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Moniedcoveredcall

Opening (IRA): IWM Feb 16th 187 Monied Covered Call... for a 183.65 debit. Comments: Doing things a little bit differently here, buying stock and selling the -75 delta call against to emulate the delta of a 25 delta short put, but with the ability to immediately defend the position with the short call, rather than waiting to roll the short put. First, the metrics: Max Profit: 3.35 ($335) Buying Power Effect/Cost Basis/Break Even: 183.65 ROC at Max as a Function of Buying Power Effect: 1.82% ROC at 50% Max: .91% Delta/Theta: 23.1/6.31 Now, the why ... . Previously, I looked to ladder out short puts targeting the shortest duration <16 delta strike paying around 1% of the strike price in credit and utilize a portfolio-wide short delta hedge which used buying power to put on and maintain. Here, I'm looking to manage risk on a per-position basis and to take advantage of some IV skew on the call side (i.e., the IV on the call side is greater than the IV on the put side at the correspondent put strike). Because of this, the premium/max profit is a smidge richer doing things this way relative to just selling a put. This only makes sense in a cash secured environment, where you don't get much BP relief going short put over covered call. On margin, this wouldn't make a lot of sense from a buying power efficient standpoint, so I'd use a different setup where I could manage side risk more effectively (e.g., short strangle, iron condor, Jade Lizard). Naturally, there are more BP efficient, IRA-friendly setups (e.g., Poor Man's Covered Call), but they have some warts of their own. From a trade management standpoint, I'll still look to take profit at 50% max, as I would've with the short puts and look to roll out the short call for a credit if it's tested, reducing cost basis further and improving my break even. Since I have nothing on here, I'm going shorter duration than I ordinarily would, but will start building out in longer duration at intervals as I did previously. On a side note, most people (unscientific survey, gleaned from culling through relevant Reddit posts) who "wheel" or do covered calls do not like this setup because it caps out profit, and I fully understand the preference to sell out-of-the-money calls against your stock and manage the position from there, particularly if the stock pays dividends that are decent. My personal preference, however, is to book realized gains "liberally," have a minimal of crap piles on at any given time, and generate a fairly regular cash flow. As we know from the past year, the market doesn't always go up, and the important thing is to be able to reliably make money in up, sideways, and to a certain extent, down markets with a minimum of headaches which is what these setups (out-of-the-money short puts, monied covered calls) allow me to do. Does it have a hugely sexy ROC that I can show off to chicks at bars? No. Does it pay for the bar tab? Certainly ... .
AMEX:IWMLong
by NaughtyPines
Opening (IRA): QQQ March 15th 380 Monied Covered Call... for a 371.81 debit. Comments: Buying stock and selling the -75 call against to emulate a 25 delta put that is defense-ready via roll of the short call. This is temporarily in lieu of what I ordinarily do in broad market, which is to target the <16 delta strike paying around 1% of the strike in credit and slightly more aggressive delta-wise. This only makes sense in a cash secured environment; on margin, you should probably do something else that is more buying power efficient (e.g., short put/take assignment/cover, Jade Lizard, short strangle, yada yada). 8.19 max profit on BPE of 371.81; 2.20% ROC at max; 1.10% at 50% max. Generally, I'll take profit at 50% max and/or roll out the short call on test to reduce cost basis further and improve my downside break even.
NASDAQ:QQQLong
by NaughtyPines
5
Opening (IRA): SPY February 16th 449 Monied Covered Call... for a 442.57 debit. Comments: Buying stock and selling the -75 call against to emulate the delta of a 25 delta short put with the ability to defend the position immediately on test of the short call or the break even. Metrics: Buying Power Effect/Break Even/Cost Basis: 442.57 Max Profit: 6.43 ($643) ROC at Max: 1.45% ROC at 50% Max: .73% Will generally look to take profit at 50% max/roll the short call down on short call or break even test. Will look to ladder out in longer duration at intervals.
AMEX:SPYLong
by NaughtyPines
Opening: SAVE January 19th 10 Covered Call... for an 8.15 debit. Comments: The IV in here is redonk (IVR 96/IV 238.6%), no doubt because the merger decision between SAVE and JBLU is in a court room, with the trial scheduled to finish up at year end and a ruling to follow thereafter. At the moment, the buyout proposal is for $33.50/share and/or a $29.80 "Deal-Through Price." While most are probably trying to arbitrage SAVE for the difference between current price and the potential buy-out amount, I'm looking to make money even if the buyout doesn't go through with a cost basis below SAVE's 52-week low and/or the judge takes a bit of time to mull over whether to impose conditions on the buy out (at which point I hope to be out of the trade). Naturally, if the deal does go through, and price jumps to the buyout price, I'll be pissed that I didn't go just Plain Jane long call ... . Metrics: Max Profit: 1.85 ($185)/contract Buying Power Effect: 8.15 ($815)/contract ROC as a function of BPE at Max: 22.7% ROC at 50% max: 11.3%
NYSE:SAVELong
by NaughtyPines
Opening (IRA): TSLA January 19th 200 Covered Call... for a 191.76 debit. Metrics: Cost Basis/Break Even: 191.76 Max Profit: 8.24 ($824) Max Profit ROC %-age: 4.3% 50% of Max: 4.12 ($412) 50 Max ROC %-age: 2.1% Delta/Theta: 23.45/12.70 Here, selling the -75 delta call against a one lot in one of the higher IV single names (currently at 50.5%) to emulate a 25 delta short put, but with slightly better profit potential and a better break even than selling the same delta'd put outright. Naturally, I wish the underlying was weaker and the IV higher, but you can't have everything ... . The 25 delta short put at the 205 would bring in 7.25 or so in credit at the moment, with a 197.75 break even. This is relative to the maximum profit potential of the monied covered call with the same delta metrics with a max profit potential of 8.24 (almost $100 more) and an even lower break even some 6.00 below where the short put break even would set up. Naturally, this only makes sense in a cash secured environment where the buying power effect of the naked 205 short put would be 205 - 7.25 or 197.75 and the monied covered call -- 191.76 (that's 19.8 and 19.2k, respectively). On margin, the buying power effect of the 205 short put would be substantially less, which is basically why you'd stick with the naked short put in the vast majority of instances in a margin account. As far as trade management is concerned, I'll be looking to take profit at 50% of max and/or look at rolling the short call down intra-expiry (e.g., from the 200 to the 195) or down and out (e.g., from the Jan 200 to the Feb 195) should my break even at 191.76 be tested, thus lowering my break even and reducing my cost basis.
NASDAQ:TSLALong
by NaughtyPines
Opening (IRA): TQQQ December 29th 34.5 Covered Call... for a 33.04 debit. Comments: Selling the monied -75 delta call against a one lot to potentially take advantage of early random call away/*assignment. 33.04 break even with a 1.46 ($146) max profit; 4.42% ROC/32.9% annualized as a function of buying power effect at max. "Random" call away occurs when someone holding the 34.5 long call choses to exercise it before expiration, but I'll look to close at or near max (e.g., 34.45) to avoid the call away/assignment fee if I get the opportunity to do so. On the flip side of the coin, I'll look to roll out the short call to reduce cost basis and my break even further if it chooses to crap its pants.
NASDAQ:TQQQLong
by NaughtyPines
Opened (IRA): TQQQ December 22nd 35 Covered Call... for a 33.55 debit. Comments: Selling the -75 delta call against ... . Metrics: Buying Power Effect/Share Price Break Even: 33.55 Max Profit: 1.45 ROC %-age At Max As a Function of Buying Power Effect: 4.32% ROC %-age at 50% of Max: 2.16% Delta/Theta: 26.44/2.98 Here's why I'm doing this instead of selling a put at the delta equivalent strike (the +25): if you look at the 25 delta put in the same expiry at the 35, it's paying around 1.27 at the mid (i.e., $127 max). The delta equivalent covered call setup has a slightly better max payout at 1.45 ($145) probably due to a couple of things: (a) IV skew (it's slightly higher on the call side than on the put); and (c) call skew. Relatedly, the short put break even is 33.73 relative the 33.55 break even of the covered call setup. I also wanted to see what the frequency of monied covered call random call away of shares was; most literature suggests early, random assignment is somewhat rare (around 7%) but there isn't much information out there in addition to that, such as when the highest likelihood of early exercise is (it's most likely when the extrinsic value in the call is de minimus) or how deeply monied the call is (which is related to how much extrinsic is left in the long call that the other person would be exercising; deeper in-the-money options have less extrinsic in them relative to less monied options of the same duration). This could naturally give the setup a slight edge over a short put, since an early exercise by a counter-party would result in max profit without having to wait until all the extrinsic has leaked out of the monied short call.
NASDAQ:TQQQLong
by NaughtyPines
Opening (IRA): SPY September 15th 421 Covered Call... for a 416.52 debit. Comments: A slightly different approach for the IRA -- a monied covered call paying around 1% of the debit paid at max. Metrics: Max Loss/Buying Power Effect: 416.52 Max Profit: 4.48 (1.08% at max/8.05% annualized) Break Even: 416.52 Delta/Theta: 18.05/11.21 Variations: Shorter Duration/Similar ROC: SPY Sept 1st 443 Covered Call Max Loss/Buying Power Effect: 438.42 Max Profit: 4.68 (1.07% at max; 7.80% annualized) Break Even: 438.42 Delta/Theta: 27.8/12.0 Same Duration/Higher ROC: SPY September 15th 445 Covered Call Max Loss/Buying Power Effect: 438.44 Max Profit: 6.56 (1.50% at max; 11.17% annualized) Break Even: 438.44 Delta/Theta: 32.6/10.6 Here, I'll be looking to take it off at or near max. The max is 421.00, so I'll be looking to take it off at .20 or so short of that or 420.80 or so, rather than waiting for the shares to be called away. Conversely, if price finishes below the 421 strike, I'll look to roll out the short call to reduce cost basis over time. There are some advantages to doing things this way in a cash secured environment over selling a put with a similar break even, which would be the September 15th 418, paying a comparatively paltry 1.25 credit (so your max would be $125) with a 416.75 break even. In order to get a similar max profit metric to the monied covered call writing a put, I would have to sell something like the 34 delta 450 strike, paying 4.58 at the mid, but it would have a much higher break even at 445.44 (and a resulting higher buying power effect). This only makes sense in this environment, however; on margin, the more buying power efficient avenue would be the short put.
AMEX:SPYLong
by NaughtyPines
TRADE IDEA (IRA): ROKU FEBRUARY 21ST 105 MONIED CCMetrics: Max Profit: 3.08 Max Loss: 101.92 (Assuming Stock Goes to Zero) Break Even/Cost Basis: 101.92 Delta/Theta: 15.75/10.76 ROC%-age At Max: 3.02%/32.4% annualized Notes: Although I generally don't play a ton of single name in my IRA, looking to deploy idle capital here. High rank/implied (56/78), good ROC%-age, and high probability of profit (84%). The natural alternative in a cash secured environment would be to sell a similarly delta'd put: the 15 delta 105 is paying 2.81 with a 102.19 cost basis if assigned. Earnings in 25 days versus this 34 day setup, but my intention would be to "play through."
NASDAQ:ROKULong
by NaughtyPines
2
TRADE IDEA: TQQQ MARCH 20TH 80 MONIED CCMetrics: Max Profit: $239 Max Loss: $7761 (assuming underlying goes to $0) Buying Power Effect (Cash Secured): $7761 Cost Basis In Stock/Break Even: $77.61 Delta/Theta: 15.11/4.43 Notes: High implied volatility underlying (56%). I don't play leveraged products as a general matter, but will dip at the well with a conservative setup like this that has a high probability of profit (the platform says 87%), particularly if I'm not doing a ton of other things and have the buying power to deploy. The ROC isn't great in cash secured (239/7761 = 3.1%), but will take it if I can get it over a 60 day period of time.
NASDAQ:TQQQLong
by NaughtyPines
TRADE IDEA: APA JAN 17TH 20 MONIED CC or JAN 17TH 20 SHORT PUTWith broad market and exchange-traded funds being temporarily unproductive from a premium-selling standpoint, I've been scouring the earth for high rank/high implied underlyings. APA (100/74) is one of them with earnings in the rear view. Pictured here is a monied covered call with the short call at the 20 strike in the January cycle. Markets are showing wide here (16.05/17.70/19.34), most of which is due to after hours pricing of the stock, which ended the regular session at 23.22, with the short call at 4.17 at the mid, implying a possible fill of 19.05 with .95 max for the monied covered call (5% ROC); the same strike short put pays .91 at the mid with a cost basis of 19.09 if assigned, so it's six of one, half dozen of the other in a cash secured environment, but greater buying power efficiency on margin by going short put over the covered call. Go less monied with the call -- at the 22.5 strike, and you're looking at potential 20.65 fill and 1.85 max (9% ROC); the 22.5 short put pays 1.76 with a cost basis of 20.74 if assigned.
A
by NaughtyPines