Great return selling the covered calls!!! I really have used this strategy to my advantage - though I noticed that in the example the stock purchase price was $ 246,652.00. What was the stocks value at the end of the 12 month period???? Thanks.
$201,528.00 which is a loss on the stock value of $45,124.00. At the September mark, the loss was over $80,000.00 on the stock position! See my comment and narrative above.
As I understand the Covered Call process > The seller of the call must own the shares . so using the example : Invested 246,652 ( upfront ) -- Sold 1 call ( 100 shares ) } Now the shares are locked in to sell or expire in 35 to 40 days etc.. So now I cannot sell another call against the same shares unless the shares are now released ( option expires ) ??
@@allenromyn6323 when you chose date of option to expire you can choose ie 1 month. In this case after 30 days if option is OTM - you dont get assigned and you can immediately on the same day start process again.
The phrase "covered calls" must have been coined by a broker, because the only one who truly receives cover in this instance is the broker himself, who receives a commission even if the stock against which the calls were sold gaps down. I would prefer the phrase "capped calls", because the max profit is what is being capped. The downside risk remains, unless one uses the covered call income to buy a protective put, thereby collaring the stock.
You have to manage those fast as soon they go itm. Or just don't sell calls on momo stocks where you miss out on a ton of upside in exchange for pennies. It's happened to me too many times. I usually don't sell CC anymore. Not worth it
Question here regarding the October buy back example. Why not let this option get assigned. Save the $4,000 rolling out and buying back the call. And rebuy the same amount of showers previous. The $4,000 saved from not buying back the call would make up for the increased cost of the stock. Anything to do with tax implications, at the final price there would've been around a net $30,000 loss- including short term gains from the selling options from purchasing at $246,000 and selling for $186,000+$28,000 gained from selling the calls
But didn't the total value drop way more than the purchase price? Far more than CC's income and never mind the tax on the income received, which most likely would eat another 10k +/- off the top. Maybe I am clueless but wouldn't have been better to just set a STL at 10% (or 25K loss) and move on?
You're correct, this BKNG example was a losing strategy and there would be no tax on the income because the net-loss for the year on the stock would negate the gains from the Covered Calls. The end result for the year is presented via a Consolidated 1099 taking all trades for the year into account.
Unfortunately the value of that stock was down over 40,000 during the year! Hello? Anybody home? Even considering the 26.7 gain he's down 14,000 in stock VALUE
thats not right. You clearly dont understand difference between stock value and stock price. Yes, stock price was down but if let say: investor made good research and knows something - it means sale of product he wants - ergo - great opportunity to buy for lower price.
ok.. great video.. I love SMB content .. this is the issue with covered calls.. you would have made that money in income but lost $40K in stock value.. so this is a negative $14k play. If you're holding a stock long term as an investment maybe.. maybe this is a reasonable strategy but.. don't like this particular review
Seems he has ignored the cost basis of the stock and just keeps doing covered calls regardless if the stock is under water or not. The collateral is retained, and in October the buy back of the option meant a loss was never achieved on the underlying stock.
Yes, on the positive side you brought in $26k in positive cash flow over the year, but your trading account value is deep in the red (about $40k) because the stock price dropped so much. It would've been informative to drop in some campaign exit rules.
Go take a look at the current price of BKNG...$2900. So if he was able to keep rolling the calls without getting caught paying too much on any big pops over the strike prices, the shares themselves are now UP $44k AND he got all that covered call premium. He's suggesting that this could be an alternative buy and hold strategy for growth stocks similar to the lower risk strategy of buying and holding dividend aristocrat type stocks with small but secure dividends.
@@howiesoc17 So you'll have to own the stock for a long period of time and lock Yourself in it - unless you jump to another stock once it starts to decline from your entry price. And then sell these covered calls on the new stock. Therefore I also think that they should have mentioned this aspect in the video to make full sense of the system specially with regard to the bkng stock they chose to bring as the example in this video.
@@HorizonTradingI suspect that most people watching these videos are traders whereas most people hold (either directly or via ETF's, etc.) stocks of at least several months or years (CVX, AAPL, etc.). For those individuals, this is money that they're leaving on the table since in most cases they'll end up buying more of that stock if it goes down - not get out of it altogether.
@@howiesoc17 the success of all strategies depend much of your timing (when you start the campaign/strategy and when you exit). You couldn't foresee what BKNG will do in the long run...
This is great knowledge but all the stock/finance experts are way too technical in their explanations ---- it is good to know the dollars/numbers --- but the explanation of how and what are the steps etc are never clear...
But you lost $40k in the value of the stock over the same time frame. In what universe is this a good trade? You're going to take your SMB traders and give them your money to mismanage like this? I don't think so.
You do this on LONG positions. You don't have plans to sell the stock unless it hits a satisfactory profit price. You do this in companies you believe in.
Wow, I am just shocked that you would buy back a covered call, give up the stock, and buy it back the next day and forget about the 4000 dollar hit to the earnings, man, This video has to be the worst I have seen from you normally very good educators...please, don't do this kind of thing, after all the entire purpose of a covered call is to surrender the stock to eliminate any loss....just wow....
He didn't give up the shares though. Basically just rolled the option for a debit (which he subtracted from the total premiums at the end of the video). People who buy dividend stocks often intend to hold those stocks long term regardless of the movement of the stock itself as long as the dividend is secure (think dividend aristocrats). This strategy's purpose is for holding growth stocks longer term while capturing higher returns with calls than you would with lower paying dividend stocks.
LarryB, I think you should watch the video again. I bought back the call and fully acknowledged that loss in the final tabulation of the results. The collected premium was over $30,000 and the cash payment to close the October call was $4,000 or so resulting in NET cash flow of $26,000. So we didn't in any way forget about the 4,000 hit to earnings. We deducted it from the earnings as is proper.
@@howiesoc17 Correct Howie, an alternative would have been to allow the shares to be called away and then re-buy the stock immediately and continue the program. However, I chose to do it this way to simplify the video.
Selling CC's is the worst option stratgy in the market place. Your upside is traped at the price you sold the call at. If BKNG goes way above your short call you don't benefit by this rise. Worst yet if the stock goes down you as the owner of the stock get murdered. You have no down side protection---none. Please look at selling short term (7-14 day) call spreads to bring in some real income. Adjust your strikes and look at risk graph. NEVER DO CC'S
If the stock price decrease tremendously it has no affect on the call. I get to keep the premium and do it all over again. I own the stock. As long as I don't need to liquidate the stock then it will only affect the value of my portfolio.
Is this a joke? you opened a 100 bullish position in a stock that went almost 20% down in 12 months (from 2466.52 to 2015.28) losing 45k in that period. Yep, selling calls you collected 26k in premiums, but the end result is -18k for the year!. NEGATIVE RETURN. Criminal to not even mention it when you talk about the possible outcomes.
Maybe but on a theoretical level where a portfolio contains long term hold stocks that are being dollar cost averaged into during the same 12 month period (e.g. AAPL, CVX), this could still make sense since you're buying the stocks at a discount AND getting the call premiums.
the stock is at $3,624.73 today... assuming he held long and continued the campaign, he has generated huge amounts of premium income, while the stock has rebounded and gone significantly up
Learn the top 3 trade setups we are using on the desk here: bit.ly/3Oj6gSW
Almost feels criminal getting all this knowledge for free. Thanks, SMB Capital team!
Well I won't tell anyone
@@mbellafiore19 ha! a response from the legend...grateful.
@@mbellafiore19I sort of didn't listen 😅
Pass the knowledge you learn along ..
Not only that, but in holding the stock you get the dividend income on top of the covered call income too.
Great return selling the covered calls!!! I really have used this strategy to my advantage - though I noticed that in the example the stock purchase price was $ 246,652.00. What was the stocks value at the end of the 12 month period???? Thanks.
$201,528.00 which is a loss on the stock value of $45,124.00. At the September mark, the loss was over $80,000.00 on the stock position!
See my comment and narrative above.
I believe you'll call it rolling the position.
Hi jacob, are there any membership sales coming up?
As I understand the Covered Call process > The seller of the call must own the shares .
so using the example : Invested 246,652 ( upfront ) -- Sold 1 call ( 100 shares ) } Now the shares are locked in to sell or expire in 35 to 40 days etc..
So now I cannot sell another call against the same shares unless the shares are now released ( option expires ) ??
I just do not understand how I can continually sell the options on the 100 shares monthly ... without being covered ?
The math only allows two to three call sells a year on the same 100 shares. ( not 12 ) . Can you show me where I am wrong please .
@@allenromyn6323 when you chose date of option to expire you can choose ie 1 month. In this case after 30 days if option is OTM - you dont get assigned and you can immediately on the same day start process again.
The phrase "covered calls" must have been coined by a broker, because the only one who truly receives cover in this instance is the broker himself, who receives a commission even if the stock against which the calls were sold gaps down. I would prefer the phrase "capped calls", because the max profit is what is being capped. The downside risk remains, unless one uses the covered call income to buy a protective put, thereby collaring the stock.
The BIG downside to this is when you sell CVNA $30’s and it goes to $60
Need to learn to read the chart and not sell near breakouts or cut losses quickly as its breaking out.
@@miscellaneous3372 yes I need to learn to be smart, thanks. There are not losses, just missed profit.
You have to manage those fast as soon they go itm. Or just don't sell calls on momo stocks where you miss out on a ton of upside in exchange for pennies. It's happened to me too many times. I usually don't sell CC anymore. Not worth it
Roll over 😈
Question here regarding the October buy back example.
Why not let this option get assigned. Save the $4,000 rolling out and buying back the call. And rebuy the same amount of showers previous. The $4,000 saved from not buying back the call would make up for the increased cost of the stock. Anything to do with tax implications, at the final price there would've been around a net $30,000 loss- including short term gains from the selling options from purchasing at $246,000 and selling for $186,000+$28,000 gained from selling the calls
what platform is the best for trading options
How about using weekly calls
Thank you.
Welcome!
Thank you so much for such high quality information!
👊
Many thanks!
But didn't the total value drop way more than the purchase price? Far more than CC's income and never mind the tax on the income received, which most likely would eat another 10k +/- off the top. Maybe I am clueless but wouldn't have been better to just set a STL at 10% (or 25K loss) and move on?
I think it's to be done on your long term investment folder
@@reemasingh1771 If you live long enough.
You're correct, this BKNG example was a losing strategy and there would be no tax on the income because the net-loss for the year on the stock would negate the gains from the Covered Calls. The end result for the year is presented via a Consolidated 1099 taking all trades for the year into account.
No downside protection. Why not buy a ETF that sells covered calls and also buys puts, like qyld
Maybe because it is down about 10 points over all in ten years.
@@free322001great point
Unfortunately the value of that stock was down over 40,000 during the year! Hello? Anybody home? Even considering the 26.7 gain he's down 14,000 in stock VALUE
thats not right. You clearly dont understand difference between stock value and stock price. Yes, stock price was down but if let say: investor made good research and knows something - it means sale of product he wants - ergo - great opportunity to buy for lower price.
But how do you select the stocks though?
You can do it with any stock you already own
ok.. great video.. I love SMB content .. this is the issue with covered calls.. you would have made that money in income but lost $40K in stock value.. so this is a negative $14k play. If you're holding a stock long term as an investment maybe.. maybe this is a reasonable strategy but.. don't like this particular review
Seems he has ignored the cost basis of the stock and just keeps doing covered calls regardless if the stock is under water or not. The collateral is retained, and in October the buy back of the option meant a loss was never achieved on the underlying stock.
Yes, on the positive side you brought in $26k in positive cash flow over the year, but your trading account value is deep in the red (about $40k) because the stock price dropped so much. It would've been informative to drop in some campaign exit rules.
Exactly!
Go take a look at the current price of BKNG...$2900. So if he was able to keep rolling the calls without getting caught paying too much on any big pops over the strike prices, the shares themselves are now UP $44k AND he got all that covered call premium. He's suggesting that this could be an alternative buy and hold strategy for growth stocks similar to the lower risk strategy of buying and holding dividend aristocrat type stocks with small but secure dividends.
@@howiesoc17 So you'll have to own the stock for a long period of time and lock Yourself in it - unless you jump to another stock once it starts to decline from your entry price. And then sell these covered calls on the new stock.
Therefore I also think that they should have mentioned this aspect in the video to make full sense of the system specially with regard to the bkng stock they chose to bring as the example in this video.
@@HorizonTradingI suspect that most people watching these videos are traders whereas most people hold (either directly or via ETF's, etc.) stocks of at least several months or years (CVX, AAPL, etc.). For those individuals, this is money that they're leaving on the table since in most cases they'll end up buying more of that stock if it goes down - not get out of it altogether.
@@howiesoc17 the success of all strategies depend much of your timing (when you start the campaign/strategy and when you exit). You couldn't foresee what BKNG will do in the long run...
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This is great knowledge but all the stock/finance experts are way too technical in their explanations ---- it is good to know the dollars/numbers --- but the explanation of how and what are the steps etc are never clear...
Selling a call whose premium equals one percent of spot is toooo risky... What if, on any day, stock gives a UC ..... stock market is unpredictable
The commenters are kinda silly. This strategy is for a flat market.
First here ready to have my cake and eat it too
I think the use of BKNG for this strategy is not right.
But you lost $40k in the value of the stock over the same time frame. In what universe is this a good trade? You're going to take your SMB traders and give them your money to mismanage like this? I don't think so.
You do this on LONG positions. You don't have plans to sell the stock unless it hits a satisfactory profit price. You do this in companies you believe in.
Wow, I am just shocked that you would buy back a covered call, give up the stock, and buy it back the next day and forget about the 4000 dollar hit to the earnings, man, This video has to be the worst I have seen from you normally very good educators...please, don't do this kind of thing, after all the entire purpose of a covered call is to surrender the stock to eliminate any loss....just wow....
He didn't give up the shares though. Basically just rolled the option for a debit (which he subtracted from the total premiums at the end of the video). People who buy dividend stocks often intend to hold those stocks long term regardless of the movement of the stock itself as long as the dividend is secure (think dividend aristocrats). This strategy's purpose is for holding growth stocks longer term while capturing higher returns with calls than you would with lower paying dividend stocks.
LarryB, I think you should watch the video again. I bought back the call and fully acknowledged that loss in the final tabulation of the results. The collected premium was over $30,000 and the cash payment to close the October call was $4,000 or so resulting in NET cash flow of $26,000. So we didn't in any way forget about the 4,000 hit to earnings. We deducted it from the earnings as is proper.
@@howiesoc17 Correct Howie, an alternative would have been to allow the shares to be called away and then re-buy the stock immediately and continue the program. However, I chose to do it this way to simplify the video.
Poor man's covered call is better.
Synthetic covered call you mean?
Selling CC's is the worst option stratgy in the market place. Your upside is traped at the price you sold the call at. If BKNG goes way above your short call you don't benefit by this rise. Worst yet if the stock goes down you as the owner of the stock get murdered. You have no down side protection---none. Please look at selling short term (7-14 day) call spreads to bring in some real income. Adjust your strikes and look at risk graph. NEVER DO CC'S
You would have got killed selling call spreads on NVDA, TSLA or even dummy stock like UPST. What stocks do you pick
Esp since BKNG kept climbing in 2023 after their December CC ... wondering what happened in that case.
You missed the whole point of this video
You can roll it up and out.
If the stock price decrease tremendously it has no affect on the call. I get to keep the premium and do it all over again. I own the stock. As long as I don't need to liquidate the stock then it will only affect the value of my portfolio.
Is this a joke? you opened a 100 bullish position in a stock that went almost 20% down in 12 months (from 2466.52 to 2015.28) losing 45k in that period. Yep, selling calls you collected 26k in premiums, but the end result is -18k for the year!. NEGATIVE RETURN. Criminal to not even mention it when you talk about the possible outcomes.
💯
Maybe but on a theoretical level where a portfolio contains long term hold stocks that are being dollar cost averaged into during the same 12 month period (e.g. AAPL, CVX), this could still make sense since you're buying the stocks at a discount AND getting the call premiums.
the stock is at $3,624.73 today... assuming he held long and continued the campaign, he has generated huge amounts of premium income, while the stock has rebounded and gone significantly up