Selling Covered Calls and Naked Puts

[jr6035]

To be frank, I am not impressed with QYLD when I take a quick look just now.

In an up market, it gained much less than the indices. Yet, in a down market, it lost the same, or even more.

I would love to try covered calls, if I had someone sit down with me and walk me through, but thats not likely. I use QYLD strictly for it's dividend. I have other growth stocks, dividend stocks, etc. But I would love to try it on my own. And I have a very large portfolio, but I guess I'm old fashioned and retired. You Tube videos lose me.

 

[NW-Bound]

I would love to try covered calls, if I had someone sit down with me and walk me through, but thats not likely. I use QYLD strictly for it's dividend. I have other growth stocks, dividend stocks, etc. But I would love to try it on my own. And I have a very large portfolio, but I guess I'm old fashioned and retired. You Tube videos lose me.

Active investing is not for everybody.

You certainly could do worse than QYLD. But of course you could do a bit better. I found out that QYLD has been around since 2014. Since then, its performance, meaning the investment return and also up/down variations, is behind the Wellington MF, one of the popular MF here.

Or you could get some of that NUSI, which I also just learned about. I have to admit I like this fund from what I saw, with the usual reservation for a fund that's been around less than 2 years.

 

[jr6035]

Active investing is not for everybody.

You certainly could do worse than QYLD. But of course you could do a bit better. I found out that QYLD has been around since 2014. Since then, its performance, meaning the investment return and also up/down variations, is behind the Wellington MF, one of the popular MF here.

Or you could get some of that NUSI, which I also just learned about. I have to admit I like this fund from what I saw, with the usual reservation for a fund that's been around less than 2 years.

I've checked out NUSI,RYLD and XYLD. I'll stick with QYLD for now. Thanks for the response.

 

[NW-Bound]

What do you know, it's another Friday, and time to count my expiring options again. Here are some numbers for your entertainment.

Calls expiring worthless: 53 contracts
Call expiring in the money: 1 contract

Puts expiring worthless: 2 contracts
Puts expiring in the money: 13 contracts

The contracts expiring worthless made me money, averaging about $100/contract.

The put contracts that end up in-the-money make me buy stocks that are roughly $100 per contract above market price.

Overall, this is a lousy week for me, losing a 6-figure sum. The money from selling contracts just eases the pain a tiny little bit. But what I am not happy about are the puts that make me buy more stocks, about $64K worth.

I have been wanting to sell off some stocks for a while now, not buy more, but when some stocks went down bad, I could not help myself with selling puts to buy them even cheaper. Yep, and now I've got them.

 

[Sniggle]

What do you know, it's another Friday, and time to count my expiring options again. Here are some numbers for your entertainment.

Calls expiring worthless: 53 contracts
Call expiring in the money: 1 contract

Puts expiring worthless: 2 contracts
Puts expiring in the money: 13 contracts

The contracts expiring worthless made me money, averaging about $100/contract.

The put contracts that end up in-the-money make me buy stocks that are roughly $100 per contract above market price.

Overall, this is a lousy week for me, losing a 6-figure sum. The money from selling contracts just eases the pain a tiny little bit. But what I am not happy about are the puts that make me buy more stocks, about $64K worth.

I have been wanting to sell off some stocks for a while now, not buy more, but when some stocks went down bad, I could not help myself with selling puts to buy them even cheaper. Yep, and now I've got them.

Yep, not the best week. Have you tried selling some deep in the money calls on the stocks you own? It’s a pretty defensive play, and will either get the stock sold or give you some downside protection.

I watched my stocks drop, with the only satisfaction being that I timed some call rolls pretty well. On several of the positions I am paddling to get back to a level stock cost basis, which is frustrating but I guess part of the game.

I am not discouraged, and have learned tons in my 1st 3 weeks doing this. My key lesson so far, for the edification of newbie like myself:

- Find stocks that have decent volume (over 1 million) and calls/puts expiring weekly. It is more work to churn them weekly, but a lot more can happen if you are writing contracts a month out.
- Find stocks that are solid with a respectable P/E.
- Sell puts on stocks you want to own, and be patient and collect the premium. Don't make it easy for someone to offload the stocks on you. (need cash to cover if assigned)
- Sell calls on the stocks you own, aiming for .5% premium, give or take .25%, each week.
- Track your stock basis, roughly price you paid minus premiums you have collected selling covered calls on the stock. This will inform you were you want the strike price if the stock sags.
- Sell in the money calls on your stocks if you want downside protection and you want someone to take the stock off your hands at the end of the week.
- Sell covered calls when the stock is going up, and buy cash covered puts on those stocks you want that are going down. Maximizes premium.
- Use the 'roll' function to replace covered calls and cash covered puts. Roll them towards expiration, hopefully at a point when the current options have lost most of their value, but the stock movement is enhancing the next weeks options. Typically Thursday or Friday. You can let them just expire worthless and look for an opportunity the following week, but sometimes the time value + the current stock movement make it advantageous to pay a few cents to buy to close the old option so you can open the new one.
- If you are thinking about buying calls and puts, don't. Selling covered calls and puts makes you the casino, buying calls and puts makes you the mark (yes, I tried a few and got burned). If you are going to buy calls or puts, decide on how much you would be happy making (say 20%), and initiate the sale of that option with your desired profit in mind (if I had done this I would have made a few dollars, but I got greedy and got slaughtered)
- If you stock go down, you will lose money, just like any other stock investment. But if you keep selling smartly positioned covered calls eventually your cost basis and the stock price will meet again (or so I hope...still working on this one...CAT looking at you)

 

[Running_Man]

I have been waiting as for the last week I think volatility has got to increase quite a bit here, which should improve the income potential. The economic figures have been so far off of what was expected that I think there is a delayed response to try and digest them.

In the meantime my Puts I sold on Pepsi and IDA hardly moved though both stocks went up about 5% this week.

 

[aja8888]

I had six put options expire today. Four expired worthless and I have to take the stock on the other two. Monday I will sell covered calls on the two stocks I ended up with. No biggie, as I don't mind holding the two issues I got put to me.

 

[MRG]

I manually rolled 17 calls and sold three new ones one expired worthless today.

Does anyone have experience with using the brokerage roll vs doing it manually? I don't normally use the roll as it's not available for the app.

 

[Sniggle]

I manually rolled 17 calls and sold three new ones one expired worthless today.

Does anyone have experience with using the brokerage roll vs doing it manually? I don't normally use the roll as it's not available for the app.

The brokerage roll function is great. I use it on both Fidelity and Schwab. It allows you to set the net amount you want to make from the roll....say you want net $1 premium, it will execute as soon as it can make that net ( .15 buy and 1.15 sell for example). Really quick and easy, and you can play with expirations and strike prices on the new option side.

 

[NW-Bound]

I have never sold at or in-the-money covered calls, but perhaps I should. I only hold stocks I like, and hope people will love them even more than I do and pay an arm and a leg for them.

Yes, I hold only stocks with decent P/E, that I feel comfortable holding long-term. The option selling is just a way to make some extra money, hence I tend to set the strike price too high so that I will not lose the stock and have to buy it back even higher. This works against me when I do not mind reducing a position. Old habits die hard.

I much prefer to sell weekly options instead of monthly. However, not all stocks have weekly options. The reason I have so many options expiring today is because many of them are monthly and expire this Friday. I can gauge the stock movements a lot better 1 week ahead, compared to 1 month. One month is a really long time.

It's also tougher selling options on high-priced stocks, such as ASML, LRCX, etc... I do not have too many round lots of these, and hate to lose them. I lost HUM at 455 last week, and have been kicking myself.

I really like stocks and ETFs that are under $100/share, because I have many lots and can ladder my options. I may sell a contract at $50 when the stock is at $49 and moving up. If it gets to $50, I will sell at $51, and so forth. And if it gets to $51, I may start to sell put at $50, and going higher if the stock keeps moving up. In the case of HUM that got assigned last week at 455, even before the call expired I immediately wrote a put for 455 which expired today and got me $3.6/share as a consolation prize. HUM closed at 470.9 today. Argh! I hate to let one get away like that.

It's easier to do the above for weekly options. One month is a long time to judge how much a stock can move in that time, and I often lose a good stock selling it too soon, or end up adding too much to one position when a put gets assigned.

 

[FIRE'd@51]

The brokerage roll function is great. I use it on both Fidelity and Schwab. It allows you to set the net amount you want to make from the roll....say you want net $1 premium, it will execute as soon as it can make that net ( .15 buy and 1.15 sell for example). Really quick and easy, and you can play with expirations and strike prices on the new option side.

Can you access this function in Fidelity Active Trader Pro? Also, can you roll credit spreads with this function? I have always done this manually on the trade ticket. What you describe sounds useful.

 

[Sniggle]

Can you access this function in Fidelity Active Trader Pro? Also, can you roll credit spreads with this function? I have always done this manually on the trade ticket. What you describe sounds useful.

In Trader Pro, if you click to the right of the current option, one of the choices on the menu is 'Roll'. Real easy. I do not more complex option strategies, but from what I gather it will work on rolling spreads.

 

[bobandsherry]

I've experimented on some DEEP IN THE MONEY covered calls. I have a couple stocks I've looked at, the basis are those where the return is good and fully expected to be called. I know I leave money on the table but the return is a level I'm happy with and (hopefully) minimal risk of loss. MOXC is one of those.

As an example, I wrote a covered call on it, purchased a 7/16@$20 covered call on 7/7, so just over a week. $22.52 share price and $4.51 premium collected, net $18.01. It expired yesterday, MOXC closed at $26.41 and obviously was assigned (which I had hoped) and I pocketed $200 premium. That is an 11% return for one week. Google Sheets shows that as an XIRR of 6,965%.

Another example, with a REALLY deep in the money call (still MOXC). Purchased a 8/20@$12.50 covered call on 7/2, so about 6 weeks. $21.76 share price and $11.19 premium collected, net $10.57, I collected $193 premium. Unless the stock collapses in the next month from $26.31 to $12.50 that will be assigned and it's 18% (XIRR 249%). Worse case I end up owning it at $10.57, but risk/reward told me that's a go.

I looked at the 8/20@$15 yesterday, 11% return for a month.

 

[tutan]

I've experimented on some DEEP IN THE MONEY covered calls. I have a couple stocks I've looked at, the basis are those where the return is good and fully expected to be called. I know I leave money on the table but the return is a level I'm happy with and (hopefully) minimal risk of loss. MOXC is one of those.

As an example, I wrote a covered call on it, purchased a 7/16@$20 covered call on 7/7, so just over a week. $22.52 share price and $4.51 premium collected, net $18.01. It expired yesterday, MOXC closed at $26.41 and obviously was assigned (which I had hoped) and I pocketed $200 premium. That is an 11% return for one week. Google Sheets shows that as an XIRR of 6,965%.

Another example, with a REALLY deep in the money call (still MOXC). Purchased a 8/20@$12.50 covered call on 7/2, so about 6 weeks. $21.76 share price and $11.19 premium collected, net $10.57, I collected $193 premium. Unless the stock collapses in the next month from $26.31 to $12.50 that will be assigned and it's 18% (XIRR 249%). Worse case I end up owning it at $10.57, but risk/reward told me that's a go.

I looked at the 8/20@$15 yesterday, 11% return for a month.

Did you buy + sell calls? Thanks

 

[Sniggle]

Did you buy + sell calls? Thanks

I had to read B&S's post a couple time, but I figured it out. He buys 100 shares of the stock at the price he states, and then immediately sells the deeply ITM covered calls on those shares. His profit comes from (strike price + premium) - cost of 100 shares. As long as shares do not drop below the strike price, he pockets 15-20% on the deal and the shares are assigned away.

Pretty slick way to tease out a few dollars.

 

[bobandsherry]

I had to read B&S's post a couple time, but I figured it out. He buys 100 shares of the stock at the price he states, and then immediately sells the deeply ITM covered calls on those shares. His profit comes from (strike price + premium) - cost of 100 shares. As long as shares do not drop below the strike price, he pockets 15-20% on the deal and the shares are assigned away.

Pretty slick way to tease out a few dollars.

Yep, exactly it. And why ya sell the deep ITM, expectation for option to be called/assigned and pocket the premium.

 

[NW-Bound]

Instead of buying shares then sell ITM call, you can sell OTM put at the same strike price.

Take for example,

Another example, with a REALLY deep in the money call (still MOXC). Purchased a 8/20@$12.50 covered call on 7/2, so about 6 weeks. $21.76 share price and $11.19 premium collected, net $10.57, I collected $193 premium. Unless the stock collapses in the next month from $26.31 to $12.50 that will be assigned and it's 18% (XIRR 249%). Worse case I end up owning it at $10.57, but risk/reward told me that's a go

MOXC is currently at $26.31. The above call at $12.5 is now $15.22.

Buy MOXC, then sell call, it costs you $26.31 minus $15.22 = $11.09. If MOX does not get below $12.5, the call will get assigned, and you get the $12.5 strike price for a net gain of $12.5 minus $11.09 = $1.41.

Or you can just sell an OTM put at $12.5 for $1.40. Again, if the stock does not drop this low, the put expires worthless, and you keep the $1.40.

For the play with the ITM play, you commit $11.09.

For the play with the OTM put, you commit $12.5 minus $1.4 = $11.10. Same capital, same potential reward.


By the way, the reason options on MOXC are so highly priced is because this stock is highly volatile, meaning speculative. The stocks I own and sell options on are not as volatile.

 

[bobandsherry]

Instead of buying shares then sell ITM call, you can sell OTM put at the same strike price.

Take for example,




MOXC is currently at $26.31. The above call at $12.5 is now $15.22.

Buy MOXC, then sell call, it costs you $26.31 minus $15.22 = $11.09. If MOX does not get below $12.5, the call will get assigned, and you get the $12.5 strike price for a net gain of $12.5 minus $11.09 = $1.41.

Or you can just sell an OTM put at $12.5 for $1.40. Again, if the stock does not drop this low, the put expires worthless, and you keep the $1.40.

For the play with the ITM play, you commit $11.09.

For the play with the OTM put, you commit $12.5 minus $1.4 = $11.10. Same capital, same potential reward.


By the way, the reason options on MOXC are so highly priced is because this stock is highly volatile, meaning speculative. The stocks I own and sell options on are not as volatile.

Good point on looking at a PUT, can get you to same place. When I wrote my options the CC was slightly better. Looking at pricing today, the PUT looks like it is better now. One could also consider the "Poor Man's Covered Call", a lot less capital committed.

And yup, need high volatility stocks, and got to do your due diligence (which should always be done) and remain short term. Stocks I own are like your and not as volatile, but that's why I have been experimenting with a few of these, being selective and putting a few $$ in my pocket.

 

[NW-Bound]

... One could also consider the "Poor Man's Covered Call", a lot less capital committed...

This is a form of leveraging. If the stock goes up 1%, you will gain more than 1%. Conversely, if the stock goes down 1%, you may lose more than 1%. If it stays flat, you are about even.

This is a bit more complicated than simple calls and puts. I never deploy all of my cash, and try to stay conservative, so am not likely to try this. I still like to understand all different strategies though.

 

[bobandsherry]

This is a form of leveraging. If the stock goes up 1%, you will gain more than 1%. Conversely, if the stock goes down 1%, you may lose more than 1%. If it stays flat, you are about even.

This is a bit more complicated than simple calls and puts. I never deploy all of my cash, and try to stay conservative, so am not likely to try this. I still like to understand all different strategies though.

As the OP had closed:

Comments other Selling Covered Calls and Naked Put strategies and results are welcome.

So I thought it useful to share what options there may be when writing these Options. Everyone has their risk tolerance, each strategy has more or less level of risk and then manages their options accordingly. And each strategy may have different rewards based on the underlying stock and even timeframe.

PMCC is no different than any other options strategy, it is still a relatively low risk option strategy and no different in risk of loss than a covered call. As you indicated it has higher upside (especially on a return basis for cash invested) and can also bring smaller returns as you near the strike prices (as compared to CC). Hit that sweet spot in the middle and your returns can be 2x, 3x or more than a CC. As with any strategy the bigger the return the bigger the risk. It does limit your downside losses, like that of the Covered Call. Less risky than a Naked Put for sure.

And I won't even get into "Wheeling" along with the Poor Man's Covered Call, but there's another strategy someone might consider, and many do, and many do well and many do fail.

Just addition strategies ("tools") that someone might consider. Not every tool is right for every job. And of course, everyone should always do their own due diligence.

 

[Sunset]

I sold
1 Abbv put for Aug 20 SP 110 for $85 total. (ignoring the tiny fees).
2 ARKG put for Aug 20 SP 81 for $584 total.

ARKG is currently: 82.88 and abbv is currently: 117.50

I already have a couple of Abbv so only want more on a big discount.

I had an Abbv put expire where I made $75 total.

 

[NW-Bound]

So I thought it useful to share what options there may be when writing these Options. Everyone has their risk tolerance, each strategy has more or less level of risk and then manages their options accordingly. And each strategy may have different rewards based on the underlying stock and even timeframe...

Just addition strategies ("tools") that someone might consider...

Surely. And I did state that I was interested in knowing about and understanding different strategies.

A lot of these off-mainstream strategies, even the simple call and put trading, depends on the execution, plus some luck. Even the traditional buy-and-rebalance also gives variable results depending on what and when you buy, and when and how you rebalance.

 

[Sunset]

I just did a mid year analysis of my account, compared it to a 50/50 holding of VTI and BND.

Basically, I did roughly the same, not encouraging, but at least I didn't totally screw up.

Issues with comparing are, the money amount was not always the same as I had some preferred redeemed and sold some BND.

Compared to VTI at 100%, I did terrible, a pure VTI was the place to be (in hindsight).

 

[bobandsherry]

I just did a mid year analysis of my account, compared it to a 50/50 holding of VTI and BND.

Basically, I did roughly the same, not encouraging, but at least I didn't totally screw up.

Issues with comparing are, the money amount was not always the same as I had some preferred redeemed and sold some BND.

Compared to VTI at 100%, I did terrible, a pure VTI was the place to be (in hindsight).

Ah yes, having hindsight available would make things so much easier Performing about the same as a set of indexes that meet your AA isn't bad. See what happens over a longer term. I find that my own performance ebbs and flows against the mix of similar index funds to mimic my AA. But overall, since retiring and putting time into better managing my investments, I've done better than the broader indexes. Which now concerns me since as I said, my performance has ebbed and flowed, so may be seeing the "flow" hitting again.

 

[tutan]

Instead of buying shares then sell ITM call, you can sell OTM put at the same strike price.

Take for example,




MOXC is currently at $26.31. The above call at $12.5 is now $15.22.

Buy MOXC, then sell call, it costs you $26.31 minus $15.22 = $11.09. If MOX does not get below $12.5, the call will get assigned, and you get the $12.5 strike price for a net gain of $12.5 minus $11.09 = $1.41.

Or you can just sell an OTM put at $12.5 for $1.40. Again, if the stock does not drop this low, the put expires worthless, and you keep the $1.40.

For the play with the ITM play, you commit $11.09.

For the play with the OTM put, you commit $12.5 minus $1.4 = $11.10. Same capital, same potential reward.

I like the ITM scheme better in a falling market. Better to have a risky stock called away than put to me.