Actually I already knew all of this because I live with these situations every day. But I still enjoyed the video if for no other reason than to reaffirm that when selling option premium, we are all in the same boat with the decisions we face. Good video! Probably one of the more useful lessons I've learned this year is that we should not view selling calls (or puts!) as cookie cutter standard trades, but should consider the big picture of the whole market if possible. What I mean is that this year in a booming bull market, we should have realized that many stocks can surprise us with moving up much more sharply than in duller markets. So we should try to choose higher strike prices (less income for us!) so we are not facing numbers of them far exceeding the strike price. As a consolation for selling higher strike price, we should be thrilled that the stocks are making money hand over fist, and want to keep them. Overall I find selling options quite profitable, but one still needs to use care and keep our thinking cap on.
I'm 54 and my wife and I are VERY worried about our future, gas and food prices rising daily. We have had our savings dwindle with the cost of living into the stratosphere, and we are finding it impossible to replace them. We can get by, but can't seem to get ahead. My condolences to anyone retiring in this crisis, 30 years nonstop just for a crooked system to take all you worked for.
I feel your pain mate, as a fellow retiree, I’d suggest you look into passive index fund investing and learn some more. For me, I had my share of ups and downs when I first started looking for a consistent passive income so I hired an expert advisor for aid, and following her advice, I poured $30k in value stocks and digital assets, Up to 200k so far and pretty sure I'm ready for whatever comes.
The commentary on rolling the option was very helpful. Most videos don’t talk about this. I have been racking my brains trying to figure it out but now that you explained it, seems so obvious. Subscribed to your channel. Thank you.
The last scenario you highlighted is why buy and hold typically produces better returns for most traders/investors. The massive (relative) losses realized when your CC is deep in the money is far greater than any premium received before that event. In order to be net profitable after taxes, fees and any assignments, you have to be VERY good at timing your trades and selecting the appropriate strike prices. If you’re running any kind of options strategy, be sure to track your results and returns against simply holding 100% SCHD or VOO to determine if you’re making money with your time/effort or if you’re costing yourself money under the guise of faux cash flow. ✅
I need help understanding this. Let's say I buy a 100 stocks of a company (@ 100$ market price), and sell a call option at strike price 100 at 1 year later expiration for total premium of 2500$. Now if stock goes up and my option is deep in the money, I still received all premium at the end, albeit no potential gains I could have otherwise add (aka opportunity cost) but that was the bet I made, I capped my upside for guranteed premium. What I wanna know is that, is there any other losses I am not aware because in this example 25% gain is something I will take
@@sambhavgupta9223 the losses I’m referring to in my comment are opportunity cost losses. For the vast majority of people, covered call sellers will make less profit than buy-and-hold investors of the same stock, over time. Statistically, if you could “lock in” 25% returns, it’s only because you’re giving up 26%+ returns. You spin the CC roulette wheel and win some of the time, of course, but if you keep spinning, you’ll eventually be a net loser vs. a buy and hold strategy. The small percentage of people who are net winners are very good market timers, which is not much different from any other market timing strategy. Take a look at any actively managed covered call fund as an example. Pretty much all of them underperform a comparable index substantially (S&P, QQQ). And you certainly have no information advantage over those well educated and industry-insider fund managers.
Option 4. Buy the stock once the CC gets in the money if you are still bullish and are sure your current shares will be taken away. This way you collection the full option premium and can still profit on a stock moving upward. Only way this can go wrong is if option goes in money, then reverts back below strike. Your option will be fine , but now you have a lot more stock than can take drop in value. But hey, you cant win in every scenario. Option 4, is good if you have a stock that has ton of upward momentum and you are sure the stock will be taken away.
That's probably what I shall do now with my Tesla covered call option that the price of the stock went up too much recently and pass the strike price. The expiration date is 1/17/2026.
Only applies to a profitable trade . Average traders employ the CC strategy to lower their DCA because the stock is unprofitable. Being called away and buying "once the CC gets in the money" introduces the wash rule, creating an averse tax situation for the rookie...
Issue here is that you (we) assume (hope) that the next strike price will not be reached. But in reality, if the stock makes a bit upward move today, when we roll it further, chances are high that it will reach your next strike price, whereas you are left with only $50 net, and lost all the gain momentum, since your stock on an uptrend path nowadays. Again, there is always a risk and we all should realize it. Just something to consider for newbies like me, i.e. this whole rolling logic relies on an assumption that the next strike price will not be hit. While you are forced to pick a strike price that is very close to the current levels for getting some nice premiums for covering your initial lose. Meaning you are forced to increase your risk level for trying getting out of this situation. This may get you into a trap of being constantly drown, and eventually you will have to step back with loses. Once again, great video, easily consumable and digested by rookies like myself. It's just in your example it may sound to some that there is always a way to make money or at least go even. But all should understand that chances are high that loses will mean loses, and you will need to compensate by other more lucky trades in future. And so the dance continues :)
Hey Joe, another good video. One other risk of having an ITM covered call is if you are at the Ex-Div date for that stock. You run the risk of the person who bought your CC might exercise the call to buy the stock at a lower price the day before the Ex-Div date. Then they would own the stock and not you at the Ex-Div date (that has happened to me before). A good defense for that is about two days before the Ex-Div date I would roll out the option (like you show in the video). I would look to either roll up and out for a credit. I have even just rolled out about a month and kept the ITM strike price. I have never been exercised on in that situation yet so I collected a bit more premium from the option and still received the dividend. Just pay attention to your stock. Thanks.
@@TheSnowyWind @CraigBVideos. Just saw this video. Good for a new person like me. You guys are experienced and was wondering if on the subject of covered calls if one had 500 shares of a stock but wanted to sell 200 shares. Then should one sell a covered call with 80 delta which is far out in time like a leap and get more than the market price as you get the premium. Is there any danger that one would have to hold the stock till expiry 2 years away, even though it becomes deep in the money as the stock price rises. I want the shares to be called away . What would be a good strategy? If the stock price falls the premium received is a bit of a hedge. But ultimately capital is being blocked in the underlying shares. any views on this...many thanks
So if stock has gone up a lot and you have to buy to close, you retain the stock’s intrinsic value. Doesn’t that offset your cost to close and still allow you to retain the premium so you are net positive?
I just wanted to say that I truly appreciate you, you are the reason why I started my youtube channel in the first place. Thanks to you I now teach people about financial literacy and how to invest their money. Thanks once again, and I hope you could inspire more people just like myself to build a youtube channel. 😊🙌
Great video. This is the only video I could find explaining how to Buy to Close if share price is nearing strike price. The Roll Out and Roll Out and Up feature was an added perk.
This video! I could listen to your trade specifics and explanations all day. More of these videos please!! Dividend stocks and rolling covered calls with them is the best strategy ever. Thank you for teaching it to me, your the best!
still learning... my strategy was to buy stuff and if it went up 20-40% sell some of it to capture profits. NOW seeing CC, I like it better - I think. It takes monitoring to see where it goes and how close it gets to the strike... Now, I'm working to build up some positions to 100 shares so I can try this... Haven't thought about doing it with ETFs. I know it doesn't seem to work with CEF's... I started looking more into it when reading up on one of my CEF's and how it achieved such a nice pay-out - covered calls! (EOI, by the way)
I’m getting in to dividends and man I’ll be honest options have scared me lot of jargon i need to learn and understand but I like what your discussing. My method is buy a stock if I sell for a profit put a percentage in dividend stock and continue. Rinse repeat while building both dividends and my normal trading portfolio. Def will continue to watch videos on options. If I can master all 3 of normal stocks dividends and options my dividend portfolio will sky rocket. Side note what do you think of monthly dividends.
One thing I didnt realize or anyone mention, pay really close attention to the CONTRACTS cost, not just the premium you see. I wound up with a NET LOSS, because I was buying to close and selling to open based on just what the "premium" number was not understanding the two separate transactions that were happening.
Thats one of my problems of waiting too long to roll an option. I get burned that way but often i can get some premium just to reduce my loss of The first leg. Like you said going further out and a higher strike doesn't always pay that much sometimes very difficult to recover 100% the first leg.😢 That's how i go with it, if i don't want my shares called.
Do you have a video on cash secured put using a vertical? What happened when your close to the money short put get hit, what happened to the far out long put? Is assignment the only thing that will happen …. since one would like to buy the stock at a discount, using as little capital as possible, and collecting a huge premium. Any other risks, if you have the cash to pay for the assigned shares.
As prices were going down, I ended up selling a cc below my cost basis. Then the price rebounded. Schwab recently made rolling options much easier so that's what I did. I am still green but in the future I will not be so greedy about keeping the options premium rolling.
The market dropped today. I have several covered calls which expire tomorrow, with (now) strike prices. So I rolled them down, still to expire tomorrow. Deltas look good. Still making a profit even if exercised. Mistake or not? I wanted to get rid of a couple of them anyway, so I figured that maybe I could make a little more this way.
Hi! you mentioned that you take action on expiration date to close or roll over the option so you don’t loose your shares . Fidelity mentions that assignment can occur even if the option is out of the money at, or prior to, expiration. So there is a risk of losing the shares. How you do handle this ?
I am at the beginning of my "investment journey", planning to put 85K into dividend stocks so that I will be making up to 30% per year in dividend returns. Any advice?
Investing without proper guidance can lead to mistakes and losses. I've learned this from my own experience.If you're new to investing or don't have much time, it's best to get advice from an expert.
The issue is people have the "I want to do it myself mentality" but not equipped enough for a crash, hence get burnt. Ideally, advisors are reps for investing jobs, and at first-hand encounter, my portfolio has yielded over 300% since 2020 just after the pandemic to date.
My CFA NICOLE ANASTASIA PLUMLEE a renowned figure in her line of work. I recommend researching her credentials further... She has many years of experience and is a valuable resource for anyone looking to navigate the financial market..
I just googled her and I'm really impressed with her credentials; I reached out to her since I need all the assistance I can get. I just scheduled a caII.
You uploaded this right when I needed it, sweet. Great info on making sure to decide before it gets deep in the money. I guess that's why people love placing limits. Do you place limits to close your contracts?
Can also let you shares get called away at expiration & simply use all of the money from the entirety of the position as collateral for cash secured puts. That way, you can set your strike where you’d feel comfortable buying back in, collect a premium, & hopefully you DO get assigned because you never wanted to be out of the position in the first place.
Joe...great video! When I got into options, my initial plan was the wheel strategy to collect premium on both ends (selling puts and calls). The call side was too overwhelming, so I primarily only sell puts on stocks/funds that I'll happily own if I get assigned (e.g. the market price goes below the sold put option contract strike price). Mind if I ask why not focus more on the put side vice the call side? Thanks!
His portfolio is a Dividend porfolio, my assumption is he wants to collect the dividends and the covered call premium. So he needs to be invested in the stock.
@@styveogando6691 Absolutely! Asked Joe that question because while it can be an effective way to collect $ (dividends and call premium, it is incomplete. The wheel strategy completes it because you also collect $ (core position money market interest + put premium). AND, if you're an accredited investor, you can loan shares out and make passive income on that too.
With these low duration trades that aren't long term buy and hold strategies, returns can be massive. The most important thing is finding a strategy that you are comfortable with and get the best returns using. Optimal strategies vary from person to person because of this.
Great information! I have 3 contracts covered calls on Tesla which expires in one day way in the money. I wish I saw this video earlier. But I am still going to try to roll it tomorrow.
Hi, I have been following your channel for a while and find it full of great information and very helpful. Thank you and just subscribed. I have a video idea. Let's say you invest all your money monthly in a high yield covered call fund like qyld and then reinvested the dividends in a dividend growth etf like schd or something similar and keep doing that for ten years and then start living on the dividends. With maybe a decline in qyld would the dividend growth from schd surpass a normal inflation rate of 2-3%. It's impossible to predict what will happen in the future but if you base it on historical numbers. Hope you understand what I mean and if someone can do the calculations it's you. Thanks for a great show. Take care
Excellent video! am learning and i enjoyed it. Also, was wondering on the subject of covered calls if one had 500 shares of a stock but wanted to sell 200 shares. Then should one sell a covered call with 80 delta which is far out in time like a leap and get more than the market price as you get the premium. Is there any danger that one would have to hold the stock till expiry 2 years away, even though it becomes deep in the money as the stock price rises. What would be a good strategy? If the stock price falls the premium received is a bit of a hedge. But ultimately capital is being blocked in the underlying shares. any views on this...many thanks
I had 4 covered calls that expired today (Friday) - only one (WFC) was assigned. My AMZN covered call @ $200 weren’t assigned - even though it’s now at 208.24 🤷♂️. So what do I do? It’s expired but still sitting in my account
Good video. I guess I'm still a little confused about the Whirlpool call. Was the only reason you didn't want it to get assigned because of dividends or your cost basis? I'm assuming something with that because I couldn't understand why you would want to lose money doing the buy-to-close otherwise.
i enjoy watching your videos!!! your using concrete examples and what to do on actual trading platform are the most educational and easy to understand...i now subscribe to your channel
can you explain the wash rule if you buy to close for a loss of an option then sell another call right away. i.e. not waiting the 30 days before selling a call. the loss wouldnt be deductable? thanks
I’m not a CPA but I believe if you choose to roll out to another strike or date (because you are in a loss) the loss will not be considered a wash because it has a different date/strike even if the underlying stock is the same. Don’t quote me on this
Option 3 is what I've been doing with Nvidia since early Feb but I'm not in an untenable situation where the stock surged 110 pts in one day and another 20 the next day. I've rolled it up and out twice already so now its a June 21, 2024 expiration but its DEEP, really DEEP, in the money. Not sure if it will come down at all and right there isn't much I can do unless I buy it back for a loss and keep the stock. This is a very unusual situation but one that may cost me if I can't find a way out.
Even when deep in the money, sometimes I will choose to pay up to buy the call back, even at a sizable loss compared to the premium previously received. I may do this if I still really wish to continue owning the stock, and since it is up so nicely I can sell new calls for good premium. The other benefit is that, assuming we already have a nice profit on the position before expiration, and calls are in the money, we do not have to relinquish part of that profit to the first option buyer. Some stocks are so good that we expect them to keep rising, we have a very good investment on hand and we get to continue making money on it while also starting fresh selling new calls. Once can assess all these costs and profits and decide what is the best recourse.
Joe I noticed that several of your option contracts said “Margin”. So curious, what does that mean…That you don’t “own” the stock & your doing options on borrowed money? I am familiar w options, but not doing it on Margin. Thanks, as always, Great Informative Video 😊
when you want to trade options on Fidelity, they set up your account with 'margin potential' - it doesn't mean you have to use it (they put an "m" next to all your positions anyway)...in this case, I think he owns all the underlying positions he's selling covered calls on...
How about the other side, puts? Specifically, a roll/assignment strategy when using secured puts to buy stocks that one wants at the cheapest price possible while earning premium.
Hi Joe. I like the rolling up strategy the price is very near or at the strike price. I wish you can automate this so you don't have to monitor the price of the stock.
This was a helpful video, thank you. If I leave this comment on a video that has been posted for a year does the creator see there is a new comment or do you have to go into your old video to see if there is a new comment?
I have question if someone advice me , I have covered call for Tesla 390 strike and already rolled it further 6 months so now it’s 480 , should I roll it now to 500 to more future dates for a credit or wait?
Would the roll only execute as a pair with the buy to close AND sell to open? Just curious if its possible that the Buy to Close happens, but the new Sell to Open doesnt happen maybe if there is no volume or some other reason.
If you are using one trading ticket that has two legs, 1 leg is buy to close, the other leg is sell to open, they either both execute, or neither execute. The two MUST be traded together, on the same trading ticket. If done separately, with two separate trading tickets, you might end up with problems in low volume, low open interest options.
GREAT QUESTION! Just like Thomas mentioned above, if you are using the roll order type then they either BOTH execute OR it doesn’t execute at all. THANK YOU for watching and for leaving your $0.02 in the comments! 👍😎
If I had a ton of stock that I got a long time ago and for a much lower price than the current price, would it be prudent to sell covered calls for the highest strike and furthest expiration date on all of them to lock in profit, diversify portfolio, and collect a ton of premiums?
That's a great question! Some Covered Call ETF's do have the flexibility to close options early but most I DO NOT BELIEVE roll options continuously. I am not positive on that though. THANK YOU for watching and for leaving your $0.02 in the comments! 😎👍🏻
Sell puts and with the credit buy calls for a net credit. If the market goes sideways, you keep the credit. If it goes up the calls give you all of the upside action. If the market goes down, you get assigned stock, but at least you keep the credit and you own stock that you wanted to buy anyway. But use stop loses if it goes deep south!
No. It is easy to get confused with the rolling as it looks like one transaction but in reality you are closing out the first trade in leg 1 and then starting a new trade in leg 2. So in the WHR example Joe used he Sold to Open (STO) a trade and received $50 in premium. He then had to Buy to Close (BTC) that option at $192 so that trade has a loss of $142, that is what you will report on your tax form. He then started a new trade with a STO call for $241. At the time of the video that trade is still open so we don't know if it will be a loss or a gain when he closes it. It might be a little confusing at first but once you do a few of these the math will become second nature. Hope this helps.
I was just assigned on a call 4 months early! I was shocked. I sold a call mid Feb with a July 19, 2024 expiration date. The strike price was $86 and the stock was worth $96 when it was assigned 3 weeks later. Even with the stock price being above the strike price, wouldn't it make more sense for the buyer to hold the call itself to get all of the value of it. 4.5 months early seems way too early.
You also have to consider taxes if you let the stock be assigned at a profit. Most likely the stock was bought less than a year ago, so you will have to pay tax at taxable income rates which will likely be higher than if you sold the stock after a year and are taxed at capital gains rates. All your options that are profitable are taxed as income also.
If your avg buy is $90, the MKT $ is $100 and you sell $110 strikes, if the stock goes to $115 and you get assigned you are collecting $20 a share profit. If you get to a point where you are rolling options, it seems you are not investing. If you own 100 shares at $90, the market is at $95, you can buy a ITM Leap PUT as insurance against loss, and then sell calls covered by the shares to recover the LEAP cost, and bring your entry price down from $90, and your leaps keep getting cheaper and your calls produce a lower delta.
I don't really get why I keep hearing people indicate that they care where below the strike price the stock price lands at a covered call's expiration. The shares haven't been called away, so whether the contract ends just below the strike price, or way lower than where the stock was on the day you started the contract, is it not really all the same? You haven't sold shares. You haven't realized a loss. I keep hearing explanations that indicate that the stock ending up down at the expiration of a covered call creates a loss, but how? You collect your premium and sell another covered call. What am I missing?
If it's higher, the next CC you sell you can either get a higher premium for whatever strike price you want to sell your call at, or you can move your strike price up from the last CC, but still collect the same premium. Ultimately, if/when it does get called away, getting called away at the higher price is obviously more profitable.
I just rolled PLTR from $28 strike to $35 as the stock price was $32 at the expiry date. I had to push the expiry date out to 2/25 in order to avoid a net debit. I actually credited $100 on the transaction but there’s no way PLTR will be $35 in Feb ‘25. I’m hoping for a correction/pullback/crash in order to be able to roll this position to a higher strike and/or earlier expiry date and collect a credit. I’m basically buying time for an opportunity to improve my odds of keeping my shares. Plus worse case I get the capital appreciation of my shares up to $35. I don’t see why in the video he didn’t scroll out to see the premium at later expiry dates. He only went out 1 week.
OMG, I just ran a hypothetical on this using $607,000 worth of 45 QQQ LEAPS Calls exp 841 days in the future ($13,500 per call option purchase). If assigned in the very first week, the loss would be over $200,000 from my original $607,000. Babysitting the LEAP becomes painfully clear using this example. Selling to close or rolling the option becomes really clear using this horrific example.
Hey Joe, Should I roll or leave it? I have 1 contract call option on NVDA at $260 expires 6/21/24, my cost based at $180, current price way higher. Huge loss. Does it make sense to roll, Just don't know what to do?
It's only a true loss if you decide to buy back the stock at higher price if it goes past the strike price right? if you don't buy the stock back at a higher price when the shares get called away, then it's only a potential loss?
The price of the stock has gone way past my strike price. Almost $10 above and I haven’t been assigned yet. I’m trading out of a cash account and don’t have the option to roll anymore. The exp date isn’t until May 2025.
Rolling up is always an option. You get some of the upside of the stock, as long as there is some time premium in the contracts. No, not a day before expiration though.
Actually I already knew all of this because I live with these situations every day. But I still enjoyed the video if for no other reason than to reaffirm that when selling option premium, we are all in the same boat with the decisions we face. Good video! Probably one of the more useful lessons I've learned this year is that we should not view selling calls (or puts!) as cookie cutter standard trades, but should consider the big picture of the whole market if possible. What I mean is that this year in a booming bull market, we should have realized that many stocks can surprise us with moving up much more sharply than in duller markets. So we should try to choose higher strike prices (less income for us!) so we are not facing numbers of them far exceeding the strike price. As a consolation for selling higher strike price, we should be thrilled that the stocks are making money hand over fist, and want to keep them. Overall I find selling options quite profitable, but one still needs to use care and keep our thinking cap on.
I'm 54 and my wife and I are VERY worried about our future, gas and food prices rising daily. We have had our savings dwindle with the cost of living into the stratosphere, and we are finding it impossible to replace them. We can get by, but can't seem to get ahead. My condolences to anyone retiring in this crisis, 30 years nonstop just for a crooked system to take all you worked for.
I feel your pain mate, as a fellow retiree, I’d suggest you look into passive index fund investing and learn some more. For me, I had my share of ups and downs when I first started looking for a consistent passive income so I hired an expert advisor for aid, and following her advice, I poured $30k in value stocks and digital assets, Up to 200k so far and pretty sure I'm ready for whatever comes.
@@YinusaSaheed That's actually quite impressive, I could use some Info on your FA, I am looking to make a change on my finances this year as well..
@@JerrysAlfreds My advisor is *MARGARET MOLLI ALVEY*
@@JerrysAlfreds You can look her up online
Nah I Can't say I can relate, *MARGARET MOLLI ALVEY* charge is one-off and pretty reasonable when compared to what I benefit in returns.
The commentary on rolling the option was very helpful. Most videos don’t talk about this.
I have been racking my brains trying to figure it out but now that you explained it, seems so obvious. Subscribed to your channel.
Thank you.
The last scenario you highlighted is why buy and hold typically produces better returns for most traders/investors. The massive (relative) losses realized when your CC is deep in the money is far greater than any premium received before that event. In order to be net profitable after taxes, fees and any assignments, you have to be VERY good at timing your trades and selecting the appropriate strike prices.
If you’re running any kind of options strategy, be sure to track your results and returns against simply holding 100% SCHD or VOO to determine if you’re making money with your time/effort or if you’re costing yourself money under the guise of faux cash flow. ✅
perfectly stated!
I need help understanding this. Let's say I buy a 100 stocks of a company (@ 100$ market price), and sell a call option at strike price 100 at 1 year later expiration for total premium of 2500$. Now if stock goes up and my option is deep in the money, I still received all premium at the end, albeit no potential gains I could have otherwise add (aka opportunity cost) but that was the bet I made, I capped my upside for guranteed premium. What I wanna know is that, is there any other losses I am not aware because in this example 25% gain is something I will take
@@sambhavgupta9223 you summarized it well. No, no other losses. Just consider your tax scenario and commission for selling the call.
@@sambhavgupta9223 the losses I’m referring to in my comment are opportunity cost losses. For the vast majority of people, covered call sellers will make less profit than buy-and-hold investors of the same stock, over time.
Statistically, if you could “lock in” 25% returns, it’s only because you’re giving up 26%+ returns. You spin the CC roulette wheel and win some of the time, of course, but if you keep spinning, you’ll eventually be a net loser vs. a buy and hold strategy.
The small percentage of people who are net winners are very good market timers, which is not much different from any other market timing strategy. Take a look at any actively managed covered call fund as an example. Pretty much all of them underperform a comparable index substantially (S&P, QQQ). And you certainly have no information advantage over those well educated and industry-insider fund managers.
@@sambhavgupta9223 that's a win.
Option 4. Buy the stock once the CC gets in the money if you are still bullish and are sure your current shares will be taken away. This way you collection the full option premium and can still profit on a stock moving upward. Only way this can go wrong is if option goes in money, then reverts back below strike. Your option will be fine , but now you have a lot more stock than can take drop in value. But hey, you cant win in every scenario. Option 4, is good if you have a stock that has ton of upward momentum and you are sure the stock will be taken away.
That is a very good idea I will do it with VTI because it is cheap
That's probably what I shall do now with my Tesla covered call option that the price of the stock went up too much recently and pass the strike price. The expiration date is 1/17/2026.
Only applies to a profitable trade . Average traders employ the CC strategy to lower their DCA because the stock is unprofitable. Being called away and buying "once the CC gets in the money" introduces the wash rule, creating an averse tax situation for the rookie...
@@minjiachen3770I’m in a similar situation with Mstr
not always possible, as the market might have Gapped and be already above your strike price. be careful
Issue here is that you (we) assume (hope) that the next strike price will not be reached. But in reality, if the stock makes a bit upward move today, when we roll it further, chances are high that it will reach your next strike price, whereas you are left with only $50 net, and lost all the gain momentum, since your stock on an uptrend path nowadays.
Again, there is always a risk and we all should realize it. Just something to consider for newbies like me, i.e. this whole rolling logic relies on an assumption that the next strike price will not be hit. While you are forced to pick a strike price that is very close to the current levels for getting some nice premiums for covering your initial lose. Meaning you are forced to increase your risk level for trying getting out of this situation. This may get you into a trap of being constantly drown, and eventually you will have to step back with loses.
Once again, great video, easily consumable and digested by rookies like myself. It's just in your example it may sound to some that there is always a way to make money or at least go even. But all should understand that chances are high that loses will mean loses, and you will need to compensate by other more lucky trades in future. And so the dance continues :)
covered calls these are not losses but just profit u didnt get
Hey Joe, another good video. One other risk of having an ITM covered call is if you are at the Ex-Div date for that stock. You run the risk of the person who bought your CC might exercise the call to buy the stock at a lower price the day before the Ex-Div date. Then they would own the stock and not you at the Ex-Div date (that has happened to me before). A good defense for that is about two days before the Ex-Div date I would roll out the option (like you show in the video). I would look to either roll up and out for a credit. I have even just rolled out about a month and kept the ITM strike price. I have never been exercised on in that situation yet so I collected a bit more premium from the option and still received the dividend. Just pay attention to your stock. Thanks.
Rolling it out for a month will increase the extrinsic value (EV) over zero. DITM will show the EV=0 and cause early assignment.
@@TheSnowyWind @CraigBVideos. Just saw this video. Good for a new person like me. You guys are experienced and was wondering if on the subject of covered calls if one had 500 shares of a stock but wanted to sell 200 shares. Then should one sell a covered call with 80 delta which is far out in time like a leap and get more than the market price as you get the premium. Is there any danger that one would have to hold the stock till expiry 2 years away, even though it becomes deep in the money as the stock price rises. I want the shares to be called away . What would be a good strategy? If the stock price falls the premium received is a bit of a hedge. But ultimately capital is being blocked in the underlying shares. any views on this...many thanks
Watched a few videos to learn about this. Yours was by far the most clear explanation and well delivered.
So if stock has gone up a lot and you have to buy to close, you retain the stock’s intrinsic value. Doesn’t that offset your cost to close and still allow you to retain the premium so you are net positive?
Yes. Remember to consider taxes in taxable accounts.
I just wanted to say that I truly appreciate you, you are the reason why I started my youtube channel in the first place. Thanks to you I now teach people about financial literacy and how to invest their money. Thanks once again, and I hope you could inspire more people just like myself to build a youtube channel. 😊🙌
Thanks for going over rolling options. This video did a great job of explaining 'rolling' your options!
Great video. This is the only video I could find explaining how to Buy to Close if share price is nearing strike price. The Roll Out and Roll Out and Up feature was an added perk.
Great Video!
This helps emphasize that there is no need to be nervous about the strike and expiration.
This video! I could listen to your trade specifics and explanations all day. More of these videos please!!
Dividend stocks and rolling covered calls with them is the best strategy ever. Thank you for teaching it to me, your the best!
Thanks!
Great topics, transparency, and strategies all on one channel. Thanks for all the effort you put into this.
You’re welcome! THANK YOU for watching and for leaving your $0.02 in the comments! 👍😎
still learning...
my strategy was to buy stuff and if it went up 20-40% sell some of it to capture profits. NOW seeing CC, I like it better - I think. It takes monitoring to see where it goes and how close it gets to the strike...
Now, I'm working to build up some positions to 100 shares so I can try this...
Haven't thought about doing it with ETFs.
I know it doesn't seem to work with CEF's...
I started looking more into it when reading up on one of my CEF's and how it achieved such a nice pay-out - covered calls! (EOI, by the way)
Keep teaching the power of responsible option trading! Looking forward to your next monthly income update. Everything still on course for your trip?
I’m getting in to dividends and man I’ll be honest options have scared me lot of jargon i need to learn and understand but I like what your discussing. My method is buy a stock if I sell for a profit put a percentage in dividend stock and continue. Rinse repeat while building both dividends and my normal trading portfolio. Def will continue to watch videos on options. If I can master all 3 of normal stocks dividends and options my dividend portfolio will sky rocket. Side note what do you think of monthly dividends.
One thing I didnt realize or anyone mention, pay really close attention to the CONTRACTS cost, not just the premium you see. I wound up with a NET LOSS, because I was buying to close and selling to open based on just what the "premium" number was not understanding the two separate transactions that were happening.
Thats one of my problems of waiting too long to roll an option. I get burned that way but often i can get some premium just to reduce my loss of The first leg. Like you said going further out and a higher strike doesn't always pay that much sometimes very difficult to recover 100% the first leg.😢 That's how i go with it, if i don't want my shares called.
LOL...I was literally just looking at this and wondering. SCHW is approaching in the money very quickly. Thanks, Joe!
Thank you for this video!!!
I'm new to selling covered calls and "Rolling" options is something I haven't tried. This'll be a great tool.
Awesome!! Glad to hear it was helpful! THANK YOU for watching and for leaving your $0.02 in the comments! 👍😎
Get used to it.
Excellent video. Just starting to learn all these strategies. Making my own notes to avoid assignment of my shares. Thanks!
Do you have a video on cash secured put using a vertical? What happened when your close to the money short put get hit, what happened to the far out long put? Is assignment the only thing that will happen ….
since one would like to buy the stock at a discount, using as little capital as possible, and collecting a huge premium. Any other risks, if you have the cash to pay for the assigned shares.
As prices were going down, I ended up selling a cc below my cost basis. Then the price rebounded. Schwab recently made rolling options much easier so that's what I did. I am still green but in the future I will not be so greedy about keeping the options premium rolling.
The market dropped today. I have several covered calls which expire tomorrow, with (now) strike prices. So I rolled them down, still to expire tomorrow. Deltas look good. Still making a profit even if exercised. Mistake or not? I wanted to get rid of a couple of them anyway, so I figured that maybe I could make a little more this way.
Hi! you mentioned that you take action on expiration date to close or roll over the option so you don’t loose your shares . Fidelity mentions that assignment can occur even if the option is out of the money at, or prior to, expiration. So there is a risk of losing the shares. How you do handle this ?
I am at the beginning of my "investment journey", planning to put 85K into dividend stocks so that I will be making up to 30% per year in dividend returns. Any advice?
Investing without proper guidance can lead to mistakes and losses. I've learned this from my own experience.If you're new to investing or don't have much time, it's best to get advice from an expert.
The issue is people have the "I want to do it myself mentality" but not equipped enough for a crash, hence get burnt. Ideally, advisors are reps for investing jobs, and at first-hand encounter, my portfolio has yielded over 300% since 2020 just after the pandemic to date.
Glad to have stumbled on this comment, Please who is the consultant that assist you and if you don't mind, how do I get in touch with them?
My CFA NICOLE ANASTASIA PLUMLEE a renowned figure in her line of work. I recommend researching her credentials further... She has many years of experience and is a valuable resource for anyone looking to navigate the financial market..
I just googled her and I'm really impressed with her credentials; I reached out to her since I need all the assistance I can get. I just scheduled a caII.
Thank Joe for the excellent presentation, much appreciated and all of the best!
Newbie at Sell covered options but loving the vids so far. Thanks.
You uploaded this right when I needed it, sweet. Great info on making sure to decide before it gets deep in the money. I guess that's why people love placing limits. Do you place limits to close your contracts?
Can also let you shares get called away at expiration & simply use all of the money from the entirety of the position as collateral for cash secured puts. That way, you can set your strike where you’d feel comfortable buying back in, collect a premium, & hopefully you DO get assigned because you never wanted to be out of the position in the first place.
Joe...great video! When I got into options, my initial plan was the wheel strategy to collect premium on both ends (selling puts and calls). The call side was too overwhelming, so I primarily only sell puts on stocks/funds that I'll happily own if I get assigned (e.g. the market price goes below the sold put option contract strike price). Mind if I ask why not focus more on the put side vice the call side? Thanks!
His portfolio is a Dividend porfolio, my assumption is he wants to collect the dividends and the covered call premium. So he needs to be invested in the stock.
@@styveogando6691 Absolutely! Asked Joe that question because while it can be an effective way to collect $ (dividends and call premium, it is incomplete. The wheel strategy completes it because you also collect $ (core position money market interest + put premium). AND, if you're an accredited investor, you can loan shares out and make passive income on that too.
With these low duration trades that aren't long term buy and hold strategies, returns can be massive. The most important thing is finding a strategy that you are comfortable with and get the best returns using. Optimal strategies vary from person to person because of this.
Great information! I have 3 contracts covered calls on Tesla which expires in one day way in the money. I wish I saw this video earlier. But I am still going to try to roll it tomorrow.
Hi, I have been following your channel for a while and find it full of great information and very helpful. Thank you and just subscribed. I have a video idea. Let's say you invest all your money monthly in a high yield covered call fund like qyld and then reinvested the dividends in a dividend growth etf like schd or something similar and keep doing that for ten years and then start living on the dividends. With maybe a decline in qyld would the dividend growth from schd surpass a normal inflation rate of 2-3%. It's impossible to predict what will happen in the future but if you base it on historical numbers. Hope you understand what I mean and if someone can do the calculations it's you. Thanks for a great show. Take care
Great videos Joe! Could you make a video for synthetic covered call, it is still hard for me to understand it?
Excellent video! am learning and i enjoyed it. Also, was wondering on the subject of covered calls if one had 500 shares of a stock but wanted to sell 200 shares. Then should one sell a covered call with 80 delta which is far out in time like a leap and get more than the market price as you get the premium. Is there any danger that one would have to hold the stock till expiry 2 years away, even though it becomes deep in the money as the stock price rises. What would be a good strategy? If the stock price falls the premium received is a bit of a hedge. But ultimately capital is being blocked in the underlying shares. any views on this...many thanks
Thanks. I have never rolled my options and I didn't know how it worked. Now, I know. Thanks again.
I had 4 covered calls that expired today (Friday) - only one (WFC) was assigned. My AMZN covered call @ $200 weren’t assigned - even though it’s now at 208.24 🤷♂️. So what do I do? It’s expired but still sitting in my account
@roberttorrance731 What did you end up doing?
Good video. I guess I'm still a little confused about the Whirlpool call. Was the only reason you didn't want it to get assigned because of dividends or your cost basis? I'm assuming something with that because I couldn't understand why you would want to lose money doing the buy-to-close otherwise.
i enjoy watching your videos!!! your using concrete examples and what to do on actual trading platform are the most educational and easy to understand...i now subscribe to your channel
11:51 for me. Great video, you might benefit from inserting time stamps in your videos though - just a thought!
can you explain the wash rule if you buy to close for a loss of an option then sell another call right away. i.e. not waiting the 30 days before selling a call. the loss wouldnt be deductable? thanks
I’m not a CPA but I believe if you choose to roll out to another strike or date (because you are in a loss) the loss will not be considered a wash because it has a different date/strike even if the underlying stock is the same. Don’t quote me on this
Will you choose a time to make an option? I meant the good time for a good premium? If yes, please share about it. Thank you
Option 3 is what I've been doing with Nvidia since early Feb but I'm not in an untenable situation where the stock surged 110 pts in one day and another 20 the next day. I've rolled it up and out twice already so now its a June 21, 2024 expiration but its DEEP, really DEEP, in the money. Not sure if it will come down at all and right there isn't much I can do unless I buy it back for a loss and keep the stock. This is a very unusual situation but one that may cost me if I can't find a way out.
Even when deep in the money, sometimes I will choose to pay up to buy the call back, even at a sizable loss compared to the premium previously received. I may do this if I still really wish to continue owning the stock, and since it is up so nicely I can sell new calls for good premium. The other benefit is that, assuming we already have a nice profit on the position before expiration, and calls are in the money, we do not have to relinquish part of that profit to the first option buyer. Some stocks are so good that we expect them to keep rising, we have a very good investment on hand and we get to continue making money on it while also starting fresh selling new calls. Once can assess all these costs and profits and decide what is the best recourse.
Excellent video, thanks. I’m new to options trading and this was very helpful.
Joe I noticed that several of your option contracts said “Margin”. So curious, what does that mean…That you don’t “own” the stock & your doing options on borrowed money? I am familiar w options, but not doing it on Margin. Thanks, as always, Great Informative Video 😊
when you want to trade options on Fidelity, they set up your account with 'margin potential' - it doesn't mean you have to use it (they put an "m" next to all your positions anyway)...in this case, I think he owns all the underlying positions he's selling covered calls on...
Can I ask what trading platform you're using?
It's such a great layout
It looks like Robinhood?
How about the other side, puts? Specifically, a roll/assignment strategy when using secured puts to buy stocks that one wants at the cheapest price possible while earning premium.
Thank you so much for this simple, concise explanation. Perfect.
Thank you for sharing. Rolling the sell call is very helpful for my problem now. :)
Hi Joe. I like the rolling up strategy the price is very near or at the strike price. I wish you can automate this so you don't have to monitor the price of the stock.
Question: I let the option call my stocks and then I buy again the same stocks and write a new call?
You certainly CAN do that if you prefer to keep the process simple. THANK YOU for watching and for leaving your $0.02 in the comments! 👍😎
Hypothetical if nothing changed for you Wheel strategy and write a put ❤
This was a helpful video, thank you. If I leave this comment on a video that has been posted for a year does the creator see there is a new comment or do you have to go into your old video to see if there is a new comment?
Awesome and timely. All questions I had answered…
AWESOME JEFF! THANK YOU for watching and for leaving your $0.02 in the comments! 👍😎
I have question if someone advice me , I have covered call for Tesla 390 strike and already rolled it further 6 months so now it’s 480 , should I roll it now to 500 to more future dates for a credit or wait?
Would the roll only execute as a pair with the buy to close AND sell to open? Just curious if its possible that the Buy to Close happens, but the new Sell to Open doesnt happen maybe if there is no volume or some other reason.
If you are using one trading ticket that has two legs, 1 leg is buy to close, the other leg is sell to open, they either both execute, or neither execute.
The two MUST be traded together, on the same trading ticket.
If done separately, with two separate trading tickets, you might end up with problems in low volume, low open interest options.
GREAT QUESTION! Just like Thomas mentioned above, if you are using the roll order type then they either BOTH execute OR it doesn’t execute at all. THANK YOU for watching and for leaving your $0.02 in the comments! 👍😎
schwab gives me the premium as cash right away. if i roll out before expiration do i lose it and take that new lower one thats further out and higher
Why wouldn't that ITM option be called early?
If I had a ton of stock that I got a long time ago and for a much lower price than the current price, would it be prudent to sell covered calls for the highest strike and furthest expiration date on all of them to lock in profit, diversify portfolio, and collect a ton of premiums?
Thank you for this video. I need this level of detail and explanation
How do the taxes work when rolling for a loss like in the example in the video .
Excellent presentation!
Glad you liked it! THANK YOU for watching and for leaving your $0.02 in the comments! 👍😎
Great video, I never knew you could do this! Rolling your option!
Do any of the covered call ETF`s out there do this kind of thing??
That's a great question! Some Covered Call ETF's do have the flexibility to close options early but most I DO NOT BELIEVE roll options continuously. I am not positive on that though. THANK YOU for watching and for leaving your $0.02 in the comments! 😎👍🏻
@@AverageJoeInvestor Thanks
Sell puts and with the credit buy calls for a net credit. If the market goes sideways, you keep the credit. If it goes up the calls give you all of the upside action. If the market goes down, you get assigned stock, but at least you keep the credit and you own stock that you wanted to buy anyway. But use stop loses if it goes deep south!
Do we avoid taxes when we roll out option?
No. It is easy to get confused with the rolling as it looks like one transaction but in reality you are closing out the first trade in leg 1 and then starting a new trade in leg 2. So in the WHR example Joe used he Sold to Open (STO) a trade and received $50 in premium. He then had to Buy to Close (BTC) that option at $192 so that trade has a loss of $142, that is what you will report on your tax form. He then started a new trade with a STO call for $241. At the time of the video that trade is still open so we don't know if it will be a loss or a gain when he closes it. It might be a little confusing at first but once you do a few of these the math will become second nature. Hope this helps.
@@CraigBVideos thats what i thought. Thanks
I was just assigned on a call 4 months early! I was shocked. I sold a call mid Feb with a July 19, 2024 expiration date. The strike price was $86 and the stock was worth $96 when it was assigned 3 weeks later. Even with the stock price being above the strike price, wouldn't it make more sense for the buyer to hold the call itself to get all of the value of it. 4.5 months early seems way too early.
Perhaps they felt the stock price was going to drop again. They wanted to take their profits before it was too late.
another great video. Thank you for sharing. OMG I wish I would have found your videos 1 week ago.
Thanks so much for the detailed explanation!
You also have to consider taxes if you let the stock be assigned at a profit. Most likely the stock was bought less than a year ago, so you will have to pay tax at taxable income rates which will likely be higher than if you sold the stock after a year and are taxed at capital gains rates. All your options that are profitable are taxed as income also.
Excellent explanation, thank you!
If my investment goals are not dividend oriented, then I assume we can still use this strategy to protect our losses as well?
If your avg buy is $90, the MKT $ is $100 and you sell $110 strikes, if the stock goes to $115 and you get assigned you are collecting $20 a share profit.
If you get to a point where you are rolling options, it seems you are not investing.
If you own 100 shares at $90, the market is at $95, you can buy a ITM Leap PUT as insurance against loss, and then sell calls covered by the shares to recover the LEAP cost, and bring your entry price down from $90, and your leaps keep getting cheaper and your calls produce a lower delta.
lol I was thinking about Joe today because I have some options expiring in my Fidelity account on the 21st. 🙃
Haha, awesome! Capture that cash flow! =) THANK YOU for watching and for leaving your $0.02 in the comments! 😎👍🏻
Perfect timing for me! Thanks!
I don't really get why I keep hearing people indicate that they care where below the strike price the stock price lands at a covered call's expiration. The shares haven't been called away, so whether the contract ends just below the strike price, or way lower than where the stock was on the day you started the contract, is it not really all the same? You haven't sold shares. You haven't realized a loss. I keep hearing explanations that indicate that the stock ending up down at the expiration of a covered call creates a loss, but how? You collect your premium and sell another covered call. What am I missing?
If it's higher, the next CC you sell you can either get a higher premium for whatever strike price you want to sell your call at, or you can move your strike price up from the last CC, but still collect the same premium. Ultimately, if/when it does get called away, getting called away at the higher price is obviously more profitable.
I just rolled PLTR from $28 strike to $35 as the stock price was $32 at the expiry date. I had to push the expiry date out to 2/25 in order to avoid a net debit. I actually credited $100 on the transaction but there’s no way PLTR will be $35 in Feb ‘25. I’m hoping for a correction/pullback/crash in order to be able to roll this position to a higher strike and/or earlier expiry date and collect a credit. I’m basically buying time for an opportunity to improve my odds of keeping my shares. Plus worse case I get the capital appreciation of my shares up to $35.
I don’t see why in the video he didn’t scroll out to see the premium at later expiry dates. He only went out 1 week.
damn
OMG, I just ran a hypothetical on this using $607,000 worth of 45 QQQ LEAPS Calls exp 841 days in the future ($13,500 per call option purchase). If assigned in the very first week, the loss would be over $200,000 from my original $607,000. Babysitting the LEAP becomes painfully clear using this example. Selling to close or rolling the option becomes really clear using this horrific example.
Hey Joe,
Should I roll or leave it?
I have 1 contract call option on NVDA at $260 expires 6/21/24, my cost based at $180, current price way higher. Huge loss. Does it make sense to roll, Just don't know what to do?
I got news for you deep in the money is when the stock goes $30 above your option price and that’s what happened to me with AVGO
If I have a stock falls say 10% it may be too far to sell call options... what do you do?
Just get assigned... would u lose money?.. if share rised and sell them at higher price..
clear and concise. Thank you.
Great segment Joe-Thanks.
Can I buy back the option and sell the stock for a profit?
Awesome video. Thank you!
in first scenario what will happen to premium?
It's only a true loss if you decide to buy back the stock at higher price if it goes past the strike price right? if you don't buy the stock back at a higher price when the shares get called away, then it's only a potential loss?
Thanks a/j good example I could of used that 2 weeks ago. But now I know. Thanks
I always get caught with my covered calls, I have a 115 cc on meta for jan 2024 😂
Do you ever do any daily calls with SPY or any other ETF?
Excellent explanation
The price of the stock has gone way past my strike price. Almost $10 above and I haven’t been assigned yet. I’m trading out of a cash account and don’t have the option to roll anymore.
The exp date isn’t until May 2025.
Simetimes, the share price ascends so rapidly that, even on highly liquid positions, you have an issue getting your roll filled until you're ITM.
Rolling up is always an option. You get some of the upside of the stock, as long as there is some time premium in the contracts. No, not a day before expiration though.
Depends on volatility. Stocks like SPY can be 1 to 3 days rolled to a higher strike price if the market value is close.
Great video!
What is the difference between option and covered call?
A covered call is a type of option