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Poorman'scoveredcall

ROLLING JUNE 17TH, JUNE 24TH VXX PWCC SHORT CALLS OUT ... .These short calls are both parts of poor man's covered calls (PWCC's) in VXX, the long-dated long calls of which are in the September expiry ... . The June 17th 18 call had lost over 65% of its value, so I opted to roll it here to the July 8th 15.5 short call (as close to the 75% probability out-of-the-money strike as I could get) for an additional $68/contact in credit. Similarly, the June 24th 18 call had also lost over 60% of its value, so I rolled it to the July 15th 16 short call for an additional $56/contract in credit. Although it's great to be collecting credit along the way, as with any covered call -- poor man's or otherwise -- you will need price to increase above your cost basis to bail on the trade profitably ... . At the moment, I'm looking to exit the current setups for what I originally paid for them, essentially keeping the credit collected as my profit. However, as we near that September expiration (it's still a bit of ways away), I may have to look at what my scratch point is for each and possibly settle for less if we don't see a pop soon here ... .
AMEX:VXXLong
by NaughtyPines
ROLLING VXX JUNE 10TH 17.5 SHORT CALL TO JULY 1ST 17 SHORT CALLThis is part of a poor man's covered call setup in VXX, the back month of which is a September VXX 12 long call. I'm being somewhat mechanical here in rolling the 17.5 short call to the July 1st 75% probability out-of-the-money short call. I say "somewhat mechanical" because the usual thing to do is to wait until the short call is near expiration and then roll it out for another 30 days (assuming you haven't yet taken the whole setup off in profit before then). The notion here is to have my three VXX poor man's covered calls kind of straddle Brexit/FOMC, which is when I think the best chances for a volatility pop will occur. In any event, picked up an additional $56 credit for the roll, further reducing my cost basis in the long. Given the credits I've received so far for the rolls, I'll look to take the entire setup off for what I paid for it ($418/contract). The credits collected for the rolls will be my profit for the setup.
AMEX:VXXLong
by NaughtyPines
BOUGHT VXX SEPT 16TH 13/MAY 13TH 18 SHORT CALL DIAGONALLayering on another long volatility setup here on this dip below 17.50 in VXX. (See Post below as to how to work this "poor man's covered call"). Unfortunately, there are virtually no metrics to provide with a diagonal, such as probability of profit, since it will vary depending on how much credit you collect during the life of the setup, when and how much VXX pops during its "lifetime", and when you chose to take your money and run ... . The one metric that can be provided is the fact that this setup cost $413/contract to put on, which is the extent of your loss if you allow your long call to expire worthless in September (in which case VXX would have to be below 13 at expiration). Naturally, I intend to bail long before that ... .
AMEX:VXXLong
by NaughtyPines
WHAT I'M LOOKING AT NEXT WEEK: MON, EWZ, VIX PRODUCTS, FXEWith VIX at sub-14 levels and without much on the earnings calendar that is ideally playable with options from a premium selling standpoint, next week is likely to be a schnooze in the absence of a broad market volatility pop. Nevertheless, there are a couple of plays I might consider. MON: MON announces earnings on April 6th before market open. With an implied volatility rank of 58 and implied volatility of 32, it's not looking all that sexy for premium selling at the moment, with the preferred rank/IV metrics being >70 and >50, respectively. Nevertheless, the run-of-the-mill short strangle is offering up more than 1.00 credit ($100)/contract in premium at the moment, so it might be a worthwhile play (April 15th 81.5/94 short strangle). EWZ: The Brazil ETF still has a bit of "kick" in it, with implied volatility rank at 72 and implied volatility at 58. For lack of premium selling elsewhere and to offset in part a tested iron fly setup I have on (see Post below), I've dispersed risk by laddering setups in this underlying (short strangles/iron condors) through several expiries, which doesn't tie up much buying power given the price of the underlying. VIX/VXX: With VIX at these levels, I'm considering loading additional long positions here, although I don't want to go all crazy large at once. My setup of choice has been VXX long-dated diagonals/synthetic longs/poor man's covered calls with the back month long option in the September expiry, which allows me plenty of time to be right without having to leg into and out of, for example, short put verticals repeatedly. This also allows me to "swim with the tide" with the short call, since we're in contango here, which exerts a downward pressure on price (although this also affects the value of the long-dated option in the short term). (See VXX Posts, below). As a side note, I'm avoiding plays in leveraged products like UVXY and SVXY due to pending SEC regulations that may affect these instruments. Although these regs are mainly focused on 2x and 3x leveraged products, I don't want to be in any leveraged product with a long-term setup whose liquidity and/or viability might be affected by implementation of the regs. FXE: With the Euro hovering slightly below my sell area (1.14), I'm looking at getting into the Euro proxy FXE with a short play of some kind going forward. However, it may pay to be patient here, since we've have had "dovish gruntings" from the Fed which may put a damper on Greenback strength for a bit of time, as well as some modestly positive ECB data. As compared to spot, I could still potentially pull the trigger on a short FXE setup of some kind here, steering well clear of recent strength areas (e.g., 8/24 "risk off" spike to 114.81 or the Fib line at 116-ish).
AMEX:FXE
by NaughtyPines
ROLLING: VXX MAY 6TH 21 SHORT CALL TO MAY 20TH 21 SHORT CALLI'm rolling the May 6th 21 short call of this setup to the May 20th 21 short call for an additional $23 credit, as the May 6th had lost a good deal of its value ... . The long-dated option leg of the setup cost a $752 debit when I put it on, and I've collected a net of $229 in credits so far -- about 30% the value of the long option. Naturally, as price moves toward the long option, its value decreases, so the entire setup as of right now is "in the red" ... .
AMEX:VXX
by NaughtyPines
COVERING IWM POOR MAN'S COVERED CALL/PWCC CRITIQUEWith this upmove here, I'm getting out of this long-term play while I can for basically scratch. Here's my critique on this methodology ... . Pro's: (1) The strategy is great as a long-term play for a core position (for example, in an index ETF like SPY or in TLT), particularly if you value simplicity and don't want to be legging into and out of spreads or iron condors repeatedly. Basically, you roll the short call over time, reducing the cost basis in your synthetic, long-dated long call, while leaving the long call alone. (2) It's far cheaper than doing a standard covered call, where you'd have to buy 100 shares of IWM at a cost of some $11k or so. (3) As compared to a standard covered call, you also get to "pick your stock price" by selecting a far OTM strike to sub in for your stock. (4) Since you leave the long call alone, you basically only pay for fees/commissions for the rolling of the short call after setup. Con's: (1) Depending how far OTM and how distant in time you go with your long-dated option, the strategy is pricey to initiate and keep on, particularly if you have a smaller sized account. (2) The strategy is best hedged with an oppositional setup (in this case, a poor man's covered put), so that you can take advantage of price movement either way for the duration of the setup. However, you pay a debit to get into both sides, so you don't get one side "margin" free as you would with, for example, an iron condor.
AMEX:IWM
by NaughtyPines
TRADE IDEA: VXX SYNTHETIC/POOR MAN'S COVERED CALLSynthetic covered calls using options are a good way to utilize capital efficiently as compared to buying the underlying outright and initiating, for example, a covered call. Were you to buy 100 shares of VXX at $14, it would cost $1400, with the current value of the short call reducing that cost basis by about $160, so it would cost around $1240 to put on, as compared to the $585 or so per contract to initiate this position. Moreover, you'd naturally have to wait until VXX struck $14 to get in at $14/share, so a synthetic gives you the added advantage of your being able to kind of "pick your price" and/or cost basis for the underlying, even though it's just a "synthetic" price. Here, the September 16th 14 long call stands in for the stock (since it's mostly made up of intrinsic value), against which I sell calls to reduce my cost basis in the long option over time, the goal being to take off the entire setup in profit when the total credits collected for the short call (and any rolls) + the current price of the long option exceeds what I paid for the original setup. Here are the metrics: Sep 16th Long Call/April 15th 21 Short Call Probability of Profit: Unknown Max Profit: Unknown Buying Power Effect: $585/contract (debit) Unfortunately, the probability of profit and the max profit are unknown for this setup from the get go, since exactly how much credit you can collect for the rolling of the 21 short call in the months after setup is unknown and will vary over time. It is also possible that, depending on the price movement in the underlying. I would also note that VXX, by nature, generally suffers from contango, so its price will naturally decline over time in the absence of backwardation. Consequently, it's entirely possible that price could break 14 at some point going forward. Naturally, that's okay as long as the amount of credit you receive for the rolls of the short call exceeds what you paid for the long call (currently, $745) and, of course, I'm assuming that price in VXX will be somewhat above 14 for the duration of the trade.
AMEX:VXXLong
by NaughtyPines
2
IWM POOR MAN'S COVERED CALL -- CONTINUEDThis is a continuation of the post, below, which was getting a bit "long in the tooth." To make a long story short, I put on this setup at the end of December, originally as an Aug 19th 97 Long Call/Feb 15th 115 short call. Since that time, I've been rolling the short call up and out, out and sideways, out and down, or down within the same expiry, racking up credits against the Aug 19th 97 long call, which is serving as a "stock substitute," since it is made up almost entirely of intrinsic value at this point in time. The notion is to work the setup like a covered call, reducing your cost basis in the long option over time by selling calls against it, and then exiting the trade in profit when the total of the credits received + the current price of the long option exceeds what you paid to put the setup on originally ... . I'm getting close, but I'm not quite there yet, largely due to the fact that we haven't seen a move back toward where I entered ... . In any event, today I closed the April 15th 101 short call for a 2.50 debit in order sell a call closer in time, but farther away from current price: the April 1st 103.5 for a .99 credit.
AMEX:IWM
by NaughtyPines
IWM POOR MAN'S COVERED CALL IDEAI previously described this setup in the post below. I would ordinarily do it in SPY, but I have SPY iron condor setups on and IWM is a good instrument to play with this strategy, since it is the index ETF with the smallest value among SPY, IWM, QQQ, and DIA. Here's the setup: Aug 19th 97 long call Feb 19th 115 short call Entire Package: 16.83 debit ($1683/contract) Notes: (1) Look to take the setup off in its entirety if profit reaches 50% of the credit received for the short call. In this case, the credit received was 2.77, so look to take it off when profit reaches $138 or so. (2) You can roll the short call out for additional credit should that be profitable, keeping the long call in place, but I generally prefer not letting the long call get to less than 150 days out or so to ensure that the vast majority of its value remains intrinsic.
AMEX:IWM
by NaughtyPines
OPTIONS TIP: THE "POOR MAN'S COVERED CALL"As I'm waiting to dry some powder out between earnings seasons, I'm boning up on options setup fundamentals (doesn't hurt to go over them now and again), new potential trading setup ideas and the like ... . I like this one where I just don't feel like tying up the buying power on an ordinary covered call ... . It's basically an uber long diagonal: www.dough.com A "poor man's covered call" (PMCC) could potentially be a better, long-term background trade than iron condors in index ETFs since you basically set it up and largely just manage the front month short call. That being said, it ain't cheap to put on (even though it's cheaper than a regular covered call) ... .
AMEX:SPY
by NaughtyPines