This is quite educational. It's crucial for newcomers to keep in mind that the financial markets are highly irrational in the short run. You should constantly be ready for the unexpected. That is how chance operates. Because of the inherent risks in the market, I always favor long-term investments.
These uncertainties will always be there. Thing is, every once in a while, the market does something so stupid it takes your breath away. If you’re not ready for it, you shouldn’t be in the market business. or get you a skilled practitioner.
Such market uncertainties are the reason I don’t base my market judgements and decisions on rumors' and hear-says, it got the best of me in the year 2020 and had me holding worthless positions in the market. I had to revamp my entire portfolio through the aid of my financial advisor, before I started seeing any significant results happens in my portfolio. Been using the same advisor since then and I’ve scaled up almost a million within 2 years. Whether a bullish or down market, both makes for good profit, it all depends on where you’re looking…
Not bad at all. I know a lot of folks that made fortunes from the Dotcom crash as well as the 08’ crash and I’ve been looking into similar opportunities in this present market. Could this coach that guides you help?
Finding financial advisors like Natalie Noel Burns who can assist you shape your portfolio would be a very creative option. There will be difficult times ahead, and prudent personal money management will be essential to navigating them.
Thanks for sharing, I just looked her up on the web and I would say she really has an impressive background in investing. I will write her an e-mail shortly.
A lot of traders may go on long win streaks, get greedy, break their strat, lose half their month's gains then revenge trade the other half away too. Currently, With 1:1 RR I have a 60% win rate and I have accumulated over $290k since the start of the year. Tbh, having a simple but an effective approach is kinda relaxing actually!
Beginner's luck just means that someone who is new to an activity tries it and happens to get a positive, yet improbable result early on. That can happen with pretty much any activity involving a significant degree of chance. So, yes!
@@mEAngurrrrl How do you go about it? I’ve been longing to get into the financial trades market but I always seem to incur more losses than wins whenever I try.
People underestimate how valuable structured knowledge is. Is free information available? Sure. But how much time and (probably) capital would a beginner end up wasting trying to make sense of all the books and youtube videos, many of which contradict each other?
This video helped me more than you will ever know....I have only done monthly covered calls for 5 months and always let them expire.... but in one week after seeing this , I have made 600 bucks on Amazon alone. I can't thank you enough.
Thanks for the video - a good starting point for those new to selling Calls .. the point that no one mentions to new traders, is that this premium you collect when you sell the call is not yours (yet) - and some would then go and trade that cash to buy something else - then get into problems when the stock price goes up and the covered calls starts making a loss .. and they can't buy it back cause they tied the cash .. need to be super careful about that scenario .. cause your broker may close out any position you hold in that case - another point is, don't wait to 10%, i buy back at 50% .. then wait till the stock price goes up again, see an upcoming resistance, then sell the covered call above resistance.. never sell a call when the stock price is at low or lower than your breakeven,.. you can lose a lot
@@beLIEve77 i'm afraid that not correct. when you sell a CC, it's an "open" trade - nothing is "yours" until you "close" the trade when you "buy to cover" .. good luck to you !
@@paretous_x7044 Clearly you have no idea how a covered call works. The premium you collect is in fact yours. Nothing can be done to "take away" the premium. Don't confuse people with comments like, if the stock price goes up and you want to buy to close, you might not have enough cash because you "tied" it. Further you confuse people by saying when the covered call starts making a loss. The "loss" on a covered call also has nothing to do with the premium you were already paid beyond the cost to buy to close the call is now more expensive than the premium you were paid. You are on the hook for your shares to be "called away" at the strike price until expiry or you buy to close, but the premium is still yours. If you do NOTHING at all, the premium is yours, the call will either expire worthless, or your shares will be called away at the strike price. When you start talking about your broker closing out any position you hold, you really go off the rails. Are you in some way selling naked calls vs. covered. That is the only place i can think of where that bit of nonsense would apply. In a covered call, the only thing your broker will sell is the 100 shares at the strike price if assigned.
Enjoyed this. Question, most of the decay happens in the last three weeks so wouldn't it be better to sell shorter and convert to puts if you get blown out o is the upside strength in AAPL too strong?
Hi and Tx. One point : Why did you keep the 170 strike all along the way. For the first position, I understand why you chose the 170 strike ATM call. So why did not you choose to sell each time the ATM call strike ? Tx in advance
Thank you for this. What is the best strategy with choosing a strike price? Do we look at a delta at 20-25% or chose a strike close to the current price?
Im new to all this. When you do a cover call, and you set a date. If it hits the strike price before the date do you lose your shares or does the strike price have to be on the date you choose?
To address few comments : 1- if you get called or exercised on your sold call - you have to be comfortable knowing your strike price + premium you got was enough to break even or be profitable. If you cost is significantly more then yes you run into a loss. But if you use technical and don’t see the strike price being in the money too oftern then you can roll this move over and over 2- once you have any call option open setup “ alerts “ 50 % and 25 % of value so automatically you will know and if it’s way before expiry close it. Take profit.Gluck
Thanks for this great video, What would the results be if you move the strike price, to say 2 strikes out of the money every time you reloaded? How would you use cost basis to determine strike price?
This is great information and a awesome strategy for income. I have a question: If you do the sell and buy calls, what about the taxes on the gains? Would those be short term meaning paying taxes per income bracket?
Does this strategy always presume that the price will drop, and you simply snipe (buy back) the call at the discount? And can the opposite be done with puts?
That's the ideal scenario. Unfortunately there is always the chance that the stock will rally and stay high at expiration, calling off your shares at a discount and causing a loss. At that point, you may want to consider cash secured puts, basically implementing a wheel strategy.
I’d love to know what the strategy would be in this case if the shares get called away. Do the opposite and sell a cash covered put? Buy shares back on a red day and start selling calls again?
what if prices go up and not down? what would you do? and the buying back at 10% is it 10% of the sell price of the option? or the price? for example if you sold a covered call and received 1000$? when should you buy it back? when that call is $100???
Would be helpful to go over the situation when the stock rallies above the strike price at expiry. I assume the only thing to do in this scenario is to close both the stock and the option positions before the expiry? Thanks
we did a video on just that situation: ruclips.net/video/STQOppV45ZQ/видео.html If your shares are called away from you, you'd just sell them at 170 and can always repeat the process, potentially waiting for the stock to pullback before entering again.
@@FranciscoDelValle180 yep, and you will pay taxes over the price of the sale, not your strike price. So many things these videos don't cover... always the best case scenario. CCs will lose money in a bull market also. These videos cause more damage than help, but that's the way this industry operates...
@@Dori_1111 Actually Dori you are selling the shares at your strike price, so the price of the sale IS the strike price. I'll have to respectfully disagree with you on that. Any strategy can lose money in any market if foolishly executed. But you can't lose money on a covered call if the stock goes up. It's impossible The shares have 100 deltas and the short options have less than 100 negative deltas. You can lose money in a bullish market if you pick the wrong stock and it goes down. I said repeatedly in the video that the covered call is a bullish strategy.
@@sethfreudberg4750 Thanks for replying. I should have clarified in my post above, that you pay taxes near the price of the sale when you "roll" the covered call (otherwise, you will pay the IRS for the gains over the sale of the stock + premium received). Let me try to explain, you sold a $110 CC in a $100 stock. The stock goes up to $115, and you roll your CC to a further date, so you are not exercised and trigger a tax event (you want to keep the shares). Then the stock goes to $120, $125, and you keep rolling. Suddenly you are exercised and the shares are taken from you. You will be taxed at sale at strike price plus the rolls which will be closer and closer to the 'sale' price at the date of exercising as you've accumulated a 'paper only' gains of the rolls. This will be a huge tax hit. I've been in this situation years ago and learned this the hard way. Covered calls work better in bearish markets. These days you can use simulation tools to figure out when certain strategy will work or not. In a bullish market you are better off holding the stock (assuming it's a quality stock or index).
Thanks for the video! Quick question, at what Market Cap does a stock stop being affected by SPY movements? I seem to see 10 Billion. It's frustrating when a bigger company's stock that's in play has news, good or bad, and a decent play gets affected by the movements of an indice. Thanks.
So it sounds like you are closing when the stock is down and then waiting for it to recover a bit before selling another call, is that correct? If so, how do you know it is not part of a larger downtrend and the stock will not recover to a price where selling a covered call makes sense? Or are you immediately closing and reopening 3 months out, regardless of how little premium you get?
@weyermannX--astute and accurate observation. I wait for a bounce to re-sell calls. If the stock then sells off again, and the calls expire worthless, you'll want to re-sell a new call, but don't sell it below the acquisition price of your shares or you'll take a loss on the share if the shares are later assigned. Of course, if your bullish thesis changes, you MUST get out of the position. Covered calls are a bullish trade.
While I agree that this strategy would accelerate cash flow. early buy back at 10% of original premium situation is possible only when underlying price has dropped or stayed sideways to give us the benefit of theta.
Your strategy assumes that the stock “bounces” in a relatively short period after you buy back the calls. What do you do if the stock continues to drop or trades sideways for an extended period after you buy back? What strategy do you employ under those circumstances? If you can please outline that for viewers.
@@RealKimJungUn Wow you 'Wheel'ed that strategy in! Get it? Wheeled as in the Wheel strategy. BUT maybe not going to do that if you did LEAPS! As in the poor man's covered call. ...it depends
Whenever I have decided to do a covered call, I have seen my shares finally turn up and rocket up that I have lost out completely on the appreciation. Although I still do covered calls here and there, it's not that often. Perhaps I need to look at a 3 months expiration instead of a 2 weeks to 1 month expiration.
I suggest only doing covered calls on at most half your position so you don't miss all the upside. If all you have is 100 shares then wait for a big run up rather trying to do them all the time.
Hindsight always looks bad, LOL however ask yourself the question, “if you did not sell the call would you have held the stock throughout the entire run up ??” OR would you have taken your profit at some time ?? One solution for this is to always sell calls at a price that you would accept accept and be content for the stock, AND don’t count profit from a run up that you never had anyway. Let’s say Exxon (XOM) is @ $118, the call is @$125 with a $5 premium. Would you sell XOM for $130 ($125 +$5) and be happy ???? If so then don’t cry if it goes to $133 OR you could just buy more when it crosses $123 OR $126 and you will also get the appreciation as well. NFA, just an observation. Remember also, you MADE $$$$$$ AND you will never go broke making $$$$$$ as long as you don’t spend more than you are making. LOL
Timothy Wilson 5 days ago Seth, why stay with the static price of $170? Was this the price you paid for the shares? (second time I have asked the question.)
I think he’s implying he bought the shares lower, say 165 and he’s selling a 170. Assuming the stock doesn’t hit 170, and the call expires, he just writes another with the same strike and keep doing it until they get called away. Then he switches to buying back the call when it’s it’s the money and just gets some profit. If the stock he’s holding drops without having a call actively selling, he either sells the shares or keeps them and buys back lower and then reloads with another call, be it a 170 again or a lower strike.
Question for anyone: Over the last week I sold a net $3,354 worth of call (bought to close $151.98). I’m tracking the neutral value of my portfolio, adding unrealized losses and subtracting unrealized gains. Other than the sale of calls there were no deposits, the neutral value of my account went down $1,803.55. How can this be? Could there be transactions not cleared effecting the value? I do have some MARA calls fairly deep in the money now, can that be a factor?
A lot of traders are worried about the cost basis. Yes in a down market you may be writing calls below your cost. Stocks go down, sometimes a lot. You have two options, sell the stock at a loss or wait for it to recover. If you hold the stock keep writing the calls. The strikes and exp need to be further out and you will need to close early to take profits. If the stock suddenly gets bullish you can roll early. I never hold until exp. You will have instances when the short loses some money but you keep rolling and the premium profits will catch you up.
I have done early buy outs with short puts with no cash except the collateral required. The downside could be, as with any stock, is that your holding could drop beyond the premium. OR rise and run away without you. It is still stock picking.
in this case we sold the call at 170 the entire time which was near our entry price. As the stock goes lower, the premium we get each time we sell the calls gets smaller and smaller as the price of the stock declines. If the stock were to trade near the 170 level, we'd maintain the higher premiums.
Great video! Hypothetically, if you reload your sell order, and the price of Apple goes up causing you to handover your 300 shares, you might run into an issue where the strike price is less than the cost of your original 300 shares, resulting in a loss. Do you have recommendations on how to make up this loss of the original 300? Thanks
@@richardthorne2804 Richard that would cause you to almost certainly experience a realized loss on the call you are rolling away from, so I prefer your first suggestion, don't sell calls below your cost basis. That's always my approach. In fact I go higher than that for a few reasons I could explain in another video.
Jon that's a long discussion. You'd need to ask the fundamental question--am I still bullish on this stock at the NEW, HIGHER price. If yes, then you'd buy the shares again and sell a call substantially higher than that. If you are not still bullish at the higher price, you have no business re-starting what is a bullish trade in its essence--the covered call.
In this market your going to have that happen all the time. In fact you could be way below your cost basis and wonder what to do. You could just hold your shares and wait for a recovery. I don't. I still get some income from pushing my strike way out and the exp further out also. Give it some serious room to move. You are going to lose some premium and your strike may be well below cost for a while. But unless the stock jumps up a lot you are going to make some money along the way, sell early and roll further out. Eventually you will be whole as the stock climbs back to normal. You may take a loss or two on the rolls but remember your stock is recovering putting the value back in your pocket. If it doesn't recover you can sit there collecting premium forever.
In practice, I find selling CC's pretty safe. At any given time I have sold dozens of different calls, and only rarely do I find that a stock is called away (at a large windfall profit), OR, I decide to pay more to buy them back and then defray that cost by selling new CC's on the position which by now also shows great price appreciation.
This all hinges on your stock not going up too much. If I could accurately determine which stocks would stay flat or go down.... I wouldn't be long in the first place?
I normally find these videos very helpful, but this one is very cherrypicked with the help of hindsight to pick the buy backs and resells of the covered calls to increase profits. Not a very helpful video and it makes selling covered calls look like free money, when they're not if the stock doesn't cooperate.
I would say : not realy if you choose a big cap stock/ blue chip. You cash in the premium related to your sold call all along the way the stock goes down but 1/ that stock will then bounce and 2/meanwhile you will have secured all premiums relatred to sold calls.
the idea is you want to own the stock in the long and aren't necessarily concerned about it going lower because your holding period is for the long term. This strategy helps generate additional income
Selling covered calls suck if you have less than 4 to 5000 . The premiums offered end up being like 0.02 or 0.01 if the strike price is lets say two to three dollars away from the current stock price .
What is not explained here is that when you sell calls you are capping your upside. If you have a stock moving up fast this is nto a good strategy but a stock going sideways or down slowly this is great. I sell deep ITM calls on bearish stocks far OTM calls on bullish stocks and ATM on stocks moving sideways.
sorry but this whole thing is monday morning football ref. In the example, after you close the march 170 for 10%, why would you wait a random week to open your new covered call? of course, its handy that the chart goes straight up 1 week later but in real life, if you close you position, you will ope a new up the day after max.
That's a choice aligned to a strategy that says, "I will only wait a day max before selling another call." Which is the wrong strategy? You might want to try, "I will wait until the stock moves green again, when call premiums go up, then sell the call." So YOU might open it up the next day max, aligned to YOUR strategy. I would not.
I like how you completely neglected to mention that covered calls only work when stocks go sideways or down. If stocks go higher than strike, you lose out on the profit which will always be higher than the proceeds from the covered call. I also question why an investor would short via a covered call against their position, if they don't think stock is going up, why not sell and take money elsewhere? It's an useful strategy in some cases for sure, but I think this video is misrepresenting the implications of a covered call.
In my experience covered calls generates very little income. Like +3% against positions. Of course if you sell out to further dated expiry, that premium is higher but you have to hold the shares that much longer. There is an use case but I think it's mostly not a good use of a trader's time/effort
The problem is you don't understand the basic fundimentals or else you'd be able to listen to this in 2x. This is beginner level, nowhere near complex. You'd be better served understanding the basics first.
True, but this is extremely cherry-picked and requires you to time the market, which is counterintuitive to people doing covered calls in general. This knowledge is no different than "buy low, sell high" - sounds great, doesn't always work
when the broker recommends a strategy that's it, you know its bullshit and they just want to take all your money from you. now that this broker recommends covered calls, I will not use that strategy. Selling calls to bet the stock will drop but yet holding the stock which is inherently a bullish position is contradictory and makes no sense at all. Bear in mind brokers want you to buy and sell options more because they earn more from you regardless whether you make or lose money.
Grab your spot at the workshop bit.ly/3JB95es
This is quite educational. It's crucial for newcomers to keep in mind that the financial markets are highly irrational in the short run. You should constantly be ready for the unexpected. That is how chance operates. Because of the inherent risks in the market, I always favor long-term investments.
These uncertainties will always be there. Thing is, every once in a while, the market does something so stupid it takes your breath away. If you’re not ready for it, you shouldn’t be in the market business. or get you a skilled practitioner.
Such market uncertainties are the reason I don’t base my market judgements and decisions on rumors' and hear-says, it got the best of me in the year 2020 and had me holding worthless positions in the market. I had to revamp my entire portfolio through the aid of my financial advisor, before I started seeing any significant results happens in my portfolio. Been using the same advisor since then and I’ve scaled up almost a million within 2 years. Whether a bullish or down market, both makes for good profit, it all depends on where you’re looking…
Not bad at all. I know a lot of folks that made fortunes from the Dotcom crash as well as the 08’ crash and I’ve been looking into similar opportunities in this present market. Could this coach that guides you help?
Finding financial advisors like Natalie Noel Burns who can assist you shape your portfolio would be a very creative option. There will be difficult times ahead, and prudent personal money management will be essential to navigating them.
Thanks for sharing, I just looked her up on the web and I would say she really has an impressive background in investing. I will write her an e-mail shortly.
A lot of traders may go on
long win streaks, get greedy,
break their strat, lose half their
month's gains then revenge
trade the other half away too.
Currently, With 1:1 RR
I have a 60% win rate and
I have accumulated over $290k
since the start of the year.
Tbh, having a simple but
an effective approach is kinda
relaxing actually!
It's me, I am novice!
I did exactly that ⬆️
Btw, I'm curious is there
such a thing as beginners luck
when it comes to options
trading??
Lol! Funny you 🤣…
Beginner's luck just means
that someone who is new to
an activity tries it and happens
to get a positive, yet improbable
result early on. That can happen
with pretty much any activity
involving a significant degree
of chance. So, yes!
@@mEAngurrrrl
How do you go about it?
I’ve been longing to get into
the financial trades market
but I always seem to incur
more losses than wins
whenever I try.
People underestimate how
valuable structured knowledge is.
Is free information available? Sure.
But how much time and (probably)
capital would a beginner end up
wasting trying to make sense of
all the books and youtube videos,
many of which contradict each other?
This video helped me more than you will ever know....I have only done monthly covered calls for 5 months and always let them expire.... but in one week after seeing this , I have made 600 bucks on Amazon alone. I can't thank you enough.
Thanks for the video - a good starting point for those new to selling Calls .. the point that no one mentions to new traders, is that this premium you collect when you sell the call is not yours (yet) - and some would then go and trade that cash to buy something else - then get into problems when the stock price goes up and the covered calls starts making a loss .. and they can't buy it back cause they tied the cash .. need to be super careful about that scenario .. cause your broker may close out any position you hold in that case - another point is, don't wait to 10%, i buy back at 50% .. then wait till the stock price goes up again, see an upcoming resistance, then sell the covered call above resistance.. never sell a call when the stock price is at low or lower than your breakeven,.. you can lose a lot
The premium is our when we sell covered calls. Buyer can just exercise the call option and call away our stock.
@@beLIEve77 i'm afraid that not correct. when you sell a CC, it's an "open" trade - nothing is "yours" until you "close" the trade when you "buy to cover" .. good luck to you !
@@paretous_x7044
Thanks, but a covered call is already covered by the underlying stock no?
@@paretous_x7044 Clearly you have no idea how a covered call works. The premium you collect is in fact yours. Nothing can be done to "take away" the premium. Don't confuse people with comments like, if the stock price goes up and you want to buy to close, you might not have enough cash because you "tied" it. Further you confuse people by saying when the covered call starts making a loss. The "loss" on a covered call also has nothing to do with the premium you were already paid beyond the cost to buy to close the call is now more expensive than the premium you were paid. You are on the hook for your shares to be "called away" at the strike price until expiry or you buy to close, but the premium is still yours. If you do NOTHING at all, the premium is yours, the call will either expire worthless, or your shares will be called away at the strike price. When you start talking about your broker closing out any position you hold, you really go off the rails. Are you in some way selling naked calls vs. covered. That is the only place i can think of where that bit of nonsense would apply. In a covered call, the only thing your broker will sell is the 100 shares at the strike price if assigned.
Great video. How do you manage the position when the calls go ITM?
Enjoyed this. Question, most of the decay happens in the last three weeks so wouldn't it be better to sell shorter and convert to puts if you get blown out o is the upside strength in AAPL too strong?
Hi and Tx. One point : Why did you keep the 170 strike all along the way. For the first position, I understand why you chose the 170 strike ATM call. So why did not you choose to sell each time the ATM call strike ? Tx in advance
Thank you, can you talk thru a scenario where the stock price rally above the call option strike.
Thank you for this. What is the best strategy with choosing a strike price? Do we look at a delta at 20-25% or chose a strike close to the current price?
Seth: one of the best videos I’ve seen on RUclips. Thanks for posting!!
appreciated CoachZ
Love you videos. Thanks!
thanks Daniel!
Great channel! Thabk you!
Great vid! Would be great to see a comparison of this to a monthly covered call campaign for AAPL over the same time. Which provides greater returns?
For the second technique, when you buy to close and sell to open the calls, do you do it separately or just roll the option?
Very useful and methodical explanation ....thanks!!!
Im new to all this. When you do a cover call, and you set a date. If it hits the strike price before the date do you lose your shares or does the strike price have to be on the date you choose?
Love the technique
One question is if you get assigned after the expiration is the idea to reload ?
Awesome thanks Seth!
you are welcome!
To address few comments : 1- if you get called or exercised on your sold call - you have to be comfortable knowing your strike price + premium you got was enough to break even or be profitable. If you cost is significantly more then yes you run into a loss. But if you use technical and don’t see the strike price being in the money too oftern then you can roll this move over and over
2- once you have any call option open setup “ alerts “ 50 % and 25 % of value so automatically you will know and if it’s way before expiry close it. Take profit.Gluck
Thanks !
Thanks for this great video, What would the results be if you move the strike price, to say 2 strikes out of the money every time you reloaded? How would you use cost basis to determine strike price?
Are you selling the call based on delta or price of stock. If delta, what delta do you chose?
Well presented. Clear. Of course you've gotta do it yrself to really Master it. 😅
This is great information and a awesome strategy for income.
I have a question: If you do the sell and buy calls, what about the taxes on the gains? Would those be short term meaning paying taxes per income bracket?
It will all be taxed as income, unless you held the shares for more than a year.
Is there a difference if you buy them back instead of rolling a position before expiry?
Does this strategy always presume that the price will drop, and you simply snipe (buy back) the call at the discount? And can the opposite be done with puts?
That's the ideal scenario. Unfortunately there is always the chance that the stock will rally and stay high at expiration, calling off your shares at a discount and causing a loss. At that point, you may want to consider cash secured puts, basically implementing a wheel strategy.
Are you selling that SPX credit spread today with VIX under 20?
I’d love to know what the strategy would be in this case if the shares get called away. Do the opposite and sell a cash covered put? Buy shares back on a red day and start selling calls again?
@Jsarg: two very good ideas. Also read my reply to @Jonowens above. It's important.
what if prices go up and not down? what would you do? and the buying back at 10% is it 10% of the sell price of the option? or the price? for example if you sold a covered call and received 1000$? when should you buy it back? when that call is $100???
Would be helpful to go over the situation when the stock rallies above the strike price at expiry. I assume the only thing to do in this scenario is to close both the stock and the option positions before the expiry? Thanks
we did a video on just that situation: ruclips.net/video/STQOppV45ZQ/видео.html If your shares are called away from you, you'd just sell them at 170 and can always repeat the process, potentially waiting for the stock to pullback before entering again.
@@smbcapital The pain points here are the price you bought the stock at originally and whether it results in a taxable event. Ask me how i know.
@@FranciscoDelValle180 yep, and you will pay taxes over the price of the sale, not your strike price. So many things these videos don't cover... always the best case scenario. CCs will lose money in a bull market also. These videos cause more damage than help, but that's the way this industry operates...
@@Dori_1111 Actually Dori you are selling the shares at your strike price, so the price of the sale IS the strike price. I'll have to respectfully disagree with you on that. Any strategy can lose money in any market if foolishly executed. But you can't lose money on a covered call if the stock goes up. It's impossible The shares have 100 deltas and the short options have less than 100 negative deltas. You can lose money in a bullish market if you pick the wrong stock and it goes down. I said repeatedly in the video that the covered call is a bullish strategy.
@@sethfreudberg4750 Thanks for replying. I should have clarified in my post above, that you pay taxes near the price of the sale when you "roll" the covered call (otherwise, you will pay the IRS for the gains over the sale of the stock + premium received). Let me try to explain, you sold a $110 CC in a $100 stock. The stock goes up to $115, and you roll your CC to a further date, so you are not exercised and trigger a tax event (you want to keep the shares). Then the stock goes to $120, $125, and you keep rolling. Suddenly you are exercised and the shares are taken from you. You will be taxed at sale at strike price plus the rolls which will be closer and closer to the 'sale' price at the date of exercising as you've accumulated a 'paper only' gains of the rolls. This will be a huge tax hit. I've been in this situation years ago and learned this the hard way. Covered calls work better in bearish markets. These days you can use simulation tools to figure out when certain strategy will work or not. In a bullish market you are better off holding the stock (assuming it's a quality stock or index).
Thanks for the video!
Quick question, at what Market Cap does a stock stop being affected by SPY movements? I seem to see 10 Billion.
It's frustrating when a bigger company's stock that's in play has news, good or bad, and a decent play gets affected by the movements of an indice. Thanks.
I don't think any size stock is disconnected from the SPY. On large up or down days, almost ALL stocks rise or drop as the case may be.
Selecting OTM Strike price at Premium equal to Risk Free rate or your borrowing cost is better?
So it sounds like you are closing when the stock is down and then waiting for it to recover a bit before selling another call, is that correct? If so, how do you know it is not part of a larger downtrend and the stock will not recover to a price where selling a covered call makes sense? Or are you immediately closing and reopening 3 months out, regardless of how little premium you get?
@weyermannX--astute and accurate observation. I wait for a bounce to re-sell calls. If the stock then sells off again, and the calls expire worthless, you'll want to re-sell a new call, but don't sell it below the acquisition price of your shares or you'll take a loss on the share if the shares are later assigned. Of course, if your bullish thesis changes, you MUST get out of the position. Covered calls are a bullish trade.
@@sethfreudberg4750 Thats very interesting, as most of the traditional text claims covered calls are a bearish position.
How did you choose the $170 strike to sell the covered call?
While I agree that this strategy would accelerate cash flow. early buy back at 10% of original premium situation is possible only when underlying price has dropped or stayed sideways to give us the benefit of theta.
So this only works if the stick you have goes down?
Thanks yall.
I'm just starting to look into this, but why would you just set the call options to expire monthly in the first place?
Would this strategy work on Selling puts?
wonder what delta he buys the original calls and how far out in time?
Underrated
So the covered call price don't have to be above the purchased share price but the current stock price, right?
Is rolling the same as buying to close and selling a brand new fresh cc?
What is the difference there?
Your strategy assumes that the stock “bounces” in a relatively short period after you buy back the calls. What do you do if the stock continues to drop or trades sideways for an extended period after you buy back? What strategy do you employ under those circumstances? If you can please outline that for viewers.
Can you explain how do you choose your strike price? How far OTM or ITM? Thank you
Not covered is when the price of the stock exceeds your covered call strike. Let it go or roll it or what strategy is good?
Let it get assigned.
Do cash secured puts
@@RealKimJungUn Wow you 'Wheel'ed that strategy in! Get it? Wheeled as in the Wheel strategy.
BUT maybe not going to do that if you did LEAPS! As in the poor man's covered call.
...it depends
Whenever I have decided to do a covered call, I have seen my shares finally turn up and rocket up that I have lost out completely on the appreciation. Although I still do covered calls here and there, it's not that often. Perhaps I need to look at a 3 months expiration instead of a 2 weeks to 1 month expiration.
I suggest only doing covered calls on at most half your position so you don't miss all the upside. If all you have is 100 shares then wait for a big run up rather trying to do them all the time.
Hindsight always looks bad, LOL
however ask yourself the question, “if you did not sell the call would you have held the stock throughout the entire run up ??” OR would you have taken your profit at some time ??
One solution for this is to always sell calls at a price that you would accept accept and be content for the stock, AND don’t count profit from a run up that you never had anyway.
Let’s say Exxon (XOM) is @ $118, the call is @$125 with a $5 premium.
Would you sell XOM for $130 ($125 +$5) and be happy ???? If so then don’t cry if it goes to $133 OR you could just buy more when it crosses $123 OR $126 and you will also get the appreciation as well.
NFA, just an observation.
Remember also, you MADE $$$$$$ AND you will never go broke making
$$$$$$ as long as you don’t spend more than you are making. LOL
Timothy Wilson
5 days ago
Seth, why stay with the static price of $170? Was this the price you paid for the shares? (second time I have asked the question.)
I think he’s implying he bought the shares lower, say 165 and he’s selling a 170. Assuming the stock doesn’t hit 170, and the call expires, he just writes another with the same strike and keep doing it until they get called away. Then he switches to buying back the call when it’s it’s the money and just gets some profit. If the stock he’s holding drops without having a call actively selling, he either sells the shares or keeps them and buys back lower and then reloads with another call, be it a 170 again or a lower strike.
Question for anyone: Over the last week I sold a net $3,354 worth of call (bought to close $151.98). I’m tracking the neutral value of my portfolio, adding unrealized losses and subtracting unrealized gains. Other than the sale of calls there were no deposits, the neutral value of my account went down $1,803.55. How can this be? Could there be transactions not cleared effecting the value? I do have some MARA calls fairly deep in the money now, can that be a factor?
A lot of traders are worried about the cost basis. Yes in a down market you may be writing calls below your cost. Stocks go down, sometimes a lot. You have two options, sell the stock at a loss or wait for it to recover. If you hold the stock keep writing the calls. The strikes and exp need to be further out and you will need to close early to take profits. If the stock suddenly gets bullish you can roll early. I never hold until exp. You will have instances when the short loses some money but you keep rolling and the premium profits will catch you up.
what if after stock going down by large % it takes months to recover
I have done early buy outs with short puts with no cash except the collateral required. The downside could be, as with any stock, is that your holding could drop beyond the premium. OR rise and run away without you. It is still stock picking.
What if stock price goes lower than price it was bought then means selling call below price bought
in this case we sold the call at 170 the entire time which was near our entry price. As the stock goes lower, the premium we get each time we sell the calls gets smaller and smaller as the price of the stock declines. If the stock were to trade near the 170 level, we'd maintain the higher premiums.
@@smbcapital so once stock reach entry i guess just sell the stock
Or DCA with the premiums collected.
That’s a great plan as long as the stock goes south.
What if you rolled it every week ?
Great video! Hypothetically, if you reload your sell order, and the price of Apple goes up causing you to handover your 300 shares, you might run into an issue where the strike price is less than the cost of your original 300 shares, resulting in a loss. Do you have recommendations on how to make up this loss of the original 300? Thanks
Sell puts on apple then
Don’t sell below your cost basis or be prepared to roll up and out for more credit if you do.
@@richardthorne2804 Richard that would cause you to almost certainly experience a realized loss on the call you are rolling away from, so I prefer your first suggestion, don't sell calls below your cost basis. That's always my approach. In fact I go higher than that for a few reasons I could explain in another video.
Jon that's a long discussion. You'd need to ask the fundamental question--am I still bullish on this stock at the NEW, HIGHER price. If yes, then you'd buy the shares again and sell a call substantially higher than that. If you are not still bullish at the higher price, you have no business re-starting what is a bullish trade in its essence--the covered call.
In this market your going to have that happen all the time. In fact you could be way below your cost basis and wonder what to do. You could just hold your shares and wait for a recovery. I don't. I still get some income from pushing my strike way out and the exp further out also. Give it some serious room to move. You are going to lose some premium and your strike may be well below cost for a while. But unless the stock jumps up a lot you are going to make some money along the way, sell early and roll further out. Eventually you will be whole as the stock climbs back to normal. You may take a loss or two on the rolls but remember your stock is recovering putting the value back in your pocket. If it doesn't recover you can sit there collecting premium forever.
Covered calls have basically the same P/L curve as selling naked puts, so they must be carefully managed and aren't as safe as they sound.
In practice, I find selling CC's pretty safe. At any given time I have sold dozens of different calls, and only rarely do I find that a stock is called away (at a large windfall profit), OR, I decide to pay more to buy them back and then defray that cost by selling new CC's on the position which by now also shows great price appreciation.
Seth, why stay with the static price of $170? Was this the price you paid for the shares?
This all hinges on your stock not going up too much. If I could accurately determine which stocks would stay flat or go down.... I wouldn't be long in the first place?
I normally find these videos very helpful, but this one is very cherrypicked with the help of hindsight to pick the buy backs and resells of the covered calls to increase profits. Not a very helpful video and it makes selling covered calls look like free money, when they're not if the stock doesn't cooperate.
No shit. Its educational. Of course he cherry picked for an example.
Safer to use ETF than individual stock.
What you didnt say was thow long you were out of the trade and how to know how long to wait
it might hurt to sell covered calls in declining market
I would say : not realy if you choose a big cap stock/ blue chip. You cash in the premium related to your sold call all along the way the stock goes down but 1/ that stock will then bounce and 2/meanwhile you will have secured all premiums relatred to sold calls.
the idea is you want to own the stock in the long and aren't necessarily concerned about it going lower because your holding period is for the long term. This strategy helps generate additional income
....Since monthly options in $AAPL for a long time.
Why weren't you doing this as a MONTHLY income program?
I do weekly with Tsla/nvda/amd. Works well
You can do it as a monthly income program as well, we choose quarterly in this case for the example
This video has a cherry-picked feel to it.
Easy but is it risky free and able to generate income for years consistently and sustainably
Why buy back the August on the last day? If in the money, let them be called and start selling puts.
I think he was simplifying for academic reasons.
(possible) loss of dividend and long term capital gains liabilty.
If you are selling CC on a stock that you own at a higher price possibly
The wheel is very effective in a stagflation environment.
Maybe to allow you to sell another covered call on Friday rather than having to wait for Monday?
I wonder how this method would compare to closing at 50% profit…
I was thinking the same thing. Also 3 months is a bit long as most people don't go above 45 days but clearly he was being academic.
I like selling 30-45 day CCs and rolling once 50% profit is achieved.
@@torchy187 That seems to be the golden rule.
@@torchy187 I usually do 1-2 weeks ring register at 80% but I am usually in higher volatility stocks.
And why didn't they sort out the case when the stock goes up?
Selling covered calls suck if you have less than 4 to 5000 . The premiums offered end up being like 0.02 or 0.01 if the strike price is lets say two to three dollars away from the current stock price .
How can you sell covered calls without taking a huge hit on your principal?
Apple call 170 would pay about $3-5 not $11
this is the definition of timing the market. you couldn't do this consistently in real life.
What is not explained here is that when you sell calls you are capping your upside. If you have a stock moving up fast this is nto a good strategy but a stock going sideways or down slowly this is great. I sell deep ITM calls on bearish stocks far OTM calls on bullish stocks and ATM on stocks moving sideways.
sorry but this whole thing is monday morning football ref. In the example, after you close the march 170 for 10%, why would you wait a random week to open your new covered call? of course, its handy that the chart goes straight up 1 week later but in real life, if you close you position, you will ope a new up the day after max.
That's a choice aligned to a strategy that says, "I will only wait a day max before selling another call." Which is the wrong strategy? You might want to try, "I will wait until the stock moves green again, when call premiums go up, then sell the call." So YOU might open it up the next day max, aligned to YOUR strategy. I would not.
I like how you completely neglected to mention that covered calls only work when stocks go sideways or down. If stocks go higher than strike, you lose out on the profit which will always be higher than the proceeds from the covered call. I also question why an investor would short via a covered call against their position, if they don't think stock is going up, why not sell and take money elsewhere? It's an useful strategy in some cases for sure, but I think this video is misrepresenting the implications of a covered call.
Obviously you are trading the upside. Why else would you receive a premium?
In my experience covered calls generates very little income. Like +3% against positions. Of course if you sell out to further dated expiry, that premium is higher but you have to hold the shares that much longer.
There is an use case but I think it's mostly not a good use of a trader's time/effort
Are there any women who work there?
I think this strategy will only work if the stock price is falling...
The guy speaks too fast, had to pause video zillion times to understand what he is saying.
The problem is you don't understand the basic fundimentals or else you'd be able to listen to this in 2x. This is beginner level, nowhere near complex. You'd be better served understanding the basics first.
You can slow down the video speed in the settings.
Weekly is better
How does this make sense? How you gonna sell calls for 300 shares when you only have 100? And how you getting money from nowhere?
True, but this is extremely cherry-picked and requires you to time the market, which is counterintuitive to people doing covered calls in general. This knowledge is no different than "buy low, sell high" - sounds great, doesn't always work
when the broker recommends a strategy that's it, you know its bullshit and they just want to take all your money from you. now that this broker recommends covered calls, I will not use that strategy. Selling calls to bet the stock will drop but yet holding the stock which is inherently a bullish position is contradictory and makes no sense at all. Bear in mind brokers want you to buy and sell options more because they earn more from you regardless whether you make or lose money.
This stupid trick works ONLY for the stock which went slowly down all year.
This trick FAILS spectacularly if the stop shoots up.
LOL