2 TIPS for Rolling Covered Calls (Deep In The Money and At The Money)
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- เผยแพร่เมื่อ 7 ก.ค. 2024
- 2 TIPS for Rolling Covered Calls (Deep In The Money and At The Money)
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Chapters
0:00 Intro
0:31 How do you Roll an At The Money (ATM) Covered Call?
1:40 Trade details of Rolling our ATM Covered Call
2:07 Benefits of rolling an ATM Covered Call
2:35 How much can you make by rolling a Covered Call?
3:12 When should you roll a Covered Call up and how do you do that?
3:37 How do you roll a Deep In The Money (DITM) Covered Call?
4:22 FDX example trade of rolling a Deep In The Money (DITM) Covered Call
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In this video, I share 2 techniques I use when rolling at the money (ATM) and deep in the money (DITM) covered call options.
Happy investing!
Randy Perez
#coveredcall #coveredcalls #retirementincome
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Rolling deep ITM calls is a thing this week! Many stocks and ETFs got over-excited by the CPI print.
It was interesting week
Always nice to see the transparency that even the Guru has options that end up DITM. Thanks Randy!
Randy, I always watch your Saturday video every week and learn something very useful. You are a very good teacher. Thank you.
Thank you Karen 😊
What a great video, just in time to roll my covered calls after this massive rally.
I really liked this video! Complete information, but simplified and straight to the point. Really helpful, thanks a lot!!
I trade daily covered calls on SPY because I like the underlying, and going daily minimizes my delta and gives me chance to roll up and out in case of ending ITM. I was looking for some affirmation on my strategy, and found it here. Thanks again!!
Thank you brother, just what I needed. Have a great week.🍷😉
Thank you! I hope you do also! 😊
Absolute excellence. Love your videos! Would’ve loved to seen this months ago. Glad I saw it! Thanks!
Glad it was helpful!
thank you sir. I just did this on XOP (rolled up and out) and was looking for some confirmation on my logic.
Glad it helped!
Randy, thanks for sharing a practical approach to handling these 2 situations.
I noticed the time stamp on this video too. Looks like you were planning to be away for some time. Enjoy!
Thank you Chris
SPY was nuts on Friday. SPY blew past my $395 strike, and Instead of doing a 2 leg roll, I managed to close my covered call when it dipped to 394 during the day, and STO when it went to $398 later in the day. Risky, but it paid off. I really dont want to sell my shares so I was able to get a higher strike while still collecting premium for my next CC
Nice! You might also consider the S&P 500 mini that way you wouldn’t have to worry about your shares being called away.
Last Thursday was quite typical. The market soared after a cooler CPI. I was busy planning a funeral last Tuesday w/o time for setting protective call spreads😭😭. BRK.B，ABNB, META, GOOGL are all killing me. So I had to roll them out to the next week. I think it's ok to sell slight ITM c/c even for dividend stocks. If they are far c/c, they won't get assigned before ex-div because the C/Cs still have too much time values. Only the immediate ITM C/Cs with little t/v will be in danger. In this case, the ITM strike price + current call price is almost the current stock price.
Randy, excellent advice and I always respect how your mind works!! A true professional trader and workable strategies.
Thank you Michael 😊
I think you can put DITM in the first place instead of rolling? Probably 3 to 4 points away from ATM. Hence, you don't need to to roll. But, which one gives the better rate? Rolling approach or DITM at the first start ?
That of course depends on how the position ends up. We do our best to estimate what will happen, but of course there are unknowns in the market. Ideally, you'd like to sell your covered call option at a strike price right at where the stock will be at expiration. That way it expires worthless but the stock is as high as possible.
So theoretically if you keep rolling out Puts, eventually one would be right and keep the premium without having shares assigned?
As long as there's a decent bit of extrinsic value in the option, the risk of assignment is a lot lower than if all the extrinsic value was gone. Here's a video on that subject if you want to check it out: th-cam.com/video/RrWEqdmUYOI/w-d-xo.html
hi randy, may i know if a person has say 100k in their portfolio, how much do you allocate for options only? Eg. Only 40% used for options the remaining hold cash? Would like to know how do you personally position size your trades based on how much you are willing to lose per trade (4% per trade eg.) and also how big your portfolio is. thanks!!! Keep up great content
Hey Jian, I know I discussed this in one of my videos but I can't remember which one at the moment. In our main option trading account, we have a little over $1 million set aside for it. I generally have around 2 to 3% at risk in any one position but my max is 5% in any one position. That means that if the entire cash secured put option position were assigned to us, it would cost me at most 5% of that million dollars. In that account, I have no problem having 100% invested or set aside for the CSP positions we are in. Generally we're not at 100% but I try to be as close to 100% as possible. We hold cash in other accounts for investments that might come my way whether it's stocks, options, real estate or other opportunities.
I think I remember seeing the FedEx trade covered on a previous video. If so, could you give us a link? The deep in the money roll gained time and put some money in your pocket, but looking back on the chart I know there's more to this story. And then what happened?
That sounds familiar to me also but when I look back, I can't remember which one it is. I'm sure it's probably one of the ones in this playlist: th-cam.com/play/PL3j38I2YtGw0GuZi4OOSzGcx3Oq_SMr2K.html
Thanks for the video. A couple questions. When a stock got away from you / CC is deep in money, I feel rolling kinda is like kicking the can down the road - you lost money on that call, but you are making money when you roll / you lose sight of the initial loss? How do you keep track of that loss?
When you roll, lets say you sold CC with strike of 50. Stock is at 60 near expiration. Do you want to try to move the strike back near that current price when you roll? That creates a net debit. But with the greeks, does it make sense / you'll make more or less if stock only falls back to 55? (ie which would do better - a cc at 50 strike vs. cc at 55 strike if stock falls back only to 55).
thanks!
Those are great questions. Each situation is specific based on what the stock looks like from a technical standpoint.
If a stock looks bullish, and you’ve sold the 50 cc, and you’d like to stay in the stock, when it pulls back to 55, you’re better off having that $55 strike price call option. That option will have the most extrinsic value.
If a call option goes deep in the money on you, then it might not make sense from a Return perspective to roll it out. If I’m bullish on a cc and it has gone deep in the money, and it still looks very bullish, I want to do everything I can to get that strike price rolled up if I want to stick with the position.
@@StockandOptionMyLifeOfLearning THX, this is what I was looking for. My call option on MRVL was so deep in the money(by $12.50 strike) it soared one day lately( closed it at a loss of $1378} it made no sense to roll the call to a higher strike( even several months out) those were not paying very much at all. So I had no choice to roll into a ITM CALL anyways about 3 months out at least it was paying some decent premium. So now instead of being $13 deep in the money, it's only $5 and change ITM. All goes well the stock settles down some I'll earn back about 55% of what I lost on the first trade. If I can survive until expiry, or I'll have to roll it again. lol thx again.
Thanks Randy. I’ve learned a lot from your videos. Do you think $29,000 is enough buying power to use if I join Patreon. I like selling Puts. I want to start selling puts on less risky dividend stocks. TIA
Hey Joe thank you for that. Yes I believe it’s enough. One of the accounts I share is a small retirement account in which I have right around that same $29,000 in it.
Great video.
Just wondering if you ever do ITM Buy/Writes ? There is a greater chance this will provide a positive result than writing an OTM option, repeating the next week or month. Anyway, If the ITM trade results in the stock being called away, you make a profit on the net position but does the sale of the stock at the lower price create a "wash sale"? If you buy XYZ at 50, write the 48 call at (say $2.50) and then have the stock called away, then there is a loss in the stock, a gain in the option. Or, is the net cost of the stock $47.50 and net gain is $0.50? Doing the wash sale means that adjusting the basis every time could go on forever. Nobody seems to be able to answer this. Your thoughts. Hopefully either you or somebody following you has the answer to this. I'm pretty sure I am not the only person that uses the "in the money" strategy to generate income. Thanks
Yes I will ITM CCs periodically. I did one last month in CSCO that so far, is doing really well and the annualized return was over 20% non leveraged.
As far the wash sale question, if you haven't seen it already, here is a video I made on that subject that I believe will answer your question: th-cam.com/video/xdcQCKZtJhI/w-d-xo.html
@@StockandOptionMyLifeOfLearning Thanks for the info. I guess if you do an ITM CC trade and the stock goes up, there is a WS on the stock and a gain on the option. If I perform the same trade again, the prior stock loss will adjust the basis for the new stock purchase. It would really be nice if the IRS allowed one to treat the B/W as a single transaction. Ha, no such luck.
Hi thanks for your greats videos, I am following your advice very carefully. But I have a question, nobody talks about a strategy that seems to be very powerful, it is a kind of poor man's covered call "inverted " Instead of buying deep in the money, you sell puts deep in the money (With a maturity of more than one year) and you sell puts OTM to protect your premium. You receive a big premium at first and you protect it by accumulating small premiums. So we lose less money in extrinsic value and you lower your breakeven significantly , what do you think of this strategy? Thanks
I love the creative thinking! 👏 It looks like you'd be in 2 bullish (DITM CSP LEAPS) /neutral (OTM CSP) short put positions, so as long as you're happy with the return and risk, it seems like an interesting play if I'm understanding it correctly.
@@StockandOptionMyLifeOfLearning thanks for your answer . Exactly, and I am trying this strategy on a test account. I hope it is a good idea because I did'nt find anybody speaking of that 😅
I have AMD strike price 105, current price 120, credit of $18. Do I keep rolling over stretching exp date?
It's really situation specific. If you are OK with the stock being called away from you, you can let it be assigned and try to go back in by selling a new cash secured put option or doing a new covered call when the stock comes down. If you didn't want the stock called away, then you could try to roll that short 105 strike price covered call up as you roll it out. Here's a whole playlist dedicated to covered calls if you'd like to check it out: th-cam.com/play/PL3j38I2YtGw0GuZi4OOSzGcx3Oq_SMr2K.html
Hi thank you for your great videos, When the market has experienced a bullish trend for three or four consecutive days, and you find yourself significantly distant from a support level for executing a put option, would it be more prudent to await a market correction or to proceed with the trade nonetheless?
I generally like to wait until they are near support levels. However, if I think a stock might continue going up and it’s already gone up, so it’s a little ways from support, I just make sure to sell the put option at or below that support level. It’ll mean possibly getting less premium, but in my opinion, it’s still safer than selling above support just to get more premium.
your answer was great , thanks a lot for your help
@@StockandOptionMyLifeOfLearning
What if the following month is within Ex-Div Date? Would you still roll?
Yes, I just make sure there is sufficient extrinsic value in it, at least initially, so it's not called away from me, if that's important.
Hey when you rolled the deep in the money call option , what happens if the stock keeps going up u lose out of all those gains right ? Andthen whe expiration comes so you give up or roll it again ? I rolled my Tesla feb 17 172 strike from this Friday 162 I’m nervous I want to make the gains but I’m wishing the stock tanks below Feb 17? Am I correct ?
Yes. When you sell a call option against stock you own, you are potentially giving up whatever gain you would receive above your short call strike price if you can’t roll that call up and out.
Randy would you roll out 2 years to try to keep the stock? I'm also in tsla and it keeps going up. I want to keep the stock if possible.
Hi Randy, can you ever "lose money" from selling puts so that you can tax loss harvest that amount?
Or is this never possible because you are always getting paid a certain premium?
For example:
End of 2021: I get paid $1000 in premium for selling a put
Start of 2022: Things go wrong, I pay $1500 to buy the put back (-$500) and get paid $200 to roll the position forward (-$300)
That means that I technically lost $300 from doing all of this, but on paper I earned $1000 in income last year and $200 again this year. Is this correct?
Yes, you can absolutely lose money and use losses to offset other gains. In theory, you can keep rolling the position out but if you have a loss and want to use that loss to offset some gains, typically, most traders would need to exit the position altogether for at least 30 days (wash sale rule).
There are some classifications that you can get which will allow you to mark your account to market at the end of the year, but if you're not classified as one of those type of traders, then you would need to exit your position for at least 30 days to be able to use the loss against other gains. Here's a video I made on that subject if you'd like to check it out: th-cam.com/video/xdcQCKZtJhI/w-d-xo.html
@@StockandOptionMyLifeOfLearning given the time of year, might be a good time to repost your video on wash sales from a few months ago?
Randy Wouldn't you want to write a deep ITM call at the top of the channel to generate income while reducing your b/e in anticipation for the pullback.
Ideally, if we knew exactly where a stock was going to end up at expiration, and we were selling an option, it would most likely be best to sell it right at the price where the stock would end up.
So if you expected a stock to decline and you were in a covered call, if you knew that the stock was going to decline to say for example $100 at expiration, then ideally, you'd like to sell the $100 strike call option. But since we don't know for sure what's going to happen, we just try to put the odds in our favor, as best we can.
Also worth mentioning that selling ITM Covered Calls is possible in 🇨🇦 registered accounts, whereas Selling Cash Secured Puts is not.
Thank you for sharing that 👍
Randy I saw in your other video you made over 23k for the month and paid only 133 or something like that in commissions. Can I ask what broker you use. I'm paying about 1000 a month with the .65 cents a contract. The fees are adding up. Thanks brother.
My main option trading account is with Interactive brokers. And then I use E*TRADE to buy stocks outright because that's commission free for my company. With Interactive brokers, there's several ways you can route your order. Some will minimize your commission but you might not get the best sale price, while others might charge a higher commission, but the goal is for your fill price to be better.
But going by gut feeling isn’t a good trade strategy!
Gut mixed with logic, calculation, and experience have served me well for over 2 decades.
How does someone still have money 💴 after this year to invest and trade? 😂
It’s been interesting year. We have generated nice cash flow each month though using options: th-cam.com/play/PL3j38I2YtGw0W9xSkNpaOw73OmuEA5xf9.html