Selling ITM Call Options - Buying and offering to sell a stock for less to make money? Yes please!
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- Опубликовано: 27 июл 2024
- #optionincome #monthlyincome #calloption
Buying a stock and offering to sell it for less! Is it possible to make money that way? Yes! It will even offer you some protection. Let me show you how! If you are new to options this might sound strange but it will change how you look at options. I will show you I like to use ITM (In the money) call options to generate returns. We also discuss option Delta and how you can use it to spot a potential trade. This strategy works on any platform - Fidelity, Etrade, Robinhood.
0:00 Intro
0:28 The natural way
2:20 The ITM way
4:28 Delta explanation
8:50 Option Chain ITM vs OTM
12:35 When this occurs
14:45 INTC example trade
Ok...now I understand how ITM works. Much appreciated.
You make me excited to try to sell puts or call options. Haven't squeezed the trigger yet. Keep the videos coming. Thanks, Dave
Thank you. No need to force it. Study until ready!
This is the first time I see this on RUclips. Thanks for laying out everything so clearly!
Hi Lille. Thanks for the feedback! Hope it helps.
Thank you for this video (and your others). I feel you are one of the few actual investors explaining logical, sustainable option strategies. Too many others are making trades akin to gambling. Please keep going. This is good information.
Thanks Leigh! I appreciate the comment and the support.
I have a cuestión when I sell a call in the money it have to reach the break even price or the streak price I chose to be a sign ????? Thanks 🙏
Loved the INTC tip. Looks solid. I wish I watched this 3 days ago before INTC reported 2 days ago and the floor dropped out, lol.
Man I missed the boat, now I have to wait another 3 months.
That INTC call was a disaster. I've owned INTC for a long time and liked the "value" but that was an ugly miss. Buying a few PUTs last Monday would have made me feel a bit better... alas.
If you add the extrinsic value column it makes it easy to understand 😊 thanks for another great lesson
Excellent video. Thanks.
I’ve beaten S&P500 by 20% just by buying the top 10 and selling in the money calls and rolling them until the return goes below 10% annualized. It’s a great strategy.
Nice! Top ten performing stocks?
@@wealthadventures I selected based on market cap, but I added more to those that I thought were undervalued, META and NVDA had outstanding returns because I entered them at the bottom and managed to roll up and out for a while.
@@NavShay Thanks for sharing. Keep it up!
Good, now start a hedge fund and charge a 2&20.
Thank you , I learned so much, and new ways to think.
Glad it helped!
Nice explanation. Thank you
Thanks for watching!
Great observation about INTC earnings.
Thanks!
Like the info and concept. It would be great to see a flow of these multiple trades against the same stock to really grasp the long-term potential. Perhaps in a spreadsheet format.
Hello! Let me think about how to illustrate it the best. This type of trade limits your upside and is income focused for sure.
@@wealthadventures so with ur example of the buy at $100 sell 103 call and it goes to 107 and u look to roll to avoid assignment or close but pay 750 how would u be able to open again to get 800? if u were able to sell another call? so u ve had situations where u were able to close and open again for some profit??
@@Eastbaypisces This might help to understand:
ruclips.net/video/dS7LsbPsf7U/видео.html
Rolling options for credit is important to understand.
good explanation
Thanks!
I've used this strategy and it makes a lot of sense if you want to get in and out quickly. I also like to add in the dividend capture at the same time.
I like it and still use it... but now that cash is paying 5% I find myself using it less.
@@wealthadventures I've been laddering 17 week T-bills this year with no risk, 5%+ returns and a SWAN feeling.
Love your videos. Please keep them coming. Please let me know if the below strategy makes sense around earnings.
A) Sell covered calls at an ITM Strike price just before earnings and collect a nice premium.
B) Say the stock drops significantly below the strike price after earnings (and does not recover or comes close to the strike price at expiration)
C) At expiration, you get to keep the premium and also the 100 shares (because the stock was not called away).
Hi. Thanks for watching. What you have outlined is the idea behind an ITM call. Earnings will provide additional premium. The risk of course is that picking a direction is largely speculative so be sure that you are okay with your strike on the trade.
@@wealthadventuresthe stock has to hit the strike price to b called away correct? Even for itm calls
Hello Dave. I recently came across your excellent videos. They are very explanatory, instructive, and insightful. Can you elaborate/detail on the 42.11% annual yield you calculated at 17:21 of the video in case of early assignment? Did the early assignment happen right after the ex-div date? Thanks
Hi. That was a few years back but looks like... It was not assigned early as INTC continued to fall. The calculation would be something along ($155.30 adjusted premium/$19230 basis/7 days held*365 = 42.11%) for early assignment. Collect $155.30 over 7 days after adjusting for selling at the strike price. Repeat all year long and get 42.11%. Make sense?
Great videos ! What level of options do you need to be on Fidelity in order to see the delta?
Hi. As long as you have option trading turned on you should be able to get to the option chain to see the delta. If you go under [News and Research]->[Options] it should take you to the option chain. Type in your ticker and you should see your delta values. Good luck!
Thanks for sharing. Question: does : ITM covered call mean the strike price is below stock price?
Hi Coach. You got it. For a call option, ITM means the strike price is below the stock price and therefore has value if the option was exercised. Opposite is true for a put option - It is ITM if the strike price is above the stock price.
Love your videos. If you sell your example at a loss, do you get to write the loss off on taxes? I understand the premium you collected is ordinary income, but can you subtract the stock loss from that…so really, from a tax standpoint, you’re only paying ord. Tax rate on the “premium-loss” ($655-$500 in your first example)? TY.
Hi. That is correct. The overall gain will be your tax liability. If you make 655 in premium for selling the option but have a 500 loss from selling the stock you would have a $155 tax liability. Thanks for watching! Appreciate it.
Ty
Welcome! And thanks for watching.
Dave, Thank you for this awesome video. Is there a spreadsheet for ITM call profit and loss cal? If you do would you mind sharing it?
Hi. I think this one should work but if you run into any issues, let me know.
ruclips.net/video/aSyylRRDpLE/видео.html
Hmmm... If you sold a Put just below strike... didn't get assigned... made some money. Ok, tried again next week... got assigned, then did "your" strategy right under market having premium from the Put and the Call, wouldn't that make for some nice numbers... add in the ex-div... and wishful thinking early assignment. Do the Put late on Friday and the Call on Monday so there would be little to no Theta working against you.
Hi. Lots of interesting ways to play ITM calls.
Been doing this lately with ABNB. Large position (1000k shares) and I’m bullish on the company. Usually sell 5$ in the money two weeks out. Roughly 500$ extrinsic per call. 5k take home every time. Set your clock to it. It’s been VERY volatile but I’m an edgy trader.
Hello and wow! That is a big bet on ABNB. I imagine a crazy ride recently with the ups and downs. I do like it long term and have a small stake. Hope it works out for you.
Do you buy back your ITM calls before expiration? If so, do you wait until the day of expiration?
This is exactly what I am thinking with tesla. Take 150k and sell CC (5 contracts/week) SLIGHTLY OTM. Rt now those calls are about $5. I think I can bank 2500 a pop and just keep buying it back if shares get assigned. Tsla weeks of 10-15 pops are done. This is not 2020 anymore. Sound about right???
I mean buy the 500 shares back not buy the calls back!!!
I have been selling ITM covered calls on few different stocks and doing pretty well. Could you explain the advantage of selling ITM CC versus cash secured OTM Put options. Yes, the risk profiles are the same and you deploy less capital when selling puts. Other reasons? thank you!
Hi. Main difference is you own the stock so you will receive the dividends. That can be a nice tax advantage if/when the dividend is qualified. However, tax treatment on those dividends when selling ITM can be negated so be aware... if that is the goal.
There seems to be this thought process that if you buy an otm call that you should just look at what the result will be at expiration but we also should also look at what may happen before expiration. I see on the Apple option chain the following as an example.
Share price $149.80
Expiration 28 days away
Strike 165
Premium paid to buy is 30 cents per share( $30 per contract)
Delta about 7 percent
So yes at expiration if share price is under 165 you lose your 30 cents per share you paid However lets say within a day or 2 of buying the call the share price goes up by $1. With a delta of 7 percent your option value would go up by 7 cents to 37 cents. Next you sell to close this option. Your return is about 23 percent.
Yes... good point.
Thanks for your education. On your Apple example, lets say Purchase Price was $150 and Sold ITM Covered Call at $145. At expiration stock was at $147 and it is called away. Now my question is, can you do the same trade again for Apple within 30 days or will it be considered as Wash Sale as you bought stock at $150 and sold it as loss for $147.
Hi. Since you sold at a loss, you would want to wait 30 days to clear any wash sale rules.
Thx
Thanks for your great videos. In your Apple example, why buy the stock for 150 and collect only 1.00 (net) on a 145 call instead of just selling a 145 cash secured put for 1.52 ? With the call, you make 1.00 if the stock goes up and it's called away. With the put, you would make 1.52. If the stock goes below the 145 strike, your call expires worthless and you keep your 144 basis stock. Whereas, the 145 put would expire in the money, and you end up holding 143.48 basis stock. What am I missing here ?
Hi Kevin. You are not missing anything and you bring up a good point. This was just an example to show people how an ITM call option would work. This was also on the weekend I believe so the option data is not precise. Typically I'm looking at doing this in a market with a dividend in play where I want control of the shares or when I own the stock and want to cash out. If this was simply an income play on selling the call you are right to focus on the basis.
@@wealthadventures Thanks, Dave. I must say that it is very refreshing to hear your grown-up perspectives on trading options. Your videos are very well produced, clear and to the point. Personally, I trade mostly cash-secured puts and put spreads in SPY, as a "bond replacement strategy" to replace the interest income that disappeared in 2020. I follow most of the trading philosophies and guidelines of the Tastytrade guys and gals. In fact, I've met all of them on a couple occasions. Keep up the good work !!
@@kevink7777 Thanks. I appreciate that. The Tastytrade folks put out good content. Where did you meet up with them?
@@wealthadventures I met them at a Money Show event in Orlando, and again in Jacksonville, FL at one of their road shows. FYI, they just announced a show on July 16 in Chicago, if that's close to you. Orlando Money show is the end of October, and I'm pretty sure they will be there. Btw, Any tips on far otm puts near expiration ? I'm short the SPY 417, May 20. Rollout or take the stock and write covered calls ? That's my dilemma. If I roll... how far out ? Too many choices.
@@kevink7777 I'm in the same boat with SPY puts. I've been rolling down but I've also taken assignment of 2 contracts. I've been pretty aggressive with the strikes on the sold calls which has helped. I've been selling out about 3 weeks and I have been selling a second naked call once I reach about 75% of the premium. Kicking and screaming like a baby lol. Not recommending this strategy but I just don't see a quick reversal at this point. When I take assignment I tend to sell 3 week expiration and target 10-12% annualized return but I'm being more aggressive recently. When I roll I tend to roll out about 1 month and down as far as I can to get to breakeven. This isn't always possible when the option is so far ITM. I will check out the Orlando Money Show. Thanks for the tip!
WA, do you think its wise to do this on PMCC's? for instance, I have INTC ITM Sep 2025 $25.00 options, and I start selling 70delta ITM calls every 4 weeks. i know I wont benefit from the dividend payments. plus I could be at risk re assignment if not monitored properly. Any thoughts? this is a great video. i am curious about the ITM delta you generally apply and also the DTE average you use, or does it vary?
Hi. I typically use this with REITS or stocks with larger dividends. I tend to go out 3-6 months and look for a combination of distributions and premium that hits my goal. I'm flexible on my delta selection since I'm driving the initial trade just looking at total return. I would not do it with a PMCC. I think that could get dicey. But i also have not explored the idea.
I really like your videos, just came across your channel! Question - is there any tax benefit to selling ITM calls (that do get called away)? I but Intel for $28 a share, I sell an ITM call for $26...does this strategy help with avoiding capital gains (had I instead sold a OTM call for $29 a share - which got assigned)?
Hi Wayne. I'm not a tax advisor but I don't see a benefit. You still have the overall gain/loss. If you collect $500 from selling the option but have a $200 stock loss, you will have a $300 overall taxable gain. Now if you end up holding the stock for over 1 year you will have the benefit of it becoming a long term capital gain. Thanks for watching!
@@wealthadventures Thanks so much for the quick response! Can't wait to more content from you. Have a great day!
Wealth Adventures
Hi. Are you asking about this as an owner of the option or as someone that sold the option? Like you bought a call or sold a call?
Hi Dave,
I sold 1 Crowdstrike put option @ $155 then it was put to me after hours trading.
The price increased rapidly, and now I'm rolling out weekly call options to take advantage of the price increase.
Now the price of Crowdestrike is $196.30 [10 November 2023] and the premium for the next week covered call is like $30.
With such a price increase I must be able to make more money out of this fantastic $ run?
Can you give me some guidance please.
I'm a beginner learning from your tutorials.
Kind regards,
Ray.
England.
Dave, Question... When writing a Put or Call could you get "put the stock" or "called away" early? or only at final date. Thanks, Dave
Hey Dave. When you are the seller, you have the obligation to sell the stock if it is a call option and the obligation to buy the stock if it is a put option. The buyer can exercise the option at any time. However, I would say this happens rarely and usually only when a x-dividend date is about to occur. In the example of INTC in the video it did get exercised yesterday so that the buyer could collect the dividend. This worked out for me because I still got to collect the initial premium and it freed up the money for use in another trade. I would say (for me) it happens between 1-2% of the time.
@@wealthadventures Thank you!! Love your videos.
Thank for the content, well done. Subscribed. Would you say this is the strategy for slightly bearish market...
Hi! Yes. Any sold call is essentially bearish but selling an ITM or ATM call would be a bear move. I think of it like a form of protection when thinking about it from an income perspective.
@@wealthadventures thank you for providing me with insight
When you sell an in the money call which way to do wish the stock price to go?
You want it to go down slightly below the strike price ideally but it just means that you don't expect it to go up
If you're selling Covered for yearly return, it's easy to get 20% yearly selling high IV ITM calls. Assuming you're buying and selling based on timing, meaning don't buy on tops and sell on bottoms.
At times it can feel easy but certainly 2022 has been a tough market at times. Agree that patience is key at the moment.👍
is that what u ve been doing? which stocks have u been using??
Can you do a video on, assignment of a option.
The option takes off within days of assignment.
So how do maximise the full potential of your good fortune?
Kind regards,
Ray
UK
Hi. Are you asking about this as an owner of the option or as someone that sold the option? Like you bought a call or sold a call?
Can you explain how your annual return is 42.11% if early assigned? i didn't get that part. Also how did you get to 22.4% with the dividend if the dividend was around 5.5%?
Hi. The 42.11% would be IF the shares were called away due to the x-div date on 11/4. In that case I would have only been in the trade for 7 days and I would walk with $155.30 from the gain on the Premium - Stock loss ($585.30-(48.075-47)*400)=$155.30... So making $155.30 over 7 days on $19230 worth of stock is 42.1% ($155.30/$19230/7*365 = 42.1%).
The profit of that $155.30 plus the dividend on 11/4 of $140 is $295.30. Assuming the shares get called at expiration (25 days later), the annualized return of that profit would be (295.30/19230/25*365 = 22.4%). Make sense? Annualizing these returns gives us a comparison to other investments so I like that approach.
Hey guys I’m kinda new to this whole thing I’m trying to figure out for example if I sell a call option at the strike price of .5 and the current share price is .78 do i get to keep the premium if the contract does NOT hit the .5 or am I betting the share price will drop under .5 and that’s how I get to keep the premium and the contract expires, kinda confused about a contract selling a call option under the current share price? Thanks
If you sell a call at 0.5, the best case is the stock moves to 0.5. You would keep the premium and you would keep your shares. Same if it falls below 0.5. If it stays above 0.5, you could still close your sold call contract prior to expiration to keep your shares and pay the price to close the position... but if you do nothing, they will take your shares at 0.5 at expiration... but you would keep your initial premium collected.
Hi and thanks for the video. I don't understand, in the INTC example, when you say if it goes to $46 and you buy the strike at $47 that here is the downside. Is it not the case that you already sold the shares (assigned) you own at 47 at expiration and got the premium and netted a gain because the premium was so good.
Ok, so what I think could be meant is that there is a risk of not being assigned and the stock drops to a lower price. It can't be assumed that the strike at expiration is automatic. That a trap for novices and could easily be missed by novices. Have I got that right?
Hey. Risk is that the stock drops well below the strike to the point where you keep the stock and have an overall loss. For example, INTC now sits at $35/share so this trade has not turned out well in the long run. Good strategy but ugly results with this one!
@@wealthadventures Sure, bad trade, and could easily be missed by someone watching this and making this mistake. A follow-up video to emphasize the risk could help. At least there are these comments if that doesn't happen.
If you sell a deep in the money call and there is a dividend, there is a chance that you might get an early excercise.
Yes. Typically, you can avoid it by adding time to the option.
when you do ITM covered call, when is the best time to do it? When the price is rising or falling? When its on an up or down day? Thanks. I enjoy your videos
Hi. With any CC, the goal is to have the option expire slightly out of the money or at the money. This is really not something we can do but sometimes we get lucky. The best time for ITM CC's is when you think the stock will be declining. Again, hard to predict! I like to use ITM calls on high yielding dividend stocks as a way to "de-risk" my position. For example, stock XYZ that yields 5% and pays monthly... That could be a setup to buy some shares, sell an ITM call that still has a nice positive return when combined with the dividend, and protect my position from a small % drop in the stock.
Thank you for your video. How about selling ITM Call Options with LEAPS (a poor man's covered call. Having a LEAP instead of the actual stock and selling ITM covered calls against it). Would that work?
Hi. It could work but if the stock takes off you may find yourself out of the trade quickly. If it tanks, you are sort of cutting off your legs... and eating them. Like the snake eating its tail lol. It would be fun to model a few trades.
thanks. great idea!
record it a little louder? can t hear in car very well. can hear other vids.
Thanks Miike! And I will work on the volume. Appreciate the feedback.
yea i was gonna say same thing
When u say “early assignment” do you mean that you had to sell the stock at the strike price? If strike price is below purchase price how do you make 42%?
Hi. Early assignment means they call the shares early at the strike price. In this case, I bought shares at $48 and offered to sell them at $47. I received a premium of $147/100 shares so if they call the shares I would make $47/contract ($147-$100). The sooner they call them, the higher my ANNUALIZED return would be. Make sense?
I’m new to options and really like your channel! So I have a question about selling covered calls.. when I’m checking out option chains it seems like the strike prices that are well below ITM have high premiums. Which makes sense but my question is could I sell one of those for the high premium an then later roll it out to a more sensible strike price🤷🏼♂️
Hi. Suppose you have a stock at 50 and you SELL a 47 call option for $350. That $350 would be $300 of real value (intrinsic value) since it is $3 in the money and $50 of time value (or extrinsic value). Suppose it expires in 3 weeks. A week later the stock is still at $50. The call option might be worth $335 now since time has ticked away but it still has $300 of real value. If you wanted to roll it now you could "buy to close" the option for $335 and take your $15 overall gain and sell your next option. If you wanted to "sell to open" a $51 option as the second leg of your roll you may get $25 for that OTM call option. So in that case it worked. However, if after that first week the stock had risen from $50 to $52 that plan would likely fall apart. In that case, if you decided to roll the option you would have to "buy to close" for about $535 since it now has $5 of real value so you would have lost $185 on the first leg. You could "sell to open" your next option as part of the roll but likely at a loss unless you sold it ITM again for that BIG premium. Make sense? Those large premiums are only large because they have REAL value baked in the option. Sorry for the long explanation!
I appreciate the long answer.. Thank you! You’ve definitely helped me get started with options an actually understanding it! Greatly appreciated!
@@Dont-Stop2DaTop Anytime! Good luck.
To answer this answer, and as a trader who's traded options for 2 decades and doing itm covered calls very often to protect against market declines, you likely won't be able to roll extremely deep itm calls for a credit, they will either cost zero PLUS commissions & exchange fees or even incur a net debit because of slippage and wide bid/ask spreads. Which means it makes no sense to roll the options, you will do much better just letting them get assigned, your stocks called away, and then you start all over from scratch again
Dave, what's a good place to find the X Dividend date on stocks?
Hi. Your brokerage should have something you can add to show you the ex-date. On Fidelity it is called "dividend view" and Etrade lets you customize your view to add it. Seeking Alpha has it under here:
seekingalpha.com/symbol/SPY/dividends/scorecard
You can also switch to the history tab under dividends to see the ex-date from the previous year if the current date has not been announced.
@@wealthadventures thanks you, it might be staring at me on my TOS platform, I wi check it there first. Thanks.
Evert time I've tried this (with the stock going ex-dividend), I've gotten my option exercised. Maybe I'll try a different brokerage.
Hello! Not necessarily a bad outcome depending on your expiration date. The reason the option gets exercised is because the dividend value exceeds the remaining time value (extrinsic value). Maybe look at selling the option with the expiration date out 1-2 weeks beyond the Ex-date if you want to keep it. Or roll it prior to the ex-div date out a few more weeks if you really want the dividend. Brokerage should not matter.
Thanks for educational video's. My broker has a realistic paper trading platform. I paper traded an ITM covered call on an ETF. Within 5 minutes of selling the call, it was assigned, probably due to an arbitrage trade simulation, which created a small loss! My point is there is always a risk of any early assignment when selling ITM.
Hi. You are giving the right for someone to call it away. Based on my experience, it is rare. Just make sure it makes sense when you execute the trade. That is, puts money in your pocket.
Your experience with paper trading, demonstrates just how far from reality, paper trading really is. My in the money options RARELY get exercised early.
@@thomasd5488 oh really?? why is that? what platform u using??
@@Eastbaypisces Wealth Adventures also said it is rare.
As for my experience with in the money Covered Call, the closer you get to expiration day, the less extrinsic value there is in the premium, and the greater the chances of early exercise.
The buyer of the option has two choices, before expiration.
1) Sell the CC for either a loss, or a gain.
2) Exercise the CC to take possession of the shares.
If he exercises early, he loses any extrinsic value that is left in the option premium. He would make MORE money selling, instead of exercising.
@@thomasd5488 i could also buy it back myself and close it out if i feel like its going down too much
Can I sell a naked call on 52 week high- rather then short as my thesis is bullish .
Hi. If you are bullish you would not want to sell a naked call.
Greetings, I will appreciate if you could share your thought whether it is illegal to buy call and sell put of the stock? Example sold a put for SQQQ for January 2024. Is legal to buy let say Call for SQQQ with expiration day of january 2024? I am trying to avoid any conflict with IRS (or sale wash which I do not understand very well)
Morning. It is fine to buy a call and sell a put on the same stock. If you do it at the same strike price and expiration it is a synthetic long. Here is a video about it that may help:
ruclips.net/video/9GgeSn5BeeI/видео.html
Good luck!
@@wealthadventures Thanks for the quick response
INTC is a stock I’ve owned a long time. Nothing but frustration lately especially with the dividend cut. Hopefully they get things turned around.
Hi. I was a big fan of INTC but dumped the majority this past summer. They can still turn it around and the dividend cut may help that turn around for long term investors. If I see progress I will be a buyer again.
@@wealthadventures no, they can't, and no, they didn't.
@@aaron6806 It is sloooowly turning upward...
I sold 1 Crowdstrike put option @ $155 then it was put to me after hours trading.
The price increased rapidly, and now I'm rolling out weekly call options to take advantage of the price increase.
Now the price of Crowdestrike is $196.30 [10 November 2023] and the premium for the next week covered call is like $30.
With such a price increase I must be able to make more money out of this fantastic $ run?
Can you give me some guidance please.
I'm a beginner learning from your tutorials.
Kind regards,
Ray.
England.
What is the current sold call that you have in place? You can always roll out and up. However, at some point, if the stock gets away from you and is well above your strike, you will need to pay to close it at a loss or let it get called away. That is the nature of options.
but if u bought the 145 and it dropped to 144 before exp dont u have to buy it back(close out contract)before u could sell it again at 145 for $100?
Hi. Since this is an example with a covered call I would already own the shares. If it dropped to 144, I would keep the shares at expiration since it would be OTM and could sell a new call option.
oh yea u right im tripping, i was thinking cuz its below ur strike but yea ur right it is OTM nvrmnd
How is this taxed? I assume net profit as STCG and can’t write off the capital loss since you still finished at a profit?
Hello! You are correct. You can take the premium and subtract the loss on the stock trade to get your short term capital gain.
Dave,
If I buy a stock for $50 and sell the CC for $49, is there still a chance it will be assigned? Also, have you had stocks taken away from you prior to your 30 days being expended, lets say half way through the trade?
Hi Greg. Except for rare occasions, options only get exercised early the day prior to an ex-dividend date. If the dividend exceeds the extrinsic value it should get exercised. For example if an option is $1 ITM and trading for $1.25 but a $0.40 dividend is due it should get exercised. The $1 plus $0.40 is greater than the $1.25. Aside from that, it makes sense for anyone owning an ITM option to sell it (vs exercising) since they will get to collect more money and that should not effect you in the majority of cases. For example, if you buy a stock at $50 and sell the $49 call and it was immediately exercised it would net them $100 but if they sold it on the market they would get $100 + extrinsic value. That extrinsic value is time value that is still in the option. That means it rarely occurs and that is the reason you can sell deep ITM options without worry. Sorry long answer but hard to explain any other way! Make sense?
@@wealthadventures and if they exercise early then you get to keep the entire premium anyways and get your capitol back early to invest elsewhere. Win win
@@86753091974 Yup! The other side of the equation works well also!👍
@@wealthadventures Greetings, Sorry I do not understand your comment here "For example, if you buy a stock at $50 and sell the $49 call and it was immediately exercised it would net them $100 but if they sold it on the market they would get $100 + extrinsic value. That extrinsic value is time value that is still in the option. That means it rarely occurs and that is the reason you can sell deep ITM options without worry. Sorry long answer but hard to explain any other way! Make sense?' It seems to me if they exercise, option will be closed. I like your idea ITM though
@@abuyusuf8374 Exercise means they take the stock from you at the strike price. If the stock price is $50...They get the stock at $49 but probably paid $125 for the option. Instead they can sell the option for $125 and make an extra $25.
I don't get one thing. When you sell ITM call how is it that you don't get automatically assigned? Initially I thought options get assigned at expiration but now I know they get assigned early too.
Hi. If you sell an option you get the value of how much it is in the money (Intrinsic value) PLUS time value till expiration. So if it is 5 ITM it would be worth $500 PLUS time value... Lets say $550 in total. If the person that just bought it decided to take assignment, they would get the 100 shares at the strike price. Since it is currently $5 ITM, they would get $500 of value after just paying $550 for the option. Instead, they would sell the option back to the market and get $550. Make sense? The option is worth more then taking assignment.
@@wealthadventures Thank you for the explanation! That makes sense. Does that mean that ITM call options are bearish? If current price is $150 and I sell $100 call option then I'd want the price to drop below $100 to keep that chunky premium, correct? So it would be a good strategy to sell ITM call on a stock that you expect poor earnings for example or after ex date and pick expiration date after the earning date, correct?
@@korzenik81 Any sold call is a bearish call. OTM would be a little bearish and ITM would be full bear mode.
When selling in the money covered calls, is there always a chance of getting called out at expiration, or does the price of the asset have to drop to that strike price in order to get called out?
Hi. If the stock price remains above the strike price at expiration, it will get called away. It may also get called early due to an ex-dividend date when above the strike price. If it falls below your strike price it should not get called (why call it when you can buy it for less).
@@wealthadventures thanks! And it will get called away at the strike price, correct? Not the current market value? Like if I sold an in the money covered cal with a strike price at $90, but the option expires with the market value at $93. Would it get called away at $90 or $93?
@@cutesiekitty Correct! When you sell a call (or a put), you are offering to sell it at the strike price (or buy it at the strike price for a put).
@@wealthadventures Is dividend day same as the earning date? or how to know it?
@@abuyusuf8374 You can find that info in many places. I use seeking alpha for much of it.
thanks for the vid! Dave, can you or someone else explain if shares fall to 46, your statement you might just keep the sh of iNTC because he like the shares at 47? would now the avg cost be the 48 paid - premium you received which is 48 - 1.47 = 4.63 per sh? ??? thanks all!
Hi. I paid $48/share. I sold the 47 call for $1.47. That means I collected $147 per contract or $1.47/share. If I keep those shares because the option expires below the 47 strike price, my adjusted BE price would be 48-1.47=46.53. Make sense?
@@wealthadventures yes it does! i just misinterpreted you statement that you kept the shares at 47 when you actually got them for essentially 46.53! (plus my typo as I meat to say 46.53 no 4.63) thanks for getting back to me...really enjoy watching your channel!!!
There is a lot to like about this method. But I haven't been able to figure out if part of the premium you'd collect selling an ITM call (or even a DITM call) would be considered return on capital (ROC)? If you think about it, you pay $10 for a stock and then sell a $9 strike call for $1.50, that means $1 is IV and the remaining EV. Why wouldn't the IV be a ROC? if it wasn't considered as such, you'd be paying taxes on the full $1.50 ???? Any comments on this?
Hi. Not tax advice but option gains will be a capital gain. Stock gains the same. Think of it as 2 different transactions. Nothing would be a ROC. So if you buy 100 shares of stock for 10 and sell it for 9 you would have a $100 loss. If you collect $150 in option premium along the way you would have a $50 taxable gain overall.
@@wealthadventures Ok that makes sense. I'm probably just trying to over complicate things. Do you have a particular setup or trigger for putting on this type of trade?
@@redeyes5568 Not really. It can be used for any stock/ETF based on your view. I tend to gravitate to dividend paying stocks. Instead of selling a PUT, I'll buy the shares and sell an ITM call. I'll sell an expiration out 6-12 months. BTW, this can affect the time period for the dividend becoming qualified.
I need you to help me clarify my situation. I sold it in the money call on Tesla I own the stock it 167. I sold an in the money call for 162. The stock price was 167 when I did it. I got a 9 dollar premium I am a week away from expiration 😢and the stock is now at 177. How would you handle this if it were you thank you.
Hi. It looks like you can roll that out a few months and be fine on the trade. For example, buy to close the current option (with TSLA now at 180) for about $1800 and sell to open a new 7/21 expiration with a 170 strike for ~$2100. That would give you $900 on the first trade and $300 on the new. Your breakeven would be around 155 and you would be offering to sell above your original buy price. Make sense? Just one option.
@@wealthadventures yes thank you it helps to give me a perspective I had never done and in the money called before I actually did it by accident and decided to let it roll and see what happens I was bearish on the stock at the time ,but of course I’m usually wrong lol.
@@g.ajemian4968 Ha! We have all been there. Looks like it may turn out nicely.
@@wealthadventures I find your videos very informative and interesting, I did have an additional question if you would indulge me lol on a poor man’s covered after you have purchased your leaps option and want to start selling short term covered calls what is your cost basis and how does that shift as you continue to make additional sales of call options to capitalize on the strategy thank you. Just for an example if I bought a Leap on Apple at 125 2 years out and apple is currently 175 but I just continue to use Apple’s current price to pick my strikes?
@@g.ajemian4968 Yes. You have the cost of the long call and you are selling calls against that synthetic position based on the price of Apple. Here is video on it that may help:
ruclips.net/video/wvhyj6uyQ-c/видео.html
I bought a call option two days ago, it is now $423 ITM. I have about 10 days to exp, should I sale to close or hold on?
Hi Kenny. Not enough info to really provide an answer but based on the action today I would say that it would have been good to sell and close it out. With big announcements like we had today it is usually best to get profits out of the way but it could have also worked in your favour. Hope it works out!
@@wealthadventures thanks for answer, I have heard people say to wait until just before expiration to close because it could go up! But Miya thing is it could go down too! So I took profits and ran this morning. It was a good half of a trading day. Seems to have slowed down now!
Can you please create a video on selling a put, you then get assigned, and the stock descends rapidly.
I sold 1 $230 Albemarle put, it was assigned to me in out-of-hours trading.
Very quickly the stock descended.
Now the stock is $122.60 [16 November 2023].
How do I rescue this position?
Kind regards,
Ray.
You can't save a trade that's gone this horribly bad. Take the loss and move on. You only do cash covered put selling if you actually WANT to own the stock and think the strike price you sold actually makes a great price to enter into a position
I am trying to learn how to successfully trade options. I bought a call for $19 and it is now $20. It expires in 2 days. Do I sell to close at $19 to profit? I’m a bit confused as to how I close it and make money. Perhaps I would sell to close at $20 and same expiration date?
Hi. If you "bought to open" a call for $19 and want to sell it you would "sell to close" at the current price. If it is now worth $20, you made $1 or $100/contract. You would be selling the contract you bought so the same expiration. Typically, if you click on the holding, it will give you an option to close the contract. Does that help?
@@wealthadventures Thank you for replying. Yes, It helps. Watching your RUclips channel now. Thank you so much!
The sell to close option on $20 is for .60. I bought the $19 call at .68. This is what confuses me.
@@janabennett1434 Ok. That makes more sense. You paid $68 for it and now you would be able to sell it for $60. Even though it moved the right direction, the time decay has eroded the value a bit. I'm guessing the strike price is around $20 as well?
Yes. Strike price was $20. Quite confusing as I thought it would be as simple as speculating correctly and selling at a profit but if the only option of selling it at $20 for .60 it would not be a profit. It expires tomorrow. @@wealthadventures
I need someone to make this make sense to me. I understand the concept but what I don’t get is if I buy xyz stock at $10/share and sell an in the money call at $9 strike price, and the premium is hypothetical $2/share I get that I loose $1/share in value but make an easy $100. What I don’t get is why would someone else buy the call from me? I can’t wrap my head around why you would pay a $2/share premium and then $9/share price when you can currently buy it at $10/share especially if the expiration date is near 🤷♂️
Answer is leverage. Options are an exchange and the buyer gets leverage. As the seller, you get $200 but you give control of 100 shares of stock at $9/share. Seller gets time decay till expiration. Buyer gets a potential return on a bullish move on 100 shares ($1000 value) for only $200.
They could pay less by doing it "at the money" but their probability of expiring in the money goes down. This video explains it:
ruclips.net/video/XAcH1fbvCng/видео.html
But, not mentioned in that video...they can also make money by any positive move prior to expiration and that is a reason you can buy ITM, ATM, or OTM. Make sense? I still primarily buy ITM calls when I'm a buyer.
@@wealthadventures so if I buy a stock at $10 and sell a call with a strike at $10 it’s basically quick money and I just loose upside potential? Kinda makes sense then selling out of the money calls
@@jeffkren136 Yes. That is all true. Another way of thinking about it is that any sold call option is a bearish call. How bearish are you? Max protect = ITM. Minimal hedge = OTM.
This isn’t working out for me. I sold a $47 call on Pfizer and it went. I rolled it out another week so I think I I want it to go down. I’m confused on what is best for me
Hi. What was the date and price when you bought and sold the $47 call? What was the expiration date and the premium you collected? The calculation would be (Premium collected) - ((Price Paid for Stock)-(Call Price))*100 shares = Net Gain. So for example, if you bought the stock at 47.4, sold the 47 call, and collected $100 premium, you would end up with a gain of $100-(47.4-47)*100 = $60. Assuming it gets assigned (called away) you make $60. If it falls below 47, you would keep the $100 and still own the stock at the current price. Does that help at all?
I need help and you may be the guy to further my education. For a price.
Right so.
Could you please do a video on selling in the money put options?
Hi. I will look into it. It is not something that I typically do. I do lots of selling ITM calls but ITM puts are usually a result of rolling down an existing put where I'm trying to avoid assignment of the shares.
Selling in the money put options, is a good strategy when a bear market ends, and a new bull market begins. Selling in the money puts during a bull market is very profitable. There can be a challenge doing this when a bear rally bottom SEEMS to occur, but the bottom of the bear market has not actually been established. Be prepared to roll the in the money put, to an expiration, that is out far enough, to earn a net credit, at each expiration.
You get PAID to add time to your trade, so the strike can eventually reach out of the money.
This also applies when there is a dip, or correction, during a bull market.
Not really a question you have asked, but initially selling FAR out of the money cash secured puts, (delta .10 to .15), during a bear market, is one way to follow a stock down to the bottom. Any time the put is close to your strike price at expiration, you can roll it down, ONE strike price at a time, and out far enough in expiration, to earn a net credit.
As you continue to roll down one strike at a time for a net credit, you are getting PAID to wait for the best price of the shares, before letting the put expire slightly below at the money.
Eventually the share price will level off, trade sideways, and begin rising.
Your in the money put strike will eventually be close enough to the rising share price where you will be comfortable with letting it expire in the money, locking in a share price as close as possible to the bottom price, if you want to own the shares.
If you don't want the shares but only want to collect the income from premiums, then, as the share price rises, sell at the money, or in the money puts, and roll them up, as they become out of the money.
@@thomasd5488 Well put... no pun intended. Thanks Thomas.
@@thomasd5488 Thamks. Tesla was at $167 on Monday and I thought , there is no way in hell this is staying down. So i sold 5 puts agreeing to buy 500 shares at $180. Which was way in the money and a huge risk. But I collected $4575 in premium for the week (technically 4 days because of the Holiday) I am still not out of the woods yet, but it's looking really good that the contracts will expire because the delta is currently .27
@@romeorain of course it is going to expire. The question is, are the $180 puts going to expire in the money, or out of the money.
If Tesla price is below $180, in the last hour on expiration day, you might want to roll the strike out to a farther expiration, far enough to earn a net credit.
Why get assigned at $180, when you could buy the shares for less?
If it goes to the moon roll up for money buy selling more time.
If I own 100 shares of BBBY at $16.57 but I am down about $623, would it make sense to sell a deep in the money $9.00 call for $653.00?
Hello! Let me know if anything I assume here is wrong... Your basis or average buy price is $16.57 for BBBY. If you sell a $9 call we should assume it will get called away since it is deep ITM. So you would sell it for $9 but collect $653. That would give you a sell price of $15.53 so you would have sold for a loss of $104. Part I am unclear on is your basis since you said you are already down $623. Am I missing something?
Yes, I am down because I got assigned at $22.00 a share when I sold a $22.00 put and it dropped even further.
@@sonogirl12345 I've been in that position plenty of times. Not fun but it happens to everyone. I try to only sell puts on stocks I want to own long term for that reason. Like PYPL which was put to me at 240 and now sits at 190...👍
Ok, so would It make sense to collect the premium on the call and loose the stock for $9.00?
@@sonogirl12345 No. Since the stock is at $15.98/share you would be better off selling it. The premium plus sell price would be less ($9.00+$6.53=$15.53). You would need to sell a strike closer to the money to make the math work. However, in my opinion, you should ask yourself if you really want to own BBBY shares first.
Dave, thanks for your great videos. I have been trading the "usual" covered call strategy for years but still get caught at time with the stock dropping low enough to not be able to write a call due to such low premium. Not sure what to do when this happens? At 75 years of age, I use this to supplement our lives! Love it but need some help.
Hi Greg. You can wait it out or you can sell something far out of the money and roll up and out as your strike gets tested. For example, if you bought stock XYZ at 100 and it falls to 80, the 100 30 day option may not be worth it. You might sell the 90 strike at a shorter 2 week expiration and roll it up and out if the stock moves toward 90.
@@wealthadventures thanks Dave. I appreciate it!
Why not just roll yout short position out for more time and money?
Rolling over actually costs more than just letting them get assigned PLUS you will pay a ton in commissions and exchange fees if you have a huge number of options to roll
if you think shit going to go down and you may not want to sell.
is that a real painting behind you?
Ha! Yes it is...Why do you ask?
@@wealthadventures Because it would be interesting... if it were real as opposed to a reproduction print.. Maybe you paint? Maybe you inherited it? Maybe you bought it... at a Gallery? An Auction... a flea Market or Garage Sale.?. Maybe Ebay? Don't tell me it's "Living Spaces". 🤣🤦♂️
@@SimonSozzi7258 My mom is the artist so I guess inherited is about right.😃
@@wealthadventures See that's interesting. And you obviously play sax or is that a Clarinet? Artsy 👍 I've been binge watching Fake or Fortune so my eyes went right to the painting 🖼 🤔 Not a long lost Degas alas. 😅🤦♂️
@@SimonSozzi7258 Son plays the sax and did the intro. Daughter does the animation. Team effort!
Seems like the Intel pattern is still holding hah
Hi. I still think the stock has potential in the long term but... wow. Ugly chart.
I quit Twitter. How else may I contact you?
Hi. Email is listed under the about section on my channel.
I sold and closed my first ITM CC after this video, thank you very much for opening my eyes to this for some extra income on shares im not attached to. It was great. I did notice something I had a question about when visualizing it on optionstrat. If I sold an ITM CC and bought a put at the same strike price, optionstrat showed my max loss and gains capped at $2 with wide breakevens. I'm long stock at $213 I sold the CC at $1 strike for $1.50 and if I were to (lets say hypotheticlly because I saw it and questioned it) buy a put @ $1 for $0.01. On optionstrat visualizer, it shows me that I can collect a net credit of $150 but since I'm long stock, bought a put, and sold a call, what does this do? Your strategy worked great for me and I wasn't assigned but I do understand what happens if I were to be and positioned myself to make a $37 profit. What does buying a put at the $1 strike for $0.01 do for me? I know it limits downside risk but I'm interested in why it shows as 'cancelling out' the trade and leaving me with a capped max loss/minimum loss that both equal $-2 and a net credit of $150. Do I get to keep the full $150 if the stock expires between the breakevens and not worrying about assignment since I'm long? Is it basically losing $2 on the stock but collecting $150 on the option? So you lose on the stock, but win on the option? And the difference between those two is what my total profit is correct?
First off, congrats on the successful trade. Look up option Collar and see if that helps with some of the other questions. I think it helps to think of them as separate individual trades. You sold the ITM CC. Now you are adding a PUT as protection so if the stock falls you have some downside protection. If you do it at the same strike they should essentially cancel each other out. That is, call premium minus loss on selling the stock below current price will nearly cover the cost of the long put. To make it positive, drop the strike price on the long PUT to make it cheaper for a positive trade. Does that make sense?
@@wealthadventures so with last example with INTL with ur annual return ur assuming ur gonna keep doing this and that it wouldn't be assigned and it will exp worthless so u dont lose any money correct??
@@Eastbaypisces That would be a good result if it simply expired. If it does get assigned I also want to make sure I'm comfortable with owning the stock so I try and research the stock prior to selling the put.
Received At Nov 10, 2023 3:29:49 PM EST
Symbol CRWD
TIF Day
Submitted Order Type Limit @ 0.21 Credit
Fill Details
Bought 1 CRWD 11/10/23 Call 155.00 @ 41.63
Filled at: Nov 10, 2023 3:29:49 PM EST
Sold 1 CRWD 11/17/23 Call 155.00 @ 41.84
Filled at: Nov 10, 2023 3:29:49 PM EST
Howdya make out, Holmes?