Rolling Deep ITM Covered Calls - an Example with Meta
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- Опубліковано 24 лют 2024
- Explains why you would consider Rolling your Deep ITM Covered Calls along with other alternatives, and gives a real world example with Meta.
Examines several potential rolls for Meta including up to different strike prices and up and out to higher strikes and longer durations. Also computes the yield and delta risk for these rolls.
Provides final analysis on how to think about whether to Roll or choose other alternatives.
Links:
Moving on from ITM Covered Calls
• ITM Covered Calls - wh...
Rolling Covered Calls
• Rolling Covered Calls ...
Covered Calls, the Dark Side
• Covered Calls Deep ITM...
Previous Meta Episode
• Selling Options on Met...
When my cc's are DITM, I usually do one of two things; roll to the next higher strike AND the next expiry date.. Or two, buy to close and immediately start selling weeklies on that same underlying. In the example above, having a DTE of 663 or 844 is simply just too long of a wait..
It is a long time, agreed. But you don't need to wait until expiration. Once the time value has decayed to a very small amount, you can close early and liquidate the underlying.
My Meta covered calls are behaving a lot like long term bonds yielding 8% on their time value now.
Selling LEAP calls does require a lot of patience and is not for everyone, especially if you're trying to maximize income from your options.
Great video! Because the tech stocks have doubled in 6 months, there are many traders with Bleeding short calls. They could be covered but many are part of a strangle that is way in the money. It would be great if you could do another video on ajustments you can make to mitigate losses with bleeding calls. Thx JT
Thank you John. I bet you are right, lots of call sellers are feeling pain right now, naked, covered, and part of other structures like strangles. Your suggestion sounds like a very interesting and challenging topic, but I'm just not willing or able to take that on right now. My very shallow thoughts for mitigating losses would be to buy to close and move on, or pick your favorite option bullish strategy on the underlying to offset your call.
I'm not a guy that puts a lot of thought into managing risk with my options. I typically only sell options and think about them the same way as I think of buying and holding stocks. I want that directional risk--that's how I make money in the long run. Hence the name of my channel :)
I've come around to not even bothering with selling puts lately because my brokers make it such a pain to earn the risk free rate on the cash securing the puts. I just do covered calls now and monitor them closely. I let the ones go I think have reached or exceeded their fair value, and try to roll up and out the ones I still like. Keeping it simple.
I've started working on my back tester again and would like to make some more episodes on that soon. Hopefully better, clearer, and more useful for helping answer questions like what does the historical data show is the best strike, duration, delta, etc for selling calls. And what has it shown for the best time and way to roll. And a million other questions, not just for SPY but for different sectors and categories of stocks.
Very detailed useful analysis. I loved it. Please post mire such videos. With market so bullish calls are going deep in the money. Can you add your opinion on if the stock goes up so muck will it normalize to mean?
Thank you. I absolutely can't say anything intelligent about what the stock will do in the short term or when it might normalize to the mean. As you've probably heard "The market can stay irrational for much longer than you can stay solvent".
I don't really even try to guess when it might 'normalize'. I just try to capture a good chunk of the price appreciation by rolling up and out until the stock gets above my guess of what it should be worth.
When calculating your return, do you take into account 200 yearly dividends
I did not. Good question. If you are just rolling up, and not out, then you wouldn't be collecting any extra dividends, so that one is easy. However if you are rolling up and out then you could make an educated guess how many extra dividends you'll be collecting which you could add into your rolls' returns. Paying these dividends does cause the stock price to go down by the appropriate amount on the ex dividend date so it increases the chance of it going OTM, but that would already be built into the option's delta, and shown in the delta risk column in the episode.
I didn't provide much detail or color on the delta risk. It's a can of worm probably worthy of it's own episode some day. If the roll ends up going OTM, then it's realized gain or loss will be affected by how much it goes OTM. And if you really like the stock and company it may not bother you at all if it goes OTM, just an opportunity to buy more do more attractive rolls.
LOL rolling in the money covered calls does not mitigate the loss. The day of recommending will come due.
Thanks for the comment. I didn't mean to imply rolling was 'mitigating' a loss. You will typically pay a fair price for a roll. The intention was to show some examples of rolls and their consequences for deep ITM covered calls on Meta.
To clarify, you're paying for the partial recovery of price appreciation with a combination of debits, additional risk, and time.
Interesting. Complex. I'm not married to any stock, dividend, or anticepated bullish future. I'll let weeklies go to expiration to keep premium and collect the difference between the strike and my cost basis.
I'm about collecting the premium and GTFO.
Today, I had MARA covered calls drop. I bought back for less, collected profit and rolled out exp date same strike for a credit. MARA dropped again. I bought back for less retaining my 800 shares.
I use RH. I looked at rolling naked SPY puts that dropped in price, but noticed that RH did not show the loss I would have taken on my original cost basis. It only showed debit or credit based on the market values. 😅 I was glad I noticed and did not roll. I complained to RH that the incomplete reportage was misleading. I think any loss or profit on the original cost basis should be shown. Regards.
Kept averaging down on my 4/19 puts and now SPY is dropping.
I'm just the opposite, absolutely married to my stocks until their fundamentals tell me I shouldn't be. I sell options just to stay engaged, make a little extra income and have fun.
Hopefully both strategies can be successful 🍻