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Coveredcall

NOVARTIS AG, NVS - 4.0% in 35 daysI understand the euphoria of picking on a winning horse and getting returns in excess of or even more than 100%, but what you need to pay attention to is money management and managing your positions. You can buy stocks, you can buy futures, you can buy bonds and you can buy and/or sell options. The key is always to use the instruments that we feel confident in and to have the ideal timing. It is never just one of these two individually. In this case, we have opened a position in our portfolio on Novartis (NVS), which will surely generate us a 4% return within a month. Our goal is always a monthly return between 4%/5% monthly which on a compound growth we get an average of 50%/60% annually. NYSE:NVS
NYSE:NVS
by SwissTradingSchool
TWTR: Covered Call into earnings: why & what's next?in this post, i quickly share why i love selling covered call into the earnings for stocks that i held for sometimes and i'm ready to cash out of. I sold the Feb 12 Call option with strike $65 for TWTR yesterday for $2.20 Why ? how is this a good trade? i believe selling CC into earnings is one of the lowest risk trades - it's a great weapon to add to your trade arsenal, cause we win in all scenarios .. here's the break down and the thinking behind this trade (quick notes - i'm not an options expert and i exclusively trade the 4 basic strategies -- sell/buy calls/puts -- i don't get into spreads - but there are may resources that explain covered calls in a lot more details on the web if anyone is interested) Scenario #1: TWTR closes below $65 on Friday Feb 12 if volatility (IV) is strong for the option ahead of earnings, which is usually the case for stocks like TWTR (and most other social media and tech companies), the option premium will reflect a higher extrensic value (vega) - once the earnings resuts are out, volatility drops, causing the premium to "go back to normal" price. for the sell side, that means easy profit (premium to keep). in our case here, the premium for the Feb 12 $65 call was $2.2 (IV was ~180% when i opened the position) - if volatility comes down today to ~40%, the call option maybe worth $0.5 -- and with only 3 days to expiry, even that $0.5 would eventually drop to zero at expiry (provided TWTR remains below $65) - we end up keeping both the full $2.20 premium and the stock Scenario #2: TWTR closes above $65 on Friday we will get assigned and the stock is "called" away at the strike price $65 - keeping the call premium of $2.20 since we already had a good run with TWTR (see the breakeven / BE marked on the chart) and were ready to close the position at current price level ~$60, getting $67.20 is even a better deal. Scenario #3: TWTR drops down after the earnings for any reason (was not expected) The call price will drop and we will close it for profit and still continue to hold the stock - which is not a bad thing since we originally think TWTR is on a good path in future. ** note: TWTR is hovering around the $62 in after-hours/pre-market after strong earnings. now for the price projection: the projection for the current move for TWTR is $16 from the mid-Jan base of ~ $46 which takes us to around the $62 price level (+/- couple of $$) - then the price may ease up back to the mid $50's (the nearest supply/demand "balance level") before moving up again (this is also why i thought the $65 strike with 3 days to expiry was the best choice) the UTO (lower indicator) on the daily chart is reaching 100% -- showing that this is a possible top for the price and supporting a new wave of consolidation at that level - so seems to support our projection. if our covered call gets assigned, we can then look for another opportunity (an upcoming dip) for re-entry to catch the next move. we remain bullish overall on TWTR. this is my 4th covered call trade in this earning season and it's a great way to add to our PnL for stocks that we already hold, especially those positions we were looking at closing or rotating out of. this is a basic option strategy that is easy to learn and follow, with an opportunity to repeat every earnings - as rewarding as dividends if not more :) - so i hope it works for other fellow traders here and i hope i managed to explain it well . let me know in your comments.
NYSE:TWTRLong
by RedKTrader
2
WMT Covered CallBeen holding this trade for a few weeks now. This is my first post related to options trading. I'm using the lines to show a visual of how selling a Call has helped create a range of profitability and risk management. GREEN LINE - Max Profit - This green line is in relation to the original share price entry point, the Call strike price, plus any premium collected. YELLOW LINE - Strike Price - I will adjust this often in an effort to continue to manage the risk, while maximizing profits. I try to stay under the stock price to maximize risk management. RED LINE - Break-Even - This line is a proposed break-even price of the covered call. It is a linear sloped line, but is not accurate. This line give a rough estimation of what my break if is based on each expiration date. PINK LINES - rough projections based on the last Max Profit and Break-Even potential. I'm using this to show what might potentially happen to the range, the longer I hold on to this trade.
NYSE:WMTLong
by oldinvestor
Covered Calls For BeginnersI’m Markus Heitkoetter and I’ve been an active trader for over 20 years. I often see people who start trading and expect their accounts to explode, based on promises and hype they see in ads and e-mails. They start trading and realize it doesn’t work this way. The purpose of these articles is to show you the trading strategies and tools that I personally use to trade my own account so that you can grow your own account systematically. Real money…real trades. Covered Call For Beginners For good reason, the covered call strategy is one of the first option strategies that new traders start trading. This is an effective strategy that options traders often use to provide income on stocks they already own. Questions to be considered in this article: - What Is A Covered Call? - Should You Trade It? - Specific Example Can You Do It In A Retirement Account, EG, IRA? What Is A Covered Call? A covered call is an options strategy used traders to produce income on stocks on long stocks held in their portfolio. This strategy is used by traders who believe that stock prices are unlikely to rise in the short term. A covered call strategy is defined as holding a long position in stock while simultaneously selling a call option on that same asset. This strategy can provide income to a trader who is long term bullish on stocks but doesn’t believe there will be a significant increase in price immediately. A covered call will limit a trader’s potential upside profit if there is a significant move in the price of the stock upwards. This strategy provides little to no protection if the asset price moves downwards. Covered Call Example For the specific example that we’re going to cover today, we’ll take a look at JP Morgan JPM . The price information reflects the price of JPM back in July at the original time of writing for this guide but is just being used as an example If you were holding JPM stock in your portfolio before the pandemic, chances are that you are currently underwater. DISCLAIMER ***For the purpose of full transparency, I do not own or hold any JPM stocks*** I typically only hold stocks between 5 and 25 days. Stock Price Movement Recap For this example, we’re going to assume that I own 100 shares of JPM . If I were to purchase 100 shares for $96 it would mean that the capital requirement for this position is $9600. You’re probably familiar with the way profits move in relation to stock prices… but just to be safe: - If the stock increased to $106, or $10, I would earn $1000. - If the stock increased to $116, or $20, I would earn $2000. - If the stock decreased to $86, or -$10, I would lose $-1000. How Does A Covered Call Work? Sell one call option contract for every 100 shares of the underlying stock in your portfolio. The contract selected would ideally have a short expiration date of 7 days. You would choose an “out of the money” call at a higher strike than the current price of the stock. When choosing this strike price, you would typically choose a price at least one standard deviation away from the current strike price. In other words, choosing a strike price that you do not believe the current strike price will exceed before the date of expiration. If you’d like to learn more about this options strategy, or options in general, I have an awesome Options 101 Course. What’s the benefit of having a Covered Call for the stocks in my portfolio? It’s simple really. When you sell a call option contract, you will receive a premium. This strategy generates income when you don’t expect to profit from the movement of the underlying stock price. In this example with JPM , I received a premium of $55 for selling a call option contract at the price of $116. Provided that the underlying strike price does not move above $116, the contract will expire worthlessly and I will keep the premium I collected by selling the options contract. Let’s take a look at how a covered call will affect your portfolio with the same stock movements. - If the stock increased to $106, or moves $10, I would earn $1000 plus the $55 - If the stock increased to $116, or moves $20, I would earn $2000 plus the 55 - If the stock decreased to $86, or moves -$10, I would lose $-1000 but keep the $55 for a total loss of -$945 Why does this work? If you take the entire amount of premium you received and divide it by the number of days between no and contract expiration, you come up with a number like this: $55 dollars in 7 = $8(ish) per day. This covered call contract is paying us $8 dollars per day. If you take the $8 dollars, divide that by your total capital investment of $9,600 it equals 0.08%. This may not sound too incredible, but… If we do some basic arithmetic and take 0.08% and multiply that by 360 trading days per year, you end up with a return of over 30%. This is in addition to what you earned from the growth of the stock. On some stocks, it’s possible to earn upwards of $20 per day. This could increase annual returns in excess of 40% to 50% Does this sound a little more exciting? YES! Should you trade it? ABSOLUTELY! BUT…. There is a risk associated with this strategy. If there is a large movement of the underlying stock price that surpasses the strike price of your call option contract, you will be forced to sell your shares at this price. This would limit your upside potential to the difference between the current stock price and the price of the call option contract. Example: If the price of the stock went up to $117 (past the $116 call option) and the options contract expires, your stocks will be sold $117. This means you would earn $1,100 + $55, or $1,155. In other words, you would lose $100 for every $1 the strike priced moved above your call option contract. The silver lining is that you can probably buy your stock back the next day if you wanted to hold them long term. This type of trade can be taken inside of your retirement account such as an IRA, which provides you with another way to grow your account conservatively.
NYSE:JPMEducation
by rockwelltrading
CSCO - Unusual option activity10,467 CSCO 47 strike calls expiring Feb 19th 2021 were traded at 0.89 in a single print above open interest of 1,141. Since we don't have visibility to what the bid or ask price was when these calls were traded, we have to look at this from different perspectives. 1.) Call Buying - This could be interpreted as call buying since one could argue that CSCO is trying to fill the gap from back on 8/13/2020. Note that the horizontal line representing the 47 strike calls is near the lows on 8/12/2020 just before it gapped down the next day. 2.) Covered Calls - These calls could also be covered calls. CSCO has had a good run from November through present day. Perhaps these are sold calls to hedge against a correction in the stock price. Let's follow the stock and this option's pricing see what happens. REMEMBER: Reference to specific securities should not be construed as a recommendation to buy, sell or hold that security. Specific securities are mentioned for educational and informational purposes only. YouCanTrade is an online media publication service which provides investment educational content, ideas and demonstrations, and does not provide investment or trading advice, research or recommendations.
NASDAQ:CSCO
by UnknownUnicorn6775423
UPDATE (IRA): TLT NOVEMBER 20TH 165 COVERED CALLSLast update/refresh of existing positions before I move on to new trades ... . Here, an "about as simple as it gets" covered call setup in my IRA in 20 year maturity + treasuries with a current yield of 1.64% and paid .19014/share in June (around $19 per one lot) versus a 30-days 'til expiry, one standard deviation short call premium of .78 (currently the September 25th 172 short call), just to give you some idea of what aspect of the setup is paying. My last acquisition was around $110/share, and I'm inclined to take my money and run at historic interest rate lows, since I think that these have a practical upper bound and will necessarily decline in price when the Federal Reserve gets around to unwinding some of its pandemic-related easing (which is a "who knows when" sort of thing). Previously, to accommodate some of the downside risk, I overwrote calls using call diagonals (See Post Below) and may do so again here while I ponder whether the buying power tied up in this position is "worth it" for the dividends and/or the short call premium. As a function of stock price, the .19 dividend plus the .78 30-day risk premium for one standard deviation calls is .59% of the underlying price (7.02% annualized) versus the 30-days 'til expiry one standard deviation short put currently paying .60 (.36% of the stock price, 4.34% annualized), so there is some advantage to staying in covered call versus selling out-of-the-money puts from a bang for your buck perspective, particularly since this is a cash secured environment. That being said, overwriting can be somewhat buying power intensive and can lead to some headaches managing the additional calls if price rapidly gets away from you to the upside.
NASDAQ:TLT
by NaughtyPines
Options Idea: Sell The Sep. 2020 PSTH/U Synthetic Covered CallIf you trust Bill Ackman, his new SPAC Pershing Square Tontine Holdings looks like a great candidate for a very short-term covered call position. Ackman has been on fire lately. Last year his flagship fund Pershing Square Holdings was up 58% and this year to date he’s up 46% after he turned a $27 million hedging position into $2.6 billion as markets tanked in March. What’s a SPAC? A SPAC (Special Purpose Acquisition Company) is a blank check company used to take a private company public. Instead of raising capital in a public offering, a private company can merge with a SPAC and get a guaranteed injection of cash at a predetermined price. Transaction costs and uncertainty are much lower. Management at a company looking to go public should prefer to go public via a SPAC as long as Ackman gives them the same valuation they would get from a traditional IPO. You can do this trade by simply buying 100 shares and then selling a call against it, but we did this trade synthetically using 3 options: Bought the March 18, 2021 $20 Call @ 3.90 Sold the March 18, 2021 $20 Put @ 1.75 Sold the September 18, 2020 $25 Call @ 0.35 Synthetic Covered Call A synthetic covered call is constructed by buying an at the money call and selling an at the money put and then selling another out of the money call. You get the same profit and loss graph as a normal covered call, but with no dividends (not a problem here) and with reduced capital outlay. PSTH.U closed at $21.83 on the day of our trade, so instead of using $2183 in cash for 100 shares, we used $862 in margin and took a position twice as large as our normal position size by going synthetic for the same capital outlay. We sold a short-dated out of the money call to help reduce our initial cost basis to the current trading price of PSTH/U, since the March 2021 options don’t have much liquidity. We may sell a few more covered calls against this position to bring our cost basis down to $20, which was the price of the SPAC's IPO and the redemption value of the SPAC's cash in trust. Redemption Value : PSTH.U shareholders have the option to redeem their shares for the $20 IPO price after the merger is announced. Let’s assume the market doesn’t look favorably on Ackman’s deal, PSTH.U shareholders can redeem their shares for $20 and exit before the merger is completed. Read the full prospectus for details (including scenarios where you might get less than $20, its complex). However, for us, this puts an effective floor on PSTH.U’s value at $20. If we want to stay conservative (and we are), we’ll sell calls to get our cost basis closer to $20. However, if you are bullish on Ackman like we are, we do not recommend selling calls against this position for an extended period. If a merger announcement is positively received by the market, the price will gap up instantly as investors realize they can immediately participate in the newly merged company’s equity via a position in PSTH.U. Those of us invested in PSTH.U have looked on in envy as KCAC (another SPAC) just struck a deal to take Quantumscape (an EV battery-maker) public. Shares in KCAC closed up 87% the day after merger news. This is why you don’t want to be stuck with a short call in PSTH.U when the merger news comes out. If the news is extremely positive, you might give up a huge windfall. Since SPACs have a limited lifespan, 2 years usually, as time continues it becomes increasingly dangerous to have a short call open on PSTH.U if your ultimate goal is to have a long position in Ackman’s merger pick. Our objectives for short call income generation against this position are as follows: Initial Objective: $0.32 (Recover Liquidity Loss) Secondary Objective: $1.83 (Reduce cost basis to the Redemption Value) We completed our initial objective by selling the Sep 18, 2020 call at $0.35 and we entered this trade $0.03 below the cost of going long. Again, our goal here is simply to increase our buying power on a trade we consder low-risk due to the redemption option. We may continue to sell calls for a limited time until we get our basis to $20. We don’t want to have a long call open at the time the merger is announced. 20-PSTHU-01 Opening Date: Sep 4, 2020 Expiration Date: March 19, 2021 DTE: 196 IV: 33.29% IV Percentile: N/A (less than 1 year trading) Odds of Winning: 54.55% Odds of Losing: 45.45% Win: > 21.80 @ Expiration Loss: < 21.80 @ Expiration Reg-T Margin: $862 Chart Legend Green Area: 100% Win Zone. If we finish above or in the green area, we’ve made a profit on our synthetic covered call. Since our position has a long call that means our potential gain is unlimited after Sep 18, 2020. Up to Sep 18, we are limited in our gain by our short $25 call. Red Area: If we finish in this area we have a loss. The size of the red area is the size of our maximum loss. Since we’ve sold a naked put we have losses all the way to $0. 1 standard deviation, 2 standard deviation, 3 standard deviation projections from Opening Date to Expiration Date are included.
PLong
by OptionsCoach
MODEL: DIY QUASI-ANNUITY VIA SPY COVERED CALLI've been meaning to do a post for a very long time here on a do-it-yourself quasi-annuity via covered call, and here it is. To oversimplify things, most annuities involve you making an initial payment, after which you receive fixed payouts, generally represented by an annualized rate of return. Here, I look at modeling a do-it-youself annuity using a covered call that looks to collect a fixed credit via roll of short call at regular intervals, with the credits received on rolls acting as the fixed payout portion that an annuity would provide, with the drawback being that your "principal" (i.e., the value of your SPY shares) can not only increase, but also decrease over time. For purposes of this model, I'm looking to start the process by buying a SPY 300 covered call, although you can certainly use any options liquid underlying to do the same thing. This would have cost 289.43 ($28,943) to put on as of today's close, and 289.43 will be your cost basis in your shares. For purposes of this model, I'm looking to generate a 5% return on capital on an annualized basis via premium collection, so 5% of $28,943 equals 1447.15 or about $120.60/month. Consequently, I should look to collect at least that amount in credit for each roll I do or call against I sell. Naturally, 5% ROC isn't the sexiest thing in the world, but would beat the vast majority of broad market or exchange-traded fund sector yields out there at present, and you're doing this to generate a fixed income stream, not blow the doors off the wagon. And we'll see how that goes ... .
AMEX:SPY
by NaughtyPines
Possible Trend Lines that Bears and Bulls Can Agree OnFirst off I was going to make this a private idea because it is long term.. and if you follow me then you know I DO NOT like long term predictions. Intra-day clues and signs are much more valuable to traders like me, but today's end was so crazy I thought it might be a move that is following a longer term trend. It definitely made me go "hmm". What Happened: Listed are trend lines that I think are possibilities. It is NOT a coincidence that we ended near the gap from last week... there are no coincidences in the market. This fits within a softer trend upwards. So Where to Now? From here we could get a bounce up (I like 288 pushing towards 292) or further down if we wish to test some important values. 283 right off the top of my head would be the next move, but there is still room further down if the market so desires. Bullish or Bearish? We should remain bullish on SPY until we close daily below the 20 period moving average. Now this does not mean that I am bullish every trading day, but on the grand scheme of things yes. Tomorrow I would say that a gap up is very possible but watch the Asian markets for an idea of what's to come. Could be up, down, sideways.. who knows! Please comment comment comment.. I can never have too much input on my ideas!! Also check out my previous ideas to see that I am a pretty good trader. I called this down movement today and I plan to forecast what's coming next as well. So give me a like and follow :D
AMEX:SPYLong
by itsQure
TUTORIAL: COVERED CALL STRIKE IMPROVEMENT VIA ROLL AND FINANCINGOne of the primary reasons people poo-pah covered calls is because they cap out max profit. There are two things these naysayers overlook and they are (a) you can roll out your short call for duration and credit, thereby decreasing your cost basis and increasing your potential max profit; and (b) you can always "finance" short call strike improvement, albeit at the cost and risk of doing an additive adjustment trade in the event that you can't improve the strike satisfactorily. Pictured here is a deep in-the-money SPY December 18th 255 covered call. If I do absolutely nothing, my SPY long shares are going to be called away, if not at expiry, then earlier by someone exercising their long calls. Say, however, I want to stay in the stock, as well as improve my cost basis and the short call strike such that my max profit potential is increased by the amount of strike improvement. As previously mentioned, there are a couple of ways to do this. The first is to look at merely rolling the short call out in time and examining whether the strike can be improved while still getting a credit. One thing you'll immediately notice when you do this with the December 255's is that the strikes are five wides so that if any improvement is going to be made, it will have to be from the 255's to the 260's or higher. With the December 18th 255's going for 50.85 at the mid, I'll have to look at 260's in an expiry in which they pay more than 50.85 to get a credit on the roll, and the first expiry in which that occurs is in January of 2022 where the 260 is paying 51.00 at the mid price. In other words, I'd have to roll the calls out a whole year to improve them by five strikes, all for a measly .15 ($15) credit. That being said, I also increase my max profit potential by the width of the improvement (5.00) plus the credit received (.15) or for a total of 5.15, so that is not entirely a bad thing were I to do that. It is also the most straightforward way to improve your short call strike without adding risk or tying up additional buying power. If, however, I'm not big on rolling out that far out in time, I can also looking at financing the strike improvement via an additive trade for which I receive a credit that exceeds the cost of the strike improvement, with the down side being that any additive trade has its own buying power effect and side risk. Here are a couple of examples: Roll the December 18th 255 up to the December 18th 265 for a 7.40 debit and sell the December 18th 240 put for a 7.64 credit. I improve the short call strike by 10.00 and receive a net credit of .24 (7.64 - 7.40). Net delta of the position increases from 20.99 to 42.18. Roll the December 18th 255 up to the December 18th 269 for 10.37 and sell the December 18th 240/343 short strangle for 10.44. Here, I improve the short call strike by 14.00, and receive a .07 credit to do it. The net delta of the position increases more modestly from 20.99 to 28.02 because the short strangle is delta neutral, with all of the net delta pickup coming from the roll of the short call.
AMEX:SPYEducation
by NaughtyPines
5
ASSIGNMENT: NIO SHARES/NIO FEBRUARY 21ST 5.5 COVERED CALLThis is a continuation of long-running trade that I kicked the can on. (See Post Below). With price finishing the day wayyy below my 10 short put, I will find shares in my account next week via assignment. In anticipation of that occurring, I previously sold a February 21st 5.5 call and have a cost basis of 5.22. I'm fine with being called away at 5.50 should that occur, but will continue to reduce cost basis in the stock going forward if that doesn't happen. Delta/theta: 62.98/.81 Extrinsic: .34.
NYSE:NIOLong
by NaughtyPines
3
BYND: DEC 20TH 80 COVERED CALL (REVISED)Posting a revised visual depiction of this trade (see Post Below) showing the 80 short call strike that covers the stock, plus the December 20th 115 short call I sold against on the post-earnings pop to $90 or so, along with my cost basis. With price breaking my short call here slightly, I may add short call to cut net delta in the position, particularly given the fact that background implied remains high (61.5%), earnings are in the rear view, and I don't have a ton of much else going on ... .
NASDAQ:BYNDLong
by NaughtyPines