Poor Man's Covered Call Tutorial
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- Опубликовано: 7 сен 2024
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Great video, thank you! So basically, if you're bullish but IV is low, you would use PMCC, but if IV is high, you would sell a naked put?
Generally speaking, yes! Those strategies would play into our assumption of mean reversion in IV: when IV is low we expect it to increase at some point, and when IV is high we expect it to decrease at some point.
Dude you look like Chris from ProjectOption. Are you guys related?
Brothers!
@@tastyliveshow ohhhh, I thought you guys were the same person with different hair, lol 🤣🤣
What if you get assigned on the short call? Do you exercise your long call?
LiberatedMind that would be a lot of profit in most cases though wouldn’t it?
@Michael De Stagni you have to make sure the width of the strikes is greater than the cost of the spread
@Mickey Mausser No. Remember what happens at assignement with options. You end up with positions. If you are short a call you are OBLIGATED to SELL shares at a price (because the person long a call has the right to purchase shares at a price). BUT remember you are ONLY OPENING the position, so money does not change hands. So profit/loss is not FULLY REALIZED until you close it.
So when you are shorting a call you are obligated to sell a stock at a price -> 100 shorted shares of stock (remember you still pocketed the original credit as well). The only loss now is dollar for dollar above the strike because that is the entry of your shorted stock..............
But you STILL have an ITM option that is gaining as well for every $ the stock goes up. So you are NOT LOSING any money at all. Stock goes down... you make money on shorted shares of stock and lose on ITM Call or stock goes up you gain money on ITM call and lose the same amount on shorted stock.
The most you could theoretically lose is the daily theta decay on your long option. But with at least 30 days out that should be minimal/negligible.
Does that help?
@@randallewebb You better hope you can get shares!
@@randallewebb Good explanation brother
Would it theoretically make more sense to sell more short term calls during the leaps term or less longer term calls
Another advantage to this is that if an ITM option remains ITM by expiration, this will not expire worthless, and can be sold for less than a total loss, or in the best case scenario a profit, is that correct?
Correct - if I buy an option ITM and it remains ITM at expiration, it will still be worth it's intrinsic value - it would only be worthless if it moved OTM.
@@tastyliveshow Thank you for your response :) I have another question above, hope that's alright
Is tastyworks allows poormans covered call if yes how to set up ?
With the introduction of weekly options now, this can be applied more often. I've got good success with this trading the SPY by longing the 4 weeks and shorting the 1 week.
This is true! It offers more flexibility with the strike as the stock constantly moves, but premium collection would be less. Either way it can still be a successful strategy as you've seen!
The cost can be even reduced by longing the 2 weeks to expiry and shorting the 1 week to expiry with a $3 strike interval. You just have to figure out which combination of options to Long vs which to short.
I think the problem with that is that you will fail to find deep ITM calls (delta >= .9) that have decent open interest.
Could you offer more coaching on this strategy? Do you sell PMCC's against the long call position for 1, 2, 3 or 4 weeks, until it expires on the 4th week or just once and then sell the long call to close? Has the strategy continued to be successful over the past 2 years since you posted your comment? Thank you for any insights and coaching.
Good video !!! So, if we keep doing a roll over in the short position eventually we may make the amount of the contract we bought? Or if the delta of the long position goes down we can roll it to secure those gains?
Can i do this with a leap, buy a call expiring after 3 years and sell each month call against it?
when happens if at expiration your short call breaks the strike? I know you can roll but what happens if you don't roll?
If the Short Call is exercised... what happens since we don't have the shares?
Depending on the broker, they usually just automatically exercise your long call and take the shares.
Can you explain what this means? “"Pay no more than 75% the width of the strikes” … In other words, the premium I pay should be less than 75% of the difference between the current stock price and the strike of the option?
What should be ideal IV level & Positional Greeks while entering PMCC of ( 1.ITM call option in a longer-term expiration cycle 2. OTM call option in a near-term expiration cycle)
Very knowledgeable stuff. Suggestion though in all your videos, please slow down, give a few seconds in between statements for viewers to absorb on what you have just said please
surprised you didnt mention what delta the long call shold be.
Everything I’ve read and watched says you want the long option to have a Delta as close to .95 as possible
How would this make any money? Pardon my ignorance its just that looking at paying the premium to buy a call... but then going by the premium Id be getting for selling calls. I’d break even... where’s the money in that? I know I’m doing something wrong but could someone provide any example or experience
The long call will always have a higher delta than the short call, so a bullish movement would mean more gains on the long call than losses on the short call. The short call is just a hedge against the long. Over time, if there is no movement, continued collections on the short option can reduce the net cost of the long option, and provide another way to be successful as well.
I have been closing once the sold option hits 50% profit and selling a new call against the LEAP, is this wrong?
Very simple, the design is very human lol
I aprecheate this class was expertly given even tho I didn't understand it.. maybe should start with something simpler haha
Great explanation. Thanks!
Let's say Stock keep going down month after month and your DTE for Long option is 340 days, so you have plenty of time to keep collecting premiums from short option, which is good. But suddenly stock makes a positive move and hits your short strike, you are assigned but you have not made a breakeven yet, so it could be loss? What do you think, strategy should be? Thank you in advance.
Depends, if DTE on the short call is still fairly long then whoever is exercising will burn their extrinsic value. If it's ITM then it's just better to buy if they want stock and wait to exercise closer and resell their long call. People buy calls aren't in it to buy stock most of the time. This will give you a chance to buy back your call and sell again OTM for a later date. (Roll)
Why wouldn't we set the written call at an ITM strike, close to our long contract, such that we could potentially collect a lot of premium if we are wrong on the long position, while making a tiny profit if we are are right with the long position? In other words what is wrong with writing ITM contracts? I am pretty new to traditional options trading. Thank you in advance
An ITM long call spread is the same as an OTM put spread using the same strikes. Risk profile is exactly the same.
If your short strike is ITM at expiration you will need to have the stock to be assigned but if your long us not yet at BE how would you exercise your long call. The only way around that i see is if your short strike is past the total of your long strike plus the premium you paid to purchase it.
What if the stock price moves above your short call?
What happens if the contact sold is in the money at expiry?
It will be converted to shares of stock. Short calls turn into 100 shares of short stock, but you'd still have the long call defining your risk. Your buying power would increase due to the shares, but risk wouldn't change as long as you own the long call.
This guy is smart.
I like money.
how do you feel about selling the short strike either ATM or shallow ITM? this is what i've been doing and it seems to work really well in my limited experience, and it turns this strategy from bullish to neutral-to-bullish...e.g., a week ago i bought a sept 11 pepsi call at 130, sold the august 28 call at 136...it cost me 490, i get 600 when it exercises, and (at the time i placed the trade) pepsi was trading above 137...20-25% ROC per month is the average i've seen so far...
As long as your net debit is lower than the width of the spread, anything is possible - the trouble comes when the spread is more narrow than the net debit, in which cases there can be losses if the spread goes too far ITM.
If the premium from all of the short options covers the cost of the long option, does it even matter if it expires worthless?
In this case, it would not - you would not have risk if your long call expired worthless, but you collected enough from multiple short option sales to cover the initial cost of the trade.
@@tastyliveshow so do you usually look for spreads where the long option premium is less than the combined premium of the shorter term options?
@@sovietsandvich8443 well you would be buying the long position first so it would be the other way around, so you would try to sell enough calls that expire worthless to offset the initial purchase.
Hello I have a question please .current Apple price is $129.75 I have 6 calls of appl $140 strike at $10.04 per contract for July 16th expiry now worth $7.28 per contract i'm $1653.25 . if i sell the 6 call option $130 strikes June 18 expiry it says i would receive $6060 . what happen if apple closes at $131 on June 18th and $131 on July 16th ? Thank you in advance
It's saying you'd receive a credit of $6,060 for selling the calls. If the stock price closes $131 on June 18th, your short call would be assigned and your long call would be taken by the broker to cover your 600 shares owed. If the short option did not get assigned, but your long call expired July 16th OTM then your long call would be rendered worthless since it's for $140.
How can I full fill the out of the money sell if I don't have the share since the ITM option is not expired yet?
I think your long call represents your shares equity wise. But don't listen to me.
With American style options you can exercise ITM options at any time, so usually brokers will exercise the long call to cover the short one resulting in max profit for the spread minus fees.
However it depends highly on the broker so make sure you know what you're doing.
Is it safe doing the wheel during election times where things can get out of hand real fast ???
I’ve been doing it on AAPL but now I feel like getting rid of shares and coming back after elections are done.
Thank you!!!
There is always risks associated with trading - "safe" assumes you know what will happen, which you never will.
@@tastyliveshow ‘safe’ is a wrong word to use for stock market altogether lol. I got out of the wheel and trimmed my positions to manage the risk. Thanks for your response though.
Is it possible to use OTM LEAPS for poor man covered call?
It's possible, but not something we like to do. This means you're paying 100% extrinsic value in the long option, and if there is a big rally quickly and both options move deep ITM, you could actually see a loss with a setup like this.
How long till cancel couture goes after the white board ? 😂🤣😂