Selling Covered Calls and Naked Puts

[aja8888]

This market has been too volatile for me join the options party. I'm sitting pat.

 

[NW-Bound]

No opportunity to roll those options? Or feeling like I do that we may see some drops after this week's pop?

I've been quiet lately on selling options, but this week's pop has me feeling that we may see flat or more likely down on prices, so sold a few that are out of the money to pocket a few dollars. If they do get assigned I'm ok as premium plus strike price would be above my cost, so ok either way.

Some stocks surged so much that I decided to let them go, and look to buy them back later.

For example, ASML. Just on Monday, it was at 392 when I sold a call at 430. It surged to 462 today. This alone accounts for $3200 out of the $13,500 that I sold below the market.

 

[NW-Bound]

This market has been too volatile for me join the options party. I'm sitting pat.

Volatile market is when I make money. In 2020, when COVID broke out, I made more than $300K on option premium.

Have not duplicated this performance since, even though the whole portfolio is larger now, meaning I have more shares to write options on. I am slacking off too, taking a month-long trip and all that.

I do believe you can make more money if you spend more time. But on the other hand, I need to get out to exercise, dig and turn the soil to plant veggies, going for a walk, tend to my solar system, fix leaks, etc...

 

[aja8888]

Volatile market is when I make money. In 2020, when COVID broke out, I made more than $300K on option premium.

Have not duplicated this performance since, even though the whole portfolio is larger now, meaning I have more shares to write options on. I am slacking off too, taking a month-long trip and all that.

I do believe you can make more money if you spend more time. But on the other hand, I need to get out to exercise, dig and turn the soil to plant veggies, going for a walk, tend to my solar system, fix leaks, etc...

I don't spend enough time following individual stocks to make it worthwhile to play options big time. I did pretty well selling puts and calls on energy stocks over the last 18 months. But I am playing a lot of golf while the weather is good so I can't spend much time guessing which way stocks will go over short period of time.

 

[NW-Bound]

Wow, the calls that get assigned and cause me to sell stocks will knock my stock AA from 74% to 64%. It's a lot more than I thought.

If the market tumbles from here, I have a lot of cash now to buy back these shares cheaper. Or if the market continues to go up, do I keep selling more OTM calls? In conjunction with OTM puts on the stocks I just "lost"?

This is what makes it interesting.

 

[NW-Bound]

As I told my wife last month, I thought the best case for the market would be for it to go up/down but not getting anywhere for a year or so. And with that prognosis, I would be more active selling OTM call options on more shares and on more positions in my portfolio to generate some returns.

And that was exactly what I did in October. I raised $37,040 in cash from option premiums. And the unexpected surge in market meant many of my calls got in-the-money, forcing me to sell some shares.

I told my wife that I needed to lower the stock AA, and I did that via setting the option strike prices low enough for them to get assigned. What was still surprising was how some stocks jumped up way higher than I could imagine, and I left quite a bit of money on the table.

Oh well, I still did not do too badly with the month's total gain. And my stock AA is down to around 60% now. I have started to sell OTM put options to buy some shares back.

Will see what happens tomorrow when Powell talked to the press.

 

[jim584672]

Just a general question, if you have a T-Bill it can be used to secure a cash secured put write? How much of the position would be usable, like 95% or something?

 

[NW-Bound]

I use BlackRock T-Bill fund TSTXX, as it is considered cash for backing put options. TSTXX is priced at $1/share, the same as a money market fund. Its current yield is 2.97%.

I don't know about individual T Bills. You will have to ask your broker.

 

[jim584672]

I use BlackRock T-Bill fund TSTXX, as it is considered cash for backing put options. TSTXX is priced at $1/share, the same as a money market fund. Its current yield is 2.97%.

I don't know about individual T Bills. You will have to ask your broker.

Just chatted with Schwab, they said T-Bill can't secure a write but a money market fund could secure it.

 

[NW-Bound]

Crazy market today!

I have no access to CNBC, but just looking at my brokerage account screen, I saw that when Powell first talked to the press, the market jumped up. It was said that he hinted of an end to the rate hike.

Then, 1/2 hour later the market came crashing down. What happened? Powell was now quoted as saying "It's premature to think of stopping the rate hike".

OMG! The market went into "sell, sell, sell" mode.

I currently have $21K in option premium outstanding. Just earlier this morning, it looked like I would be assigned more stock sales. And now, nope, these call options will be worthless, and I keep the cash and get to do it again, and again.

Still lose money, but I am losing $21K less than if I did nothing.

 

[Hank]

I want to dip my toes into the options market and sell calls and puts for holdings I already have.



Do you think VZ (verizon) and VEU (Vanguard International ETF) are liquid enough? I'm really only interested in positions I already have for now.



Thanks for any feedback!

 

[Rowej]

VZ covered Calls,

VZ is definitely liquid enough I have been trading covered calls on it for a while. Fairly good premium and enough to double your dividend every year. VEU is not very liquid, you would need to put a price in you are willing to sell your shares at and realize you may have to sell them as it is not very liquid, and very wide bid/ask spreads,

I want to dip my toes into the options market and sell calls and puts for holdings I already have.



Do you think VZ (verizon) and VEU (Vanguard International ETF) are liquid enough? I'm really only interested in positions I already have for now.



Thanks for any feedback!

 

[aja8888]

VZ is definitely liquid enough I have been trading covered calls on it for a while. Fairly good premium and enough to double your dividend every year. VEU is not very liquid, you would need to put a price in you are willing to sell your shares at and realize you may have to sell them as it is not very liquid, and very wide bid/ask spreads,

How far out are you selling these VZ calls. Under a month is usually pennies in premium.

 

[NW-Bound]

Broad indices such as VEU tend to have low volatility, and the option premium is low. Stalwarts like VZ are also stable, and their options have a low premium as a result.

A quick way to look at a stock volatility is its "beta". Stock quotes on financial.yahoo.com show betas. A stock with a beta of 2 has twice the short-term up/down of the broad market.

Using the volatility of the S&P as a benchmark with a beta of 1, the betas of some common stocks are as follows:

Alcoa (AA): 2.46
US Steel (X): 2.16
Exxon Mobil (XOM): 1.1
Verizon (VZ): 0.34
Procter Gamble (PG): 0.43
Pfizer (PFE): 0.63
Walmart (WMT): 0.53
Intel (INTC): 0.76

 

[Rowej]

VZ call

You can sell the Apr 21 45 calls which have a 15% probability of being in the money 95 days out for. $45 per contract, that is a 3.7% annualized return, add that to the 6.37% current yield and you are at a 10% yield which is pretty good On stock you own,

How far out are you selling these VZ calls. Under a month is usually pennies in premium.

 

[Hank]

I was looking at calls out within one month. I figured 2-3 months out would be too far. But i will start to look now. Frankly, even at the 45 strike it wouldn't bother me to have the contracts called. But I think that VZ has a good chance of reaching that strike by April.



NW-Bound: Thank you for the list. The context and explaination helps. I will research IV, beta and Greeks some more before I take the leap. (no pun intended).


But I think VZ is a good beginner underlying to start with.

 

[Rowej]

Volatility

If you are looking to sell calls, I agree with NW-Bound and you want to sell calls when the volatility of the stock is high, but if you already own the stocks it limits the amount of premium you can collect. Depending on your cost basis, determines the strike you want to sell. I typically sell 15 delta calls. And on high dividend stocks, I look at the premium as just increasing the dividend income for the year.

I was looking at calls out within one month. I figured 2-3 months out would be too far. But i will start to look now. Frankly, even at the 45 strike it wouldn't bother me to have the contracts called. But I think that VZ has a good chance of reaching that strike by April.



NW-Bound: Thank you for the list. The context and explaination helps. I will research IV, beta and Greeks some more before I take the leap. (no pun intended).


But I think VZ is a good beginner underlying to start with.

 

[Rowej]

Another option.

Another option is to leg into them if you have a lot of the stock, so let’s say you have. 600 shares, sell 2 45 calls now, if the stock runs up $2 in 30 days, sell the June 50 calls, and then if it goes up again, sell the June 50 calls again for more premium and sell further out, this reduces the risk of the stock being taken away, and you collect more premium.

I was looking at calls out within one month. I figured 2-3 months out would be too far. But i will start to look now. Frankly, even at the 45 strike it wouldn't bother me to have the contracts called. But I think that VZ has a good chance of reaching that strike by April.



NW-Bound: Thank you for the list. The context and explaination helps. I will research IV, beta and Greeks some more before I take the leap. (no pun intended).


But I think VZ is a good beginner underlying to start with.

 

[Hank]

Can you guys suggest any reading materials such as books that would be good for a beginner. I'm ordering Trading Options as a Strategic Investment by Lawrence McMillan (5th Edition). This is a thousand page tome. But if you have found some other books particularly useful I would appreciate the reference.

 

[Rowej]

YouTube videos

I would suggest searching YouTube videos on selling covered calls. There is a lot of really good traders that sell covered calls on their portfolios that explains the ins and outs, you can learn it s lot faster and go through a lot more real world examples which are current.

Can you guys suggest any reading materials such as books that would be good for a beginner. I'm ordering Trading Options as a Strategic Investment by Lawrence McMillan (5th Edition). This is a thousand page tome. But if you have found some other books particularly useful I would appreciate the reference.

 

[Golden Mean]

I've been selling options for a bit less than a year now and it's been great fun. I recently started selling in my taxable and came across some interesting tax information I thought I'd share.

Selling covered calls can reset (terminate) or pause your holding period calculation for long term gains on the stock itself.

This Reddit post has the best explaination I've seen on the subject.

The big takeaway for me is, if you have held the stock for less than 12 months and sell a non-qualified covered call on it, you've reset your holding period. I rarely due calls over 14DTE so my calls are non-qualified.

The cherry on top of all of this is that it appears most brokerages don't do any accounting for you on this. You need to keep track of that options have reset or paused which lots of stocks.

 

[Happyras]

Odd this never comes up as a negative to the covered call strategy for income. https://retirecertain.com/how-far-out-should-you-sell-covered-calls/
I keep all of our calls in retirement accounts and avoid all the tax record issues......

 

[ownyourfuture]

I was fairly active selling covered calls from 2014 - 2016. Used cobra insurance from retirement (mid 2015) through 2016.
In 2017, I went on a high deductible ACA health insurance plan, so I had to limit the number of calls sold as the additional income would've put me over the income cliff that existed back then. For those 3 years I earned around $14K in additional income.

That could've been substantially higher, but I made one big mistake. Sometime in 2015, Eli Lilly went up around 15% in one day.
I immediately sold covered calls on 200 shares. The duration was around 3 months. A week or 2 later, the FDA announced positive results on a drug Lilly had in the pipeline. I had to spend (lose) around $7000 to re-purchase the options before my shares were called away.

It was painful at the time, but I'm lucky I did, because Lilly shares have exploded over the past 5 years.
I'm not an expert @ this, but if I was to give advice to anyone looking to start doing it themselves, that would be to stick to non-pharma stocks.


These days I only sell them when something extraordinary happens.
Own 185 shares of first solar (FSLR) with a cost basis in the mid 30s.

Friday May 12, they announced an acquisition, + favorable news regarding solar subsidies was released.
To say the stock price reaction was euphoric, might be an understatement.

Sold one covered call contract. Could’ve received a much higher premium selling a call closer to being ‘in the money’ but I didn't want to take a chance of losing them, as I believe the company has a bright future.

As myself & others suspected would happen, underlying shares have drifted down to around $210
The option is now trading under $2

 

[GhostofTomJoad]

Forgive me... I thought naked shorts were illegal, not permitted? Oh, OK. The thread title talks about naked PUTS.

 

[Sunset]

Forgive me... I thought naked shorts were illegal, not permitted? Oh, OK. The thread title talks about naked PUTS.

That's ok, I keep misreading the title and think it says naked putts , and wonder who goes golfing naked