Never sell covered calls unless you are willing to sell the shares at that strike price.
Sell for 60 day term at max.
Most theta time decay is in the final weeks if an option life.
Sell at a strike above the current market price of the shares for additional gain upon share assignment.
Typical delta of covered calls is 0.25 or 0.30.
**Shares are almost always assigned at expiration only, not quickly**
The person who owns the long side can just decide to exercise whenever they want, even if it's a bad financial decision.
Edit: I'm simply saying it's technically possible for OTM options to be assigned because the system allows for it. But the chance of it happening is basically zero
It is almost never, because it doesn’t make financial sense. There was a good handful of people that were exercising OTM calls on GameStop back January 2021 or whenever because retail was no longer allowed to buy shares. So some of the people that had calls used that as a way to put some buy pressure on shares. Stupid, but there’s times people have done it
Options can be exercised OTM. I don't care what you *want* to be the truth. Some brokers will tell you that you have to call to speak with someone (because it's illogical), but nothing stops you from exercising an OTM call.
You're being downvoted for misinformation.
Well, I am dumbfounded. I have been learning about options for a couple of years. Everything I have read, studied, and watched have said what I explained. These are from books and brokerage accounts, not blogs or zany websites. So I looked it up after I read your post, I looked it up on the Options Council website and it seems you are correct. I feel like I'm in the twilight zone or a mandela effect. Makes no sense.
If you look at it from the perspective of just a market maker, then what you wrote tracks. Since those are just big math machines. The algorithm won't see the value in exercising something that allows them to buy shares at a higher cost than just buying the shares on the market (or selling for a lower price than market rate), so the algorithm says sell the call and move on.
I actually had a moron exercise F calls slightly OTM right before the ex-date on their special dividend, and I got assigned. No idea why they didn’t just purchase the shares. I simply took the proceeds and sold an ATM cash covered put for the next month.
this may be a dumb question but can anyone give me the workings of a cash covered put, I know with the put side, after doing due diligence, one essentially sells at a higher strike and then eventually Buys at a lower leg price to close. How does the cash covered PUT work in relation to that, It is my understanding, it is best to already own a few hundred shares(say a couple of contract worth) before placing any such type trades, not sure about the cash covered. Thx.
You are selling a put for a premium with a certain strike price. If the stock comes down to that price or lower, you buy the stock at that strike price. Cash covered means you have enough cash sitting by to buy those shares
Not exactly. It means someone can FORCE you to buy the stock for the strike price, even if the market price is lower. You’ve sold the obligation to purchase at a fixed price without regard to the market price.
A call option gives you, the option buyer, the right to purchase the stock at a particular price on or before the option expires.
Exercising is your choice, whether it's rational or not.
Very few option buyers would call the stock away before expiration date, they usually sell it even when it's ITM. ( few but not zero )
especially on the popular stocks .
True when talking about the person/s who bought the option but in the case of Fidelity and other brokers, they will automatically sell when it’s $0.01 over the strike price. So in reality, it doesn’t matter what the person on the other side does with it, it depends on how your broker deals with it.
Fidelity will auto sell once its over strike price, even if you have time for the option to expire still? even if the buyer has not exercised?
does fidelity basically just decide even if this guy isnt exercising, WE'LL BUY IT AND EXERCISE and then they figure out what to do with the shares later on? thats wild
I've never had the options/stock taken from me before the end date.
I'm sure the option is being called, and the brokerage house just creates a new option.
Seems like you’re totally going against your agreement by putting your shares at risk of being called away. In that case you may not have the same number of shares you promised to pass down. You just assume the market won’t go up. It will happen. You’ll be left with a nice stack of cash and the prospect of reinvesting at a higher price
I’m channeling the spirit of your relative 🍃🔮
If you promise that you won’t sell the shares then why would you write contracts that explicitly promise to sell them, people pay for those contracts for a reason 🤦🏻♂️
Enjoy the dividends OP
“I promised to pass along the same number of shares to my kids” ….. so I plan on selling someone the right to buy my shares at the current price. Naturally lmfao. Lmfao im sorry but you can’t make this stuff up 😂 not throwing shade
Do you understand that the options are "covered" by your shares? You're selling the right to buy your shares at a given strike price. They will get sold if the person that buys your options wants them at that price.
He's planning to buy them right back and roll another
>*I would then buy/write another atm leap and continue the process as quick as possible so not to lose out on upside.*
I'm not sure if he realizes the downside of having to buy at much higher price if the stocks goes crazy. He would need to implement a call spread to be safe.
I would recommend never touching any of it and just not doing that. That is the best way to guarantee that the shares are there to pass on to your kids.
I look at this entire thread like the two of my grandparents bickering about their treasures. Your comment sounds like my grandma speaking from the grave!
Bickering about their treasures … well i mean if they had any idea that you would agree to pass on to their great grandkids then sell options risking loosing those shares out of stupidity and pure greed its no wonder they argued
Dude you seriously need to reconsider. I promise you that you will underperform buy and hold. Ask every profitable trader how long it took them to be profitable- it’s a couple YEARS.
Please, for the love of god, PAPER TRADE first.
So your first act is to use the shares as collateral that could be called away? If one of those stocks takes off and moons is your plan to spend whatever it takes to buy them back?
You’ve promised to pass along the same number of shares and you want to write/sell covered call contracts 450 days out, at the money?
With this plan, it’s almost a certainty that the only thing you’ll be passing along is excuses as to where the shares went.
You would be better off writing shorter dated (30-60 days) CC’s at a 2 or 3 delta so that you can keep your promise to pass along the shares.
Are you willing to take a taxable event?
I well covered calls in my Roth and my individual account. It’s usually a horrible tax strategy but I enjoy it. Also, I’m willing to lose the shares. Are you?
Sorry for your loss!
My first instinct is to say I don't mind a taxable event this year, but maybe that is the wrong way to think about it. I believe the value of the stock the day I took ownership is the open price for any taxable event, because of it being inheritance.
Seeing the shares get called away, to only be stocked back up with new shares--that is something I don't mind doing.
Thanks for your kind words. It has been a year and I still think about them every other minute.
I bet. What a kind gift they left you though.
For what it’s worth, I sell weekly (waaay OTM) covered calls on QQQ, AAPL, and MSFT every week. Even though I’ve had to buy back the calls at a loss, more than a few times, it’s still been pretty profitable considering how otm I go on a short time frame. Never more than 2 weeks out.
While I’m usually not getting more than .5% return for the 1-2 week out expiration, it’s still enough for me to be happy about.
Cheers.
Good plan. If you collect 1.5 to 2 percent per month for a year, that is a very nice return. Too often people seem to get too aggressive and end up losing money either buying back the options or the shares at a higher price. Avoiding the downside is often more valuable than one thinks.
There is also stock lending but I've no idea how it works. You might want to research that. Regarding taxes, you'll likely pay long term gains taxes if CC is exercised but if you stock up again then you might fall into short term bracket. Just a few things to keep in mind.
You are using these shares as collateral to make a bet. My unpopular opinion is that covered call enthusiasts most of the time are deluding themselves due to cognitive bias. They don't recognize that they are making a bet and instead think that they are selling something they got for free. The potential for loss is hidden because instead of posting cash, shares that are already owned are used as collateral and somehow the prospect of them being called away doesn't seem equivalent to losing cash when in fact they are the same thing. If the call is considered a hedge than its job is to reduce the risk, not provide you with more money at the same level of risk. Either you are taking more risk to try to get more money or you are accepting less money to reduce your risk.
Blue chips like Apple has a positive drift. Selling a cc leap you are allowing so much time for the stock price to move up in the long run. Selling ATM is will make the cc ITM so much faster.
CC is best executed on a shorter term with lower delta (around 0.25). You will likely lose your shares if sell ATM.
Assuming you own 1000 shares of AAPL worth 216 K. Use the shares as collateral to sell index options.
Index options are settled in cash, so there is no worry of your shares being taken away. They are also taxed at a lower effective rate – 60% as long term and 40% as short term.
For example, the S&P 500 index SPX is currently at 5470, you can sell the following strangle (a naked call + a naked put):
Aug 2 5740 call for 5.40 and 5060 put for 5.80 for a total of 11.20. The delta of these options is very low at 0.05.
This will generate an annual income of 13,440 or 6% of 216 K.
Each strangle requires collateral of 55 K and your stocks have buying power of 151 K so you have enough buying power to sell 1 strangle.
You also have some remaining buying power to sell a few XSP strangles. XSP is 10 % the value of SPX so the collateral will be 5.5 K each. I suggest that you use only 50% of the buying power for risk management.
You can adjust delta to suit your risk tolerance. A higher delta will produce a higher income.
Every security in a margin account has buying power (BP). The total value of the BP can be used to buy stock and option or used as collateral to sell options.
The BP is computed from the values of the securities. The BP of a stock is 70% of its market value. Cash has 100%, mutual fund has 80% and T-bill has 96%.
To implement my strategy, you must be approved to sell naked options.
Selling a naked put requires about 10 to 15% of the notional value as collateral as compared to 100% for CSP.
If you have a margin account, you can see your buying power for options by going to the Balance page. It’s called Non-margin buying power at Fidelity and Margin Buying Power for Options at Schwab.
Are you an experienced options trader? This does sound interesting but I don't see why the 450 DTE Leap would get called away quickly, but I'm not experienced with those. The idea I like, and with 1000 shares you can do this with between 1-10 contracts, is to sell covered calls OTM, a delta between .30 - .16, and if those shares get called away, then sell a PUT at a strike you like until they get exercised, this will buy them back at a lower price than what you sold them for, then sell OTM covered calls again. Rinse and Repeat. You get to keep selling puts, collecting money, until the price lowers. It's a great strategy and you're in a great place to do it. If I had 1,000 shares I would sell a COVERED CALL, 1 contract OTM until the 100 shares were called away. Then I would sell 1 PUT OTM at a strike I like while selling another 1 contract COVERED CALL until those got called away too. Rinse and repeat. Man, you can make some serious coin. This would be so much fun. I would be looking at 30-45 days out, 60 at the most.
I'm curious on your thoughts
Wow, thanks for putting yourself into my shoes! Yes, I do believe it would be a fun way to use my inheritance while increasing income. I understand the exact shares I have today will likely be different than the exact shares I pass along, but I dont see that as breaking the agreement.
Based on other comments, looking 450DTE is silly--with my level of experience. Scratch that.
Selling PUTs is on my list of research topics for later today. I like your idea of it reducing downside when returning to purchase back the 100 shares. That is not a strategy I had thought about!
What people don't usually tell you is that if you sell leaps you are LOCKED IN. I.e., you can't sell your shares at any earlier point, unless you also buy the CCs back. People have a brainwashed memory too in which 2022 was conveniently wiped from collective memory. In 2022 Mag 7 stocks went down -40-80% (Tsla and Nvda on the far end). And everything that is now said about these stocks was true then as well. But somehow people pretend they can't fall. So I think it's smart to sell CCs now at ATHs with declining fundamentals (e.g., most of Mag7 actually don't grow anymore), IF you are fine holding also through a severe downturn, which will probably come after the election.
If you sell ATM LEAPS the shares will not be called a way quickly. They won't get called away until the expiration date, unless someone exercises early, which usually isn't a good course of option.
If your intention is to let the shares get called away and then buy them back you'll probably lose money long term. You make money if the premium is greater than 100x how much the stock has gone up.
lastly, selling leaps gets you a lot of premium, but it takes a long time to get that premium. people buy LEAPS because they have minimal theta decay. But they're not LEAPS if they're ATM, LEAPS are deep in the money. So you're just suggesting selling ATM calls a year out.
It's unlikely AAPL you'll get enough premium in a year that AAPL going up doesn't completely negate your profit. If you're gonna sell ATM calls, you'd be better off selling them short term because it's less likely that you'll be wrong.
Like some have already said, you can always roll your option up and forward to prevent assignment. To me, it means giving up a tremendous amount of money. Those who dislike selling calls are just waiting for the stock to hit a certain price BUT the questions is IF and WHEN. No one really sells at the very top. My mentor taught me bird in hand is worth two in a bush. You can take that premium and if you want to,immediately sell otm or itm cash secured leap puts on the same stock if you are afraid that you will lose it to further collect premium. I wheel all my holdings and rarely do I get assigned. My 2 cents.
450 days out?
I only work within a week. Even that I have 25% getting called or taking a loss buying back.
The return is not much either may be 3.5% ....
450 is insane. Write monthlies 20% above current price or weeklies 10%. Rinse and repeat. You can also do some shares with one strategy, others with another.
You need to be aware of earnings dates also. You need to be educated on the fundamentals of options before you yolo sell a bunch of calls on 6 figures worth of underlying that you inherited.
Unless there’s a special situation or it’s close to ex date on a stock that pays a decent dividend a good rule of thumb to follow is: as long as there is a .05 bid on the put you are most likely not going to get your stock called away. It’s the same with short puts it’s the same, as long as there is a $.05 bid on the call you won’t get assigned. Once that bid disappear s then you are at risk. Not even a full blown regard would exercise your short call when the put is $29.64 bid. JMHO, MAQ
Highly likely you'll have the shares called away and have to pay short term capital gains.
I sell premium but if I promised my kids they'd have those shares id probably use margin in an account and buy different shares and then sell premium...
Selling covered calls is basically betting that stocks will stop going up. Historically, that is a very bad investment choice. Cited: Almost any study of covered calls you can find
Since you mentioned AAPL, just look what happened within a month it went from 180 to 220. If you would have sold a covered call anywhere between 185-190 you would have most likely had them called away.
If you are still interested in selling covered calls, just don’t do it on all your holdings, that way you still can profit from a big gap up.
What you're describing is called a fig leaf and is a great strategy for fairly low effort income in a LTI account. I saw some advice which I think is pretty poor here so be careful. I'm not suggesting this is what you should do, but what I do is:
Find a stock with a high premium, like NVDA (not saying to buy this stock now), find a good time to buy the LEAPs. Keep in mind the current market, how the stock has been trending (are we in a dip, trending up?), sector rotation, time of the year, etc. You want to buy the stock when it isn't going to clearly pull back so it's worth waiting. Then, buy your ITM LEAPs and sell covered calls against it. Despite what others are saying, DO NOT sell calls unless the delta is 0.1 or less. You DO NOT want to have your calls be exercised. Yes, the premium is lower but you should be able to comfortably recover your investment (usually no more than 6 months) and everything else is pure profit.
Obviously this isn't financial advice or a recommendation but something that is worth looking into.
Never sell covered calls unless you are willing to sell the shares at that strike price. Sell for 60 day term at max. Most theta time decay is in the final weeks if an option life. Sell at a strike above the current market price of the shares for additional gain upon share assignment. Typical delta of covered calls is 0.25 or 0.30. **Shares are almost always assigned at expiration only, not quickly**
Thank you, that helps a lot.
American options? You can be called anytime it has surpassed the strike price as well.
You can be called any time *period*, in the money or out, but it's very unlikely unless it's ITM and the extrinsic is near zero.
Can you explain how you can be assigned if the call is otm ?
The person who owns the long side can just decide to exercise whenever they want, even if it's a bad financial decision. Edit: I'm simply saying it's technically possible for OTM options to be assigned because the system allows for it. But the chance of it happening is basically zero
Did not know that . Thanks . But how often does this ever happen if seemingly almost never .
It is almost never, because it doesn’t make financial sense. There was a good handful of people that were exercising OTM calls on GameStop back January 2021 or whenever because retail was no longer allowed to buy shares. So some of the people that had calls used that as a way to put some buy pressure on shares. Stupid, but there’s times people have done it
Bingo and they still do.
See my comment above, just want you to have the correct information
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Options can be exercised OTM. I don't care what you *want* to be the truth. Some brokers will tell you that you have to call to speak with someone (because it's illogical), but nothing stops you from exercising an OTM call. You're being downvoted for misinformation.
Well, I am dumbfounded. I have been learning about options for a couple of years. Everything I have read, studied, and watched have said what I explained. These are from books and brokerage accounts, not blogs or zany websites. So I looked it up after I read your post, I looked it up on the Options Council website and it seems you are correct. I feel like I'm in the twilight zone or a mandela effect. Makes no sense.
If you look at it from the perspective of just a market maker, then what you wrote tracks. Since those are just big math machines. The algorithm won't see the value in exercising something that allows them to buy shares at a higher cost than just buying the shares on the market (or selling for a lower price than market rate), so the algorithm says sell the call and move on.
It's illogical, yes. We've established that lol
Your shares are safe if the call is OTM.
Or if dividend is coming and they are close to the money
I actually had a moron exercise F calls slightly OTM right before the ex-date on their special dividend, and I got assigned. No idea why they didn’t just purchase the shares. I simply took the proceeds and sold an ATM cash covered put for the next month.
this may be a dumb question but can anyone give me the workings of a cash covered put, I know with the put side, after doing due diligence, one essentially sells at a higher strike and then eventually Buys at a lower leg price to close. How does the cash covered PUT work in relation to that, It is my understanding, it is best to already own a few hundred shares(say a couple of contract worth) before placing any such type trades, not sure about the cash covered. Thx.
You are selling a put for a premium with a certain strike price. If the stock comes down to that price or lower, you buy the stock at that strike price. Cash covered means you have enough cash sitting by to buy those shares
Not exactly. It means someone can FORCE you to buy the stock for the strike price, even if the market price is lower. You’ve sold the obligation to purchase at a fixed price without regard to the market price.
A call option gives you, the option buyer, the right to purchase the stock at a particular price on or before the option expires. Exercising is your choice, whether it's rational or not.
Very few option buyers would call the stock away before expiration date, they usually sell it even when it's ITM. ( few but not zero ) especially on the popular stocks .
True when talking about the person/s who bought the option but in the case of Fidelity and other brokers, they will automatically sell when it’s $0.01 over the strike price. So in reality, it doesn’t matter what the person on the other side does with it, it depends on how your broker deals with it.
Fidelity will auto sell once its over strike price, even if you have time for the option to expire still? even if the buyer has not exercised? does fidelity basically just decide even if this guy isnt exercising, WE'LL BUY IT AND EXERCISE and then they figure out what to do with the shares later on? thats wild
Yeah if the the executor wants to light money on fire
I've never had the options/stock taken from me before the end date. I'm sure the option is being called, and the brokerage house just creates a new option.
You can also roll the short call option up and out to the next expiration if your strike gets tested but you don’t want to lose the shares.
What do you mean by " Typical delta of covered call is. 25 or .3"? I mean why those 2 deltas?
Typical trader angle us to play at one standard deviation of probability of a gain, which is 68%. 25 to 30 delta is approximately that probability.
Seems like you’re totally going against your agreement by putting your shares at risk of being called away. In that case you may not have the same number of shares you promised to pass down. You just assume the market won’t go up. It will happen. You’ll be left with a nice stack of cash and the prospect of reinvesting at a higher price
I’m channeling the spirit of your relative 🍃🔮 If you promise that you won’t sell the shares then why would you write contracts that explicitly promise to sell them, people pay for those contracts for a reason 🤦🏻♂️ Enjoy the dividends OP
“I promised to pass along the same number of shares to my kids” ….. so I plan on selling someone the right to buy my shares at the current price. Naturally lmfao. Lmfao im sorry but you can’t make this stuff up 😂 not throwing shade
Correct, as a covered option. I am not interested in selling the shares outright.
Do you understand that the options are "covered" by your shares? You're selling the right to buy your shares at a given strike price. They will get sold if the person that buys your options wants them at that price.
He's planning to buy them right back and roll another >*I would then buy/write another atm leap and continue the process as quick as possible so not to lose out on upside.* I'm not sure if he realizes the downside of having to buy at much higher price if the stocks goes crazy. He would need to implement a call spread to be safe.
You might as well sell a naked call or spread on any ticker, then. Owning the stock is having no impact on the outcome of his strategy.
Would he be better off trying to wheel them?
Then you shouldn’t be selling covered calls.
🤣 gold Jerry this is gold 🥇
I would recommend never touching any of it and just not doing that. That is the best way to guarantee that the shares are there to pass on to your kids.
I look at this entire thread like the two of my grandparents bickering about their treasures. Your comment sounds like my grandma speaking from the grave!
You sound like an idiot that will pass down bad financial habits to your kids
Bickering about their treasures … well i mean if they had any idea that you would agree to pass on to their great grandkids then sell options risking loosing those shares out of stupidity and pure greed its no wonder they argued
Dude you seriously need to reconsider. I promise you that you will underperform buy and hold. Ask every profitable trader how long it took them to be profitable- it’s a couple YEARS. Please, for the love of god, PAPER TRADE first.
Asks for advice….doesn’t like the advice. Your strategy is idiotic.
Did I miss something?
Just sell it and buy scratchers. I feel sorry for your kids.
You need to spend quite a lot of time learning options before you mess with this. Selling leaps is a very easy way to underperform simple buy and hold
Thanks for saying this!
So your first act is to use the shares as collateral that could be called away? If one of those stocks takes off and moons is your plan to spend whatever it takes to buy them back?
1 problem. If you intend to pass along the shares eventually. Selling calls is a good way to gaurentee you won't have any shares to pass along
You’ve promised to pass along the same number of shares and you want to write/sell covered call contracts 450 days out, at the money? With this plan, it’s almost a certainty that the only thing you’ll be passing along is excuses as to where the shares went. You would be better off writing shorter dated (30-60 days) CC’s at a 2 or 3 delta so that you can keep your promise to pass along the shares.
Are you willing to take a taxable event? I well covered calls in my Roth and my individual account. It’s usually a horrible tax strategy but I enjoy it. Also, I’m willing to lose the shares. Are you? Sorry for your loss!
My first instinct is to say I don't mind a taxable event this year, but maybe that is the wrong way to think about it. I believe the value of the stock the day I took ownership is the open price for any taxable event, because of it being inheritance. Seeing the shares get called away, to only be stocked back up with new shares--that is something I don't mind doing. Thanks for your kind words. It has been a year and I still think about them every other minute.
I bet. What a kind gift they left you though. For what it’s worth, I sell weekly (waaay OTM) covered calls on QQQ, AAPL, and MSFT every week. Even though I’ve had to buy back the calls at a loss, more than a few times, it’s still been pretty profitable considering how otm I go on a short time frame. Never more than 2 weeks out. While I’m usually not getting more than .5% return for the 1-2 week out expiration, it’s still enough for me to be happy about. Cheers.
Good plan. If you collect 1.5 to 2 percent per month for a year, that is a very nice return. Too often people seem to get too aggressive and end up losing money either buying back the options or the shares at a higher price. Avoiding the downside is often more valuable than one thinks.
This is very helpful!!!!
There is also stock lending but I've no idea how it works. You might want to research that. Regarding taxes, you'll likely pay long term gains taxes if CC is exercised but if you stock up again then you might fall into short term bracket. Just a few things to keep in mind.
You are using these shares as collateral to make a bet. My unpopular opinion is that covered call enthusiasts most of the time are deluding themselves due to cognitive bias. They don't recognize that they are making a bet and instead think that they are selling something they got for free. The potential for loss is hidden because instead of posting cash, shares that are already owned are used as collateral and somehow the prospect of them being called away doesn't seem equivalent to losing cash when in fact they are the same thing. If the call is considered a hedge than its job is to reduce the risk, not provide you with more money at the same level of risk. Either you are taking more risk to try to get more money or you are accepting less money to reduce your risk.
Why would you expect a high probability of seeing the stocks called away quickly?
Blue chips like Apple has a positive drift. Selling a cc leap you are allowing so much time for the stock price to move up in the long run. Selling ATM is will make the cc ITM so much faster. CC is best executed on a shorter term with lower delta (around 0.25). You will likely lose your shares if sell ATM.
I would recommend to try this on small scale just to experience all before go full on.
Thank you, I am testing the waters with RIVN right now
Assuming you own 1000 shares of AAPL worth 216 K. Use the shares as collateral to sell index options. Index options are settled in cash, so there is no worry of your shares being taken away. They are also taxed at a lower effective rate – 60% as long term and 40% as short term. For example, the S&P 500 index SPX is currently at 5470, you can sell the following strangle (a naked call + a naked put): Aug 2 5740 call for 5.40 and 5060 put for 5.80 for a total of 11.20. The delta of these options is very low at 0.05. This will generate an annual income of 13,440 or 6% of 216 K. Each strangle requires collateral of 55 K and your stocks have buying power of 151 K so you have enough buying power to sell 1 strangle. You also have some remaining buying power to sell a few XSP strangles. XSP is 10 % the value of SPX so the collateral will be 5.5 K each. I suggest that you use only 50% of the buying power for risk management. You can adjust delta to suit your risk tolerance. A higher delta will produce a higher income.
Thank you for these ideas
How do you use shares of APPL as collateral for index options like S&P500 or am I reading that wrong?
Every security in a margin account has buying power (BP). The total value of the BP can be used to buy stock and option or used as collateral to sell options. The BP is computed from the values of the securities. The BP of a stock is 70% of its market value. Cash has 100%, mutual fund has 80% and T-bill has 96%. To implement my strategy, you must be approved to sell naked options. Selling a naked put requires about 10 to 15% of the notional value as collateral as compared to 100% for CSP. If you have a margin account, you can see your buying power for options by going to the Balance page. It’s called Non-margin buying power at Fidelity and Margin Buying Power for Options at Schwab.
Are you an experienced options trader? This does sound interesting but I don't see why the 450 DTE Leap would get called away quickly, but I'm not experienced with those. The idea I like, and with 1000 shares you can do this with between 1-10 contracts, is to sell covered calls OTM, a delta between .30 - .16, and if those shares get called away, then sell a PUT at a strike you like until they get exercised, this will buy them back at a lower price than what you sold them for, then sell OTM covered calls again. Rinse and Repeat. You get to keep selling puts, collecting money, until the price lowers. It's a great strategy and you're in a great place to do it. If I had 1,000 shares I would sell a COVERED CALL, 1 contract OTM until the 100 shares were called away. Then I would sell 1 PUT OTM at a strike I like while selling another 1 contract COVERED CALL until those got called away too. Rinse and repeat. Man, you can make some serious coin. This would be so much fun. I would be looking at 30-45 days out, 60 at the most. I'm curious on your thoughts
Wow, thanks for putting yourself into my shoes! Yes, I do believe it would be a fun way to use my inheritance while increasing income. I understand the exact shares I have today will likely be different than the exact shares I pass along, but I dont see that as breaking the agreement. Based on other comments, looking 450DTE is silly--with my level of experience. Scratch that. Selling PUTs is on my list of research topics for later today. I like your idea of it reducing downside when returning to purchase back the 100 shares. That is not a strategy I had thought about!
I just want to be clear, sell calls OTM against the shares you have already, sell puts once those shares get called away.
Why not save cash and run covered calls on futures instead? Then you don’t have to risk share assignment, and it is tax advantaged
What people don't usually tell you is that if you sell leaps you are LOCKED IN. I.e., you can't sell your shares at any earlier point, unless you also buy the CCs back. People have a brainwashed memory too in which 2022 was conveniently wiped from collective memory. In 2022 Mag 7 stocks went down -40-80% (Tsla and Nvda on the far end). And everything that is now said about these stocks was true then as well. But somehow people pretend they can't fall. So I think it's smart to sell CCs now at ATHs with declining fundamentals (e.g., most of Mag7 actually don't grow anymore), IF you are fine holding also through a severe downturn, which will probably come after the election.
If you sell ATM LEAPS the shares will not be called a way quickly. They won't get called away until the expiration date, unless someone exercises early, which usually isn't a good course of option. If your intention is to let the shares get called away and then buy them back you'll probably lose money long term. You make money if the premium is greater than 100x how much the stock has gone up. lastly, selling leaps gets you a lot of premium, but it takes a long time to get that premium. people buy LEAPS because they have minimal theta decay. But they're not LEAPS if they're ATM, LEAPS are deep in the money. So you're just suggesting selling ATM calls a year out. It's unlikely AAPL you'll get enough premium in a year that AAPL going up doesn't completely negate your profit. If you're gonna sell ATM calls, you'd be better off selling them short term because it's less likely that you'll be wrong.
Just do nothing and enjoy the dividends. There isn’t much money in selling AAPL calls.
Like some have already said, you can always roll your option up and forward to prevent assignment. To me, it means giving up a tremendous amount of money. Those who dislike selling calls are just waiting for the stock to hit a certain price BUT the questions is IF and WHEN. No one really sells at the very top. My mentor taught me bird in hand is worth two in a bush. You can take that premium and if you want to,immediately sell otm or itm cash secured leap puts on the same stock if you are afraid that you will lose it to further collect premium. I wheel all my holdings and rarely do I get assigned. My 2 cents.
450 days out? I only work within a week. Even that I have 25% getting called or taking a loss buying back. The return is not much either may be 3.5% ....
Similar here. I do monthly and can't imagine doing a full year, returns are shit selling leaps
450 is insane. Write monthlies 20% above current price or weeklies 10%. Rinse and repeat. You can also do some shares with one strategy, others with another.
Love this! What are some other strategies you recommend I look into?
Start here, don’t get greedy (writing them at the money).
You need to be aware of earnings dates also. You need to be educated on the fundamentals of options before you yolo sell a bunch of calls on 6 figures worth of underlying that you inherited.
Wait for the stock to split then sell calls on anything over 1000 shares.
Unless there’s a special situation or it’s close to ex date on a stock that pays a decent dividend a good rule of thumb to follow is: as long as there is a .05 bid on the put you are most likely not going to get your stock called away. It’s the same with short puts it’s the same, as long as there is a $.05 bid on the call you won’t get assigned. Once that bid disappear s then you are at risk. Not even a full blown regard would exercise your short call when the put is $29.64 bid. JMHO, MAQ
Why would there be a high probability of shares being called away quickly?
Update Thanks for everyone's advise here. Glad I made the post. For clarity, the stock is WMT and PEP. Sounds like dividends it is!
Highly likely you'll have the shares called away and have to pay short term capital gains. I sell premium but if I promised my kids they'd have those shares id probably use margin in an account and buy different shares and then sell premium...
I sell covered calls two weeks out around the .15 Delta. I don't get assigned very often.
Long-termers usually do nothing and let it sit. Dividends can be reinvested
Selling covered calls is basically betting that stocks will stop going up. Historically, that is a very bad investment choice. Cited: Almost any study of covered calls you can find
Since you mentioned AAPL, just look what happened within a month it went from 180 to 220. If you would have sold a covered call anywhere between 185-190 you would have most likely had them called away. If you are still interested in selling covered calls, just don’t do it on all your holdings, that way you still can profit from a big gap up.
What you're describing is called a fig leaf and is a great strategy for fairly low effort income in a LTI account. I saw some advice which I think is pretty poor here so be careful. I'm not suggesting this is what you should do, but what I do is: Find a stock with a high premium, like NVDA (not saying to buy this stock now), find a good time to buy the LEAPs. Keep in mind the current market, how the stock has been trending (are we in a dip, trending up?), sector rotation, time of the year, etc. You want to buy the stock when it isn't going to clearly pull back so it's worth waiting. Then, buy your ITM LEAPs and sell covered calls against it. Despite what others are saying, DO NOT sell calls unless the delta is 0.1 or less. You DO NOT want to have your calls be exercised. Yes, the premium is lower but you should be able to comfortably recover your investment (usually no more than 6 months) and everything else is pure profit. Obviously this isn't financial advice or a recommendation but something that is worth looking into.
Thank you very much. Lots for me to research here.
Buy GME and hold!
Haha.. have some puts in as we speak!