UNLIMITED LOSS is something one needs to think about a lot. If stock assumption changes to super bullish from bearish or neutral another option is to Roll OTM then buy the stock and let it get assigned at breakeven or slight profitability. U would have to hold those share for a while but will protest yourself from that stock running up leading to unlimited massive loss. U could also sell ITM PUT and take assignment on PUT side to reduce the price paid for shares and then roll ITM call to breakeven and get assigned on the call side. If u end up buying shares and stock dips and the naked call expires OTM, now sell covered calls on those share to get back to breakeven. Overall this is a very risky strategy and position size is EXTREMEMLY IMP.
8:50 With the Roll Up & Out, I understand max profit is $140 so the B/E would be 1.4 higher than the strike price, but now that the short call moved right to OTM, how come the B/E is 71.40, instead of the new strike+1.40?
Sure - we could roll out continuously, or we could roll up AND out before the strike goes ITM for a small credit to maintain OTM status: www.google.com/url?client=internal-uds-cse&cx=015477303216471237373:u_cnlyqjhzi&q=www.tastytrade.com/tt/shows/trade-managers/episodes/avoiding-assignment-in-covered-calls-12-12-2018&sa=U&ved=2ahUKEwjOzpyLvY_kAhVUrp4KHdo5BT8QFjAAegQIAxAC&usg=AOvVaw0B86PPGO9qA6vqSk2fLG5z Totally up to you!
@@SureshHarvu This is what I do. I only do naked calls on stocks that I wouldn't mind owning & where I have the capital to purchase the stock if necessary. I'll set an alert when stock is a few bucks away from strike & if stock is exhibiting strong bullish behavior I'll purchase the stock. I don't keep good track of my trades but I would say I've easily fixed and made money doing this at least 90% of the time.
@@aw1078 I've been thinking of doing this I'm wheeling with strangles 30 DTE .3 Delta Puts / .16 Delta Calls on large caps only I'm not 100% cash secured but I can take assignment if needed. will setup my alarms ASAP, thanks for your tip!
I think the rub is when the stock jumps say 20 bucks in a day, IV contracts and BP gets eaten up so much you cant scale in or want to becauae of IV contraction. In this case I guess all we can do is close at a huge loss but with the lesson learned of staying small?
Excellent, If one understand this , one can be a master of the selling of Naked call. Of course you must be atleast a intermidiate in option trading to understand him. Pls. keep it up....
No, that would be the new max profit potential (plus the original $1.00 credit). The breakeven is only improved by 40 cents because the additional credit is only 40 cents.
Hey! high quality stuff you've got there, thank you for putting all this incredible effort related to selling short calls. -Given all else is equal such as Imp Vol, DTE, delta, is it safe to assume that we're looking to sell premium when Credit Received/Strike Price Ratio is highest? I'm curious when selling naked calls, which options contracts offer a relatively attractive premium compared to others? I couldn't find any analysis that mentioned ratios that deem some stock options as better candidates to collect premium on an absolute level. -If you could talk about any logistical differences, if there are any, between margin requirement and buying power reduction it would be great!
How do you adjust when your 10 delta CC goes ITM after the stock unexpectedly charges up $13 in one day? Do you keep trying to roll farther out at a slightly higher strike and even for slight credit? It's one i don't really want to let go.
Yeah! Ideally we roll up and out before it goes ITM, but you can still replace intrinsic value with extrinsic value slowly over time - www.tastytrade.com/shows/trade-managers/episodes/avoiding-assignment-in-covered-calls-12-12-2018
Sir , say option prices change by Vega. Vega means Chang of implied volatility of underlying stock?? or change in implied volatility of the strike price call & put????...
Ahh yeah, you sold for 1 buck, you buy back for 3 bucks, you are net -2 bucks; you don't do that math and you dont state it. you roll and get 50cent, so still -1.50 and your max profit is 1.50 SO its a scratch trade if it moves for you... SO you dont show the math and state its a scratch and not a credit.
Close but actually. When you roll, your extrinsic value is $3.50 so you would need the extrinsic to go down to $1.50 for it to be a scratch. Max profit like you said is $1.50 though it is still a credit.
Sorry for the confusion! When rolling undefined risk, the net credit is the extrinsic value alone - intrinsic value transfers from month to month, so the price difference is purely extrinsic. Therefore, this is a $1.50 net credit. What you might see is that your NEW option is worth let's say $3.00 in real value. In order to get to a scratch (buying back the option for $1.50), you'd see a $1.50 "profit" on the new position that doesn't account for your old trade. You can still profit if the option moves OTM at expiration since your loss would be accounted for, and you've collected $1.50 so far.
UNLIMITED LOSS is something one needs to think about a lot.
If stock assumption changes to super bullish from bearish or neutral another option is to Roll OTM then buy the stock and let it get assigned at breakeven or slight profitability.
U would have to hold those share for a while but will protest yourself from that stock running up leading to unlimited massive loss.
U could also sell ITM PUT and take assignment on PUT side to reduce the price paid for shares and then roll ITM call to breakeven and get assigned on the call side.
If u end up buying shares and stock dips and the naked call expires OTM, now sell covered calls on those share to get back to breakeven.
Overall this is a very risky strategy and position size is EXTREMEMLY IMP.
Your aggregate break even is the weighted avgerage of your net credits.
Of course you can still trade each contract independently if you chose..
8:50 With the Roll Up & Out, I understand max profit is $140 so the B/E would be 1.4 higher than the strike price, but now that the short call moved right to OTM, how come the B/E is 71.40, instead of the new strike+1.40?
I had the same thought. I think it's a mistake from Mike ans new B/E = new strike + 1.40
Thanks Mike! I am exactly in this problem, your video gave me an idea on how to adjust this short call.
I understand to rolling a short call option, but what if the stock continues to go up? What would you do then, keep rolling?
Sure - we could roll out continuously, or we could roll up AND out before the strike goes ITM for a small credit to maintain OTM status:
www.google.com/url?client=internal-uds-cse&cx=015477303216471237373:u_cnlyqjhzi&q=www.tastytrade.com/tt/shows/trade-managers/episodes/avoiding-assignment-in-covered-calls-12-12-2018&sa=U&ved=2ahUKEwjOzpyLvY_kAhVUrp4KHdo5BT8QFjAAegQIAxAC&usg=AOvVaw0B86PPGO9qA6vqSk2fLG5z
Totally up to you!
We can convert the naked call to a covered call and limit the unlimited risk on the upside.
@@SureshHarvu This is what I do. I only do naked calls on stocks that I wouldn't mind owning & where I have the capital to purchase the stock if necessary. I'll set an alert when stock is a few bucks away from strike & if stock is exhibiting strong bullish behavior I'll purchase the stock. I don't keep good track of my trades but I would say I've easily fixed and made money doing this at least 90% of the time.
@@aw1078 I've been thinking of doing this I'm wheeling with strangles 30 DTE .3 Delta Puts / .16 Delta Calls on large caps only I'm not 100% cash secured but I can take assignment if needed. will setup my alarms ASAP, thanks for your tip!
I think the rub is when the stock jumps say 20 bucks in a day, IV contracts and BP gets eaten up so much you cant scale in or want to becauae of IV contraction. In this case I guess all we can do is close at a huge loss but with the lesson learned of staying small?
Im learning this lesson! haha you dont become a warrior without gaining a few scars
Yeah thats the battle..do we keep fighting on that position or use the cash on another position.
Excellent, If one understand this , one can be a master of the selling of Naked call. Of course you must be atleast a intermidiate in option trading to understand him. Pls. keep it up....
At 9:37, How come the new B/E is 71.40. The new B/E should be the OTM strike + 0.40. Isn't it? What is the OTM strike that is shorted? Is it 71C?
No, that would be the new max profit potential (plus the original $1.00 credit). The breakeven is only improved by 40 cents because the additional credit is only 40 cents.
I agree with you and not with Tastytrade answer. They switch max profit and B/E. Max profit improved by 40 cents, but B/E is new strike + 1.40
Hey! high quality stuff you've got there, thank you for putting all this incredible effort related to selling short calls.
-Given all else is equal such as Imp Vol, DTE, delta, is it safe to assume that we're looking to sell premium when Credit Received/Strike Price Ratio is highest? I'm curious when selling naked calls, which options contracts offer a relatively attractive premium compared to others? I couldn't find any analysis that mentioned ratios that deem some stock options as better candidates to collect premium on an absolute level.
-If you could talk about any logistical differences, if there are any, between margin requirement and buying power reduction it would be great!
How do you adjust when your 10 delta CC goes ITM after the stock unexpectedly charges up $13 in one day? Do you keep trying to roll farther out at a slightly higher strike and even for slight credit? It's one i don't really want to let go.
MONIQUE knows what she's talking about.
Yeah! Ideally we roll up and out before it goes ITM, but you can still replace intrinsic value with extrinsic value slowly over time - www.tastytrade.com/shows/trade-managers/episodes/avoiding-assignment-in-covered-calls-12-12-2018
Very Informative
Sir , say option prices change by Vega. Vega means Chang of implied volatility of underlying stock?? or change in implied volatility of the strike price call & put????...
Vega = how option price changes given a 1% change in the underlying expiration IV% that you're trading.
Superb
In roll-up & out adjustment, shouldn't new breakeven be new strike+1.4 rather than 71.4 (=70+1.4) ?
I had the same question
Sir also say how to expect implied volatility move for tomorrow
Here's a segment on this:
www.tastytrade.com/tt/shows/from-theory-to-practice/episodes/expected-move-shortcuts-07-11-2016
Mike, where r you? When will you appear again? We miss this whiteboard show hahha!
I'm on tastytrade.com everyday on Market Mindset! At 11am CST.
@@tastyliveshow Is that Market Mindset can only be found in the web? no youtube upload?
Ahh yeah, you sold for 1 buck, you buy back for 3 bucks, you are net -2 bucks; you don't do that math and you dont state it. you roll and get 50cent, so still -1.50 and your max profit is 1.50 SO its a scratch trade if it moves for you... SO you dont show the math and state its a scratch and not a credit.
Close but actually. When you roll, your extrinsic value is $3.50 so you would need the extrinsic to go down to $1.50 for it to be a scratch. Max profit like you said is $1.50 though it is still a credit.
Sorry for the confusion! When rolling undefined risk, the net credit is the extrinsic value alone - intrinsic value transfers from month to month, so the price difference is purely extrinsic. Therefore, this is a $1.50 net credit. What you might see is that your NEW option is worth let's say $3.00 in real value. In order to get to a scratch (buying back the option for $1.50), you'd see a $1.50 "profit" on the new position that doesn't account for your old trade. You can still profit if the option moves OTM at expiration since your loss would be accounted for, and you've collected $1.50 so far.