và biết ơn Anh
Thank you:D
you did a great job of explaining this, good pace, great diagrams and well spoken. oh I love CCs.
Can you make a video on the four types of broken wing butterflies?
Buy 100 of any stock, buy a lot of a long dated (a year out) put 25-30%+ your buy position. Keep on selling otm calls.
You can cover the entire cost of your hedge within 4-6 months. Keep on selling further otm calls. It's especially good for highly volatile stocks.
I have learnt so much from this guy its unreal, thanks from the UK i don't know you but i appreciate you. Regards keep up the great work. 😄
What do you think? Covered calls or nah?
Prefer CSP’s
Appreciate the content!!!
I love covered calls. I sell CC on TSLA all the time.
Covered calls are great for me I got burned out 3 times but keep working on it still in huge amount of profit by selling calls I think we have to be careful and close position in time to time.
I sell my CCs 2 weeks out for max premium
Love cc calls.... up your strike price if you want the up side. Or better yet sell wide straggles
There is no harm in managing your positions as per usual. I might opt for shorter time spans and avoiding earnings announcements. It kinda depends on your outlook on a particular stock.
I think the only problem in cover calls is if you dont own the stocks to sell them, thats basically what I think the only risk, other scenarios are positive.
THE VERY BEST option trading class on the UA-cam! Even math idiot like me can understand! Thank you.
I practice cover call as soon as I purchase a stock, and set it at my target selling price just to squeeze a little more $ (never thought of my P/L or performance).
The thing confuses me is that [on the cover call option chain, which one really is golden?] can you make a video of selecting golden scenario? Thx
I have made a truckload selling covered calls on Tesla this year. Can always roll them up and out if needed.
I wouldn’t sell cover calls on growth stocks. You sell them on value stocks.
Looking at the current share price of $43, Covered call would've a very good option :)
Thank You Very Much
I love this strategy... I keep doing this every week. Its risky as I don't want to give away my positions and get assigned.
Good Info!
then you prob should not be doing this with a stock you are in love. Eventually, you will be assigned and you will have to sell your shares.
I really appreciate your videos and thank you for diving into this.
If I Only Knew Dept. I am losing money on the 100 shrs of stock, Is a Covered Call a less painful way to exit the position. Adding upside if Assigned?
What kind of stocks are best candidates for Covered calls? Is it the high IV or great fundamentals of the company?
Do you get to keep your shares on the covered call if a $40 call ends at $30 at the end of contract?
why do you say you're going to make money on the shares in the "gold scenario"? Are you going to sell those shares and potentially have the share keep going, or possibly stay steady and you never get a chance to buy back in. Do you not realize that gains aren't realized until you sell? Or are you being purposely misleading?
If I buy an spx call could I use the covered call strategy to sell a call against my bullish position?
No analysis of an option trading strategy is valid if it starts with this phrase: "if only I had done this, then....." To further that train of logic to an extreme, one could say, "If only I had done nothing but bought the shares, I would have gained X, " Or, " If only I hadn't bought the shares that fell from $20 a share to $.20 a share, I wouldn't have lost X" So, when you sell a covered call at about a 30 delta, there is about a 30% chance your shares will be called if held to expiration. Then you'd have to think, ok, what percentage of that time will that loss be significant, what percentage the loss be thousands of dollars? What I would find valuable is a discussion about WHEN is it statistically the best time to buy or roll a covered call when it is ITM? If that even is possible to ascertain.
Great video Chris.
when you select a strike to sell you need to look at the seasonality of the stock. If that is a hot time period, you need to go further otm or do shorter term expirations.
In the 4th scenario , the call premium will close at $ 45 , however since you have already collected 19 $ premium at the time of call writing so effectively you loose 26$ per call and not 45$. Pls correct me if am wrong.
you do not lose any money at all, however, you do miss out on the potential upside. he just misrepresented the way the strategy works. So, you will get paid for 100 shares at the strike price(SP) + whatever premium you earn - the potential upside; that is your "loss" but if you have the SP set above your cost basis you come net positive out of the trade.
You can always buy another call option back with the same strike price to balance the one that you sold.
Selling a call option is a bearish position. If you think its going up, wouldn't you try to sell a Put position and collect the premium for a bullish position.
Yes
Yes, that's true for a short call, in isolation; however, a Covered Call is synthetically a short put.
It is a good idea to do a CC on a stock that I have about 50% negative? Does that change anything?
100 shares is worth 100 shares until sold for a price you agree on. Selling calls or puts creates new money that you can use in anyway you desire.
How do you choose your call option strikes? do you choose base on delta? or far out OTM to pay less premiums?
the thing I don't understand is when people say they "lost" money if they share price goes above their strike price. Isn't it that you "missed out" on additional profit, you've still made money. I mean it sucks but you don't "lose" anything, right?
Opportunity cost, not direct loss
Great vid! Thank you.
I thought you were your brother at first. Been a Tastytrader since 2017
Fantastic explanation of covered calls of covered calls but I will say that I do think it's a good strategy except when there's a stock that you know will just take off
Glad to see u back
You might want to make a future video about what to do if your strike price gets blasted through and you don’t want to let your shares go at that price. For example, you can buy back your call and sell a future-dated call for a bit more premium, or sell a future-dated call at a higher strike for the same premium (which will pay you more if you finally do let your shares get called away).
could you explain the wheel strategy and which is the most profitable options strategy'?
Wouldn’t the shares be called away if it breaches the strike price and then you would stay with premium and appreciation of the stock if you chose a strike price above current stock? Then you could use sell put to regain your shares at a favorable price.
Hi Chris, any chance you could do a call/put ratio spread/backspread video?