How to Manage Covered Calls when Stock Prices Soar!
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- เผยแพร่เมื่อ 17 เม.ย. 2023
- In this video we are talking about how to manage selling covered calls on your dividend stocks when stock prices soar higher and past your strike price.
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The market trend can turn around very quickly. In fact, the indexes often switch from a bear market to a bull market when the news is at its worst and the mood of investors is at its lowest point. I read an article of people that grossed profits up to $150k during this crash, what are the best stocks to buy now or put on a watchlist?
Option 4. Buy the stock once the CC gets in the money if you are still bullish and are sure your current shares will be taken away. This way you collection the full option premium and can still profit on a stock moving upward. Only way this can go wrong is if option goes in money, then reverts back below strike. Your option will be fine , but now you have a lot more stock than can take drop in value. But hey, you cant win in every scenario. Option 4, is good if you have a stock that has ton of upward momentum and you are sure the stock will be taken away.
Looks like the 103 SBUX was below your cost basis. This is often an overlooked/under-discussed aspect of CCs. You’re about to lock in $600 loss. Otherwise great videos!
you need show more money and Lambo
Actually I already knew all of this because I live with these situations every day. But I still enjoyed the video if for no other reason than to reaffirm that when selling option premium, we are all in the same boat with the decisions we face. Good video! Probably one of the more useful lessons I've learned this year is that we should not view selling calls (or puts!) as cookie cutter standard trades, but should consider the big picture of the whole market if possible. What I mean is that this year in a booming bull market, we should have realized that many stocks can surprise us with moving up much more sharply than in duller markets. So we should try to choose higher strike prices (less income for us!) so we are not facing numbers of them far exceeding the strike price. As a consolation for selling higher strike price, we should be thrilled that the stocks are making money hand over fist, and want to keep them. Overall I find selling options quite profitable, but one still needs to use care and keep our thinking cap on.
The market dropped today. I have several covered calls which expire tomorrow, with (now) strike prices. So I rolled them down, still to expire tomorrow. Deltas look good. Still making a profit even if exercised. Mistake or not? I wanted to get rid of a couple of them anyway, so I figured that maybe I could make a little more this way.
The first choice, allowing assignment said you will incur a loss. That is not correct. You will have a profit that includes premium collected and any dividends collected. There is the loss of opportunity to have sold at a higher price, but no actual loss of cash in your account.
Man, I wish I was a 1%-er who can afford thousands of shares to sell covered calls.
So if stock has gone up a lot and you have to buy to close, you retain the stock’s intrinsic value. Doesn’t that offset your cost to close and still allow you to retain the premium so you are net positive?
Hey Joe, another good video. One other risk of having an ITM covered call is if you are at the Ex-Div date for that stock. You run the risk of the person who bought your CC might exercise the call to buy the stock at a lower price the day before the Ex-Div date. Then they would own the stock and not you at the Ex-Div date (that has happened to me before). A good defense for that is about two days before the Ex-Div date I would roll out the option (like you show in the video). I would look to either roll up and out for a credit. I have even just rolled out about a month and kept the ITM strike price. I have never been exercised on in that situation yet so I collected a bit more premium from the option and still received the dividend. Just pay attention to your stock. Thanks.
The last scenario you highlighted is why buy and hold typically produces better returns for most traders/investors. The massive (relative) losses realized when your CC is deep in the money is far greater than any premium received before that event. In order to be net profitable after taxes, fees and any assignments, you have to be VERY good at timing your trades and selecting the appropriate strike prices.
This video! I could listen to your trade specifics and explanations all day. More of these videos please!!
Thanks for going over rolling options. This video did a great job of explaining 'rolling' your options!
I just wanted to say that I truly appreciate you, you are the reason why I started my youtube channel in the first place. Thanks to you I now teach people about financial literacy and how to invest their money. Thanks once again, and I hope you could inspire more people just like myself to build a youtube channel. 😊🙌
Great video. This is the only video I could find explaining how to Buy to Close if share price is nearing strike price. The Roll Out and Roll Out and Up feature was an added perk.
Great Video!
Issue here is that you (we) assume (hope) that the next strike price will not be reached. But in reality, if the stock makes a bit upward move today, when we roll it further, chances are high that it will reach your next strike price, whereas you are left with only $50 net, and lost all the gain momentum, since your stock on an uptrend path nowadays.
Thanks. I have never rolled my options and I didn't know how it worked. Now, I know. Thanks again.
Perfect timing for me! Thanks!
LOL...I was literally just looking at this and wondering. SCHW is approaching in the money very quickly. Thanks, Joe!