This is the best video on cover calls! It literally covers every outcome and extremely well. Visuals are amazing and coherent. Can’t wait to see more videos on buying calls and puts. And selling puts. Thank you!
He didn't cover what happens if the stock price blows right through the covered call strike price. Then you have to calculate premium received - lost profit on the stock.
@tastytrade: - Scenario: OTM CC becomes ATM then ITM one strike. Q: When is best time to roll up-and-out? Before it gets ATM, ATM, OTM 1 strike, more than 1 strike? - Scenario: OTM CC becomes further OTM. Q: should I roll down? At what point? - When Rolling up ITM CC, should I only roll for credit (or possibly even), no matter how far out I have to go? - When Rolling down OTM CC, should I roll for credit greater than the amount I am rolling down, no matter how far out I have to go? - For OTM CC, when is it best to allow to expire vs rolling down? - For ITM CC, does it sometimes make sense to roll out and not up (ie calendar spread)? Answer those and I will have some more, I’m sure. Thanks!
DukeLaCrosse20 best time to roll is a combo when you have drained most of the extrinsic value and roll when the stick is right atm for max extrinsic value. Once the stock has gone too far itm you will get less and less of a credit
Thanks! Glad you like them! Buying back the option just removes the risk from the table. If the underlying ripped up in price I would see a big loss. Plus with TD you can buy back short options that are $0.05 or less commission free.
can you please elaborate further on the risk? Do you mean that if the stock suddenly drops below B/E (in this case 72.60) you will start losing money? If I understand this correctly you will still make en extra $100 if it goes up to $80 and you don't lose anything if it goes well beyond $80 strike point
Yes - the risk would be if the stock price dropped below 72.60. Without making the adjustment, you're correct I could have waited until the short 80 call expired and potentially made another $100 if the stock price goes up to 80. With this adjustment though, I have the ability to make an additional $620 since I'm selling an 84 call which has 4 more points to the upside of potential profit. However, if I did not close the original call for $0.05 like +meme youyou was referring to, I would have a new 84 short call, plus another short call for one day at 80. That ultimately results in a naked call + covered call, since I only have 100 shares to cover 1 short call, so if the stock price ripped up I would have risk to the upside with the extra short naked call. Just another reason why I closed the call in this example, to keep the strategy a plain covered call. I hope this helps!
This guys is really good at explaining things. Maybe cuz I understand what he’s talking about but it never hurts to get a refresher! Def sending to my amigos
The "realized Profit" is $120.00 not $520.00 it would only be 520 if you sold the shares. Since you are holding the shares the 400 is "unrealized profit"
Question, 4:55min why did you buy back or closed your position? Because you don't want to get assign? And Where did the $520 realized profit come from?? Thank you!
If you have 100 shares of stock, you can only sell 1 call against it if you don't want to have upside risk, so if you're making adjustments you need to buy back the initial call to maintain that. The $520 realized profit refers to the profit you have right now in that scenario - if you were to close the trade, that would be your realized profit. Keeping the trade open still exposes the trade to risk.
You missed one scenario, if the stock skyrockets way above the strike, I try to circumvent this by selling a call and holding a very out of the money call using the credit from the short call. Gives the upside more potential but reduces the downside hedge
Few questions. @ 5 min of this video, the stock is @ 79 on expiry day with sold call @ 80. If the stock went up above the sold strike within 5 days (@ 85, Sold call @ 80, DTE is 35 days), do we wait for the expiry or buy back the sold call before it goes DITM.
In the first example, why buy back the call instead of just allowing it to expire? Im still learning and haven't made an option trade yet, just want to make sure I understand. Thanks, great video explained really well
What about when your call goes in the money, but you want to keep the underlying...when / how do you adjust so that you can continue to collect premium?
The only way to potentially collect more premium in this example is to go further out in time. The problem is that buying back the short call will cost a lot as it is ITM, but if we are able to sell a new call above the stock price that is very far out in time, we might be able to collect more than the debit we have to pay for the option. Other than that, there's not much opportunity to continue collecting premium.
Any these people continue to give examples of a 75$ stock calls at 80$ ?. With current volatility. $5 increase can happen while you sleep in extended market time. But concept is well explained.
That is exactly what I do. First, I sell a cash secured put to obtain the dividend stock I will be selling covered calls on at a discount. Then I sell covered calls (monthly) on the dividend paying equity. On one, I am getting 8% annual dividend PLUS monthly cover call premiums of around $125. All I look for is STABILITY in the price of the holding. I don't want it to rise too quickly! And, it if it drops some I do not worry as I still make my monthly premiums as I have no intention of selling the stock. Win-Win-Win.
I am confused on where you asked to buy call when its already expiring worthless(because its still below strike price) at video time 6:00. If DTE is 0 days and its under 80 of strike price, why would i Adjust and Buy a call. Let it expire and open new Covered call next day?
It is likely to expire worthless but it is still a liability and may be exercised until 5:30 PM on the expiration day. So, in his example, let's say you sold the call but didn't buy back your call before 4:00pm; at 4:01pm news comes out that the company has tripled its profits. A call holder would likely exercise his out of the money 79call since he knows the stock will be worth much more at market open Monday. So, TL;DR, you buy back your expiring option to ensure you don't accidently find yourself with a naked short call.
assuming that the stock call is worthless some days close to expiry so i consumed all the theta, now to hedge my downside risk can i take a ITM put long and once i break even there, I'll close both positions? can someone advice?
Hi, how do you handle if the stock goes up and ends at $84 on the last day of expiry? What are the adjustments you can make - if you do not want to let go of the shares or else you want to protect your stocks from being exercised during dividend situations? Please share your thoughts.
Thank you, I've just discovered this great channel. Total beginner here so can you please clarify something for me - at around 11:30 minutes, in the scenario where the stock price doesn't change, you said you were able to buy back the call at 10 cents. This is what still confuses me with these videos. What is the difference between just letting the call expire, vs buying it back at 10 cents? Why would you buy it back? Thank you if you are able to explain :)
Mike if u have just a one short OTM call and the stock goes wildly bullish above it...is it better to still sell further above call and collect hefty premiums or sell Puts lower to reduce the losses..
Really depends on your assumption - selling more calls would create more risk to the upside and a more bearish position. Selling puts would add risk to the downside and neutralize the bearish deltas a lot. Two different assumptions, neither one is better, they're just different.
I track my trades in a manual way using Excel. Is there a better automated solution I can do to track my over all cost of ownership for my long stock in TastyWorks? I really like the challenge in making my stock free, however, I don't have a great solution to automate the process. Since this takes place over time it's challenging keep up with all the trades keeping an accurate cost of ownership. Thanks for any advise you're willing to share!
tastyworks is working on a feature that will do this for us, but in the meantime I just look at the activity tab and do some quick math - you can also go to the transaction history tab and select each option that applies to the trade and it does the math for you in the upper right corner - either option takes about 30 seconds to do once you get used to it - I hope this helps!
Hi Mike - Love your videos. This is about a covered call gone bad - would highly appreciate your input on my situation. I have 5,000 AMD shares at an average cost of $8/share. Didn't touch them for a long time - even when prices went down from $60 to $30+ last year. This year - I discovered options and started selling substantially OTM (80%+) weekly covered calls. Worked well and I thought I was very smart - NOT. Well - this ER blew up the price and suddenly my $65 July 31 c/calls were ATM. I panicked and rolled over to $75 Oct 16th calls. Now that is ATM as well! I was too greedy. These are the scenarios that I thought of. Are there any others? I'm in a Canadian Tax Free account - so capital gains taxes don't apply. 1. Buy out the Oct 16th c/call only now--> Don't have the enough cash to do that at $8+ premium 2. Sell stock and buy out the c/call now (combined transaction)--> I'll get about $69 to $70/share. 3. Wait for extrinsic value to drop and buy out closer to expiry. Of course, there is no guarantee that price (and subsequently the premium) will not keep going up 4. Roll over to $85 strike January 2021. I'll get a small credit (since $75 call is expensive). However - this might just be delaying the inevitable while tying up my capital longer (exposed so COVID-related risks etc.) 5. Let my stock go. I assume the buyer/s will do that once extrinsic value becomes negligible. This should be very soon. I will get $75/share - even if the market price may be much higher. Use the money to buy/sell to diversify (since 80% my portfolio value is from AMD). Regards, Luke
Nice video. Hope to see more on this same topic! In your 1st scenario, however, was it a real case where the price has so shot up significantly, while you were still able to buy back for only $0.05? My experience has always been that the price to buy back also went up significantly (esp if the price has risen), even it was getting close to the Exp date ( e.g. Amazon, ZM, APPL, etc. ) Any idea what are the characteristics of the type of stocks for which you can Buy to Close at such a low cost as described in the first scenario?
Time left to expiration - if there were minutes left to expiration it wouldn't matter if the stock rose up to the short call that day - the short call is going to expire in a few minutes worthless or with intrinsic value, so this example is really an example of being a few minutes from expiration, rather than a few days, where it would still have some premium.
I sell cash secured puts on stocks I want to own (in case I get assigned), and sell covered calls on stable dividend aristocrat stocks. Now, I ALWAYS let my covered calls expire when they are under my strike price. But after watching your video, it looks like you always buy to close near expiration. Why would I want to do this when there is no chance of it exceeding my strike price?
I bought the XPEV at $20. Same time I sold the cover call strike price at $22.50 for $1.60 EXP 20 Nov, 20. 5 more days to expire. Now I am deep in the money and what kind of correction do I need to do tomorrow?
You'd be sitting on a profitable trade, so we'd likely exit if there wasn't much extrinsic value left in the short call. If we're trying to avoid assignment and keep the shares as long as possible, we'd roll up and out before the option went ITM - www.tastytrade.com/tt/shows/trade-managers/episodes/avoiding-assignment-in-covered-calls-12-12-2018
Hi need a help for this Novice option trader... I sold a covered call option with strike price 2.5$ and expiration 2022. Now the current stock price is around 2.35$ . Will i get my money back and will be out of contract if stock goes past 2.5$ tomorrow or I shd be waiting till 2022?? again sorry for very basic question but need someone to help me
Nothing will happen most likely - you are waiting for the extrinsic value to come out of the short call, and if it does prior to 2022 you can close the position for near max profit, if it doesn't get exercised. Either way you're looking at max profit if the stock is above 2.5 at expiration.
is there an adjustment where share price went over the strike price for $5? Would it be to buy back call (we have to pay more) and try to find a call in the future that matches that price we just purchased our old call for? Thanks
Usually you can "roll" the call option to a further away expiration date. That includes buy back the call option (higher premium now) and sell another call option. The further away expiration helps you reduce or avoid the higher price that you pay for the buy back.
I think you are not taking into considration the enhancment in the call premiun if the stock price rises. In scenario no.1 you are short a call at 80 and stock price is moving to 79. You are imaging that the call price would remain o.o5 ??? It would be much more than 1.25 which was your selling price... I am considering in the price rise 75 to 79 happens with in first 30 daya instead of near expiration .
Sure - if the stock price rises immediately then the call will certainly be worth more than what I sold it for - this example assumes very little DTE where the extrinsic value is minimal. In any case, even if the stock price shoots up, it doesn't matter what "losses" I may see on the call - the long shares are static 100 delta, and the short call has a negative delta that is less than that, therefore it will be a net profitable position as it is a net positive delta position. The further the stock shoots up the better, as an ITM short call will have less extrinsic value than an ATM one will, and all intrinsic "losses" on the short call are 100% covered by the long shares, thus the covered call strategy name. I hope this helps!
I may have missed it, but wouldn't another strategy be simply to collect premium at expiration, as long as your strike price isn't reached your underlaying Stock has very little chance of getting called away?? Im doing this now with strike prices Id be very happy to get calleded away at, with couple week DTE with small profit but cant seem to lose and can repeat often
In order to. Do a covered cAll that is going up that expires on may as of now. Would I need the capitol to buy the shares or own the shares themselves to do a covered call. ? If possible please email bc I’m lost a bit
If you have a covered call position, you must already own 100 shares of stock, in which case you sell a call against those shares to reduce cost basis and generate cash revenue. The risk in the short call is "covered" by the 100 long shares of stock. If the short call is in the money at expiration, you'd be left with no position, as the short call would turn into 100 short shares, and wipe away your 100 long shares. You'd be left with max profit on the position.
Good question! If my ultimate goal is to keep the shares as long as I can, I do my best to NOT let the short call go ITM. It's an advanced, offensive tactic, but here is more on this idea: www.google.com/url?client=internal-element-cse&cx=015477303216471237373:u_cnlyqjhzi&q=www.tastytrade.com/tt/shows/trade-managers/episodes/avoiding-assignment-in-covered-calls-12-12-2018&sa=U&ved=2ahUKEwj1_8Ht1N7oAhVBVs0KHRZbCtcQFjAAegQIABAC&usg=AOvVaw12dJ-YDXcVsIvf0H4N0B0a
Say you wanted to sell a call far out a few months and the price rises and you want to buy it back to close early, won't you have to pay alot more back because the premium rises with the stock price?
So what if you own 400 shares of MSFT and are just looking to collect premium every week, can you just sell 4 call options or do you have to "write"? in your brokerage account?
If you already own 400 shares of MSFT you can sell 4 calls against those shares and the brokerage will recognize that you own the 400 shares - you would be capping your upside profit potential in exchange for cash now through the short call.
It certainly could, but your long shares protect you if this happens. Furthermore, it is very rare as the exerciser would be giving up extrinsic value by doing this. If there is $0.20 of extrinsic value for example, they would be burning that value when they exercise and most traders realize this.
In your first example you show buying back the call option for $1.20 less than where you bought it even though the price is approaching the strike. Either I am doing everything wrong(totally possible), or that is a bit of a contrived example. If I did something like that I would have lost money because the value of the option would be more than the premium I was paid. EDIT: about 5 seconds after posting this I realized... that's because you rolled the strike up, is that right?
Sorry for the confusion - I have 0DTE listed next to the option signifying the option is about to expire, so it doesn't matter if the stock has rallied a bit, that option is about to expire worthless, but instead I buy it back for $0.05 and sell a new call against my shares in the new 45 DTE cycle, and further OTM. Now my max profit is higher since my strike is higher, and my breakeven is improved to the downside on my shares because I'm collecting another $1.15 net credit by selling the new option.
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!!!
Mike . Covered call adjustment strategy is well explained. But u r not considering the brokerage fees and execution fees in ur calculation. This has huge impacy
True - this should always be considered, but most US brokerages charge almost nothing these days to execute stock/options trades - check out tastyworks.com which is the brokerage we use on the show.
It'll feel similar to expiration - the short call would lose a lot of extrinsic value, and intrinsic value gained on the shares would be offset by the short call. You'd be near max profit most likely.
I don't quite get how you're buying back your short call for $.10 and then selling it back for $1.40. Is the expiration the same date or are you selling a new expiration date?
No - the position would be at max profit and you can close the whole position to exit. If you're trying to maintain the shares, you'd need to avoid letting the short call go ITM, which can be done by rolling out in time AND up strikes for a credit prior to the strike going ITM - www.tastytrade.com/tt/shows/trade-managers/episodes/avoiding-assignment-in-covered-calls-12-12-2018
Can people from India open tastytrade margin account. Do you have Indian Tastytraders?? I think it might not allowed here as per laws but regardless I heard lot of people have account???
Yes they can! Here is a list of all areas that can open accounts at tastyworks: tastyworks.freshdesk.com/support/solutions/articles/43000435355-which-countries-can-open-tastyworks-accounts-international-accounts-
When the stock price goes below your B/E, you only lose money if you decide to sell the stock, right? Couldn't you just keep the stock and repeat the process after the first call expires?
Yes you certainly could - and selling another call would reduce your breakeven even more, since you would collect another credit for selling the call. But yes, losses are only realized when the position is closed.
There is no commission cost to close trades at tastyworks.com where we're trading, and also, it doesn't make sense to hold trades to expiration if we've already realized almost all profit on that trade - we're just holding risk for little reward at that point. Totally up to you though!
That's another great video from you. I need your help on 2 scenarios - 1) I want to know isn't it risky when you sell another call when the stock goes down upto $70. What if the price suddenly rises (due to any external event) and rallies beyond $77 or even $80. The long position in the equity would be profitable, but since 2 calls have been shorted, the loss could be much higher ? 2) When the price has gone to $70 and we are in loss, what if we sell put options of say $67, $65 (if we are able to analyse that the stock will bottom out and will fall only this much in the current series) and buy another put option at say $63 to hedge the short put options if the stock keeps falling ? Thanks!
Glad you liked it! 1) If there is a scenario where there is an uncovered call, then yes if the stock price goes up the overall position could see losses if it goes too far. 2) It's certainly something we could consider. It would basically be doubling down on our bullish assumption by putting on another bullish trade.
Thanks for clarifying that. Your videos are very impressive and easy to understand, I wonder why you put up these as free on youtube ? Do you sell any online courses (advanced level) or something like that... ?
why would you buy back option that's $1 where you're going to pay more on fee then just letting it expire because it's worthless? waiting till Monday won't change the price much of that new Call that you're going to sell...
There are no closing commission costs at tastyworks, and if the stock sells off from Friday to Monday, you missed the hedge. The flip side is if the stock rallies, you now have unlimited profitability on the shares, so that's the tradeoff you have to decide to take or not take.
Although the math is right, you would not buy back the call if there are only hours left to expiration. Just let it expire. Also you will never get that much premium only 10 days out when the current price of the underlying is 10% away from the strike price.
HELP - I am a newbie & i have a very very simple question & its driving me nuts.. Q: In tasty or for that matter any platform, when u have 20+ some vertical spreads (call/puts), WHAT trick do u guys use to identify whether the position is short or long vertical?? I keep hearing i shud know the trade i place but being new, i do know the trade i made BUT after a few days when u see 20+ positions, I can’t tell if i made a short or long decision given vertical is a buy & sell trade. Thanksin advance.
Generally speaking, if the trade was done for a credit, it's a short vertical, and if it was done for a debit it's a long vertical. Another way to look at it is where the strikes are. In a short vertical, the short strike is closer to the stock than the long strike. In a long vertical, the long strike is closer to the stock price than the short strike.
tastytrade Sorry but this does not help because like I said in my question I know what a short & A long vertical is when i place a trade. I just get confused when I click the position tab and I C 20 positions all vertical & figure out if I was short call order short put and similarly long call or along put. however can you please help me confirm if looking at Delta is the easiest way to tell whether your position is a short or long vertical please.
well how are you looking at it? Are each of these trades isolated in groups or are you talking about your overall delta? You'd need to isolate each vertical into a group and then you can use this: calls : positive delta = long vertical, negative delta = short vertical puts : positive delta = short vertical, negative delta = long vertical
This information is slightly misleading. Since when is it cheaper to buy back a covered call option when it’s closer to the money or in the money? It’s cost more!
When you say "which would wipe out my position" when the stock price is above 80, what would happen to those 100 shares that I owned previously? Would I loose them all? ruclips.net/video/i8eeZBmXdto/видео.html
This is too hard to understand. I simply want to know when is the best time to get out of my covered call without losing money. This is not for someone like me who needs to see elementary things in small doses.
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This is the best video on cover calls! It literally covers every outcome and extremely well. Visuals are amazing and coherent. Can’t wait to see more videos on buying calls and puts. And selling puts. Thank you!
He didn't cover what happens if the stock price blows right through the covered call strike price. Then you have to calculate premium received - lost profit on the stock.
@@TheFabulousCube exactly
Thanks for this helpful video. I just did my first two covered calls yesterday!
How’s trading been since then?
This is the best CC management video I've found on youtube, but it still leaves many huge questions unanswered.
What remaining questions do you have? I'm more than happy to answer them here!
@tastytrade:
- Scenario: OTM CC becomes ATM then ITM one strike. Q: When is best time to roll up-and-out? Before it gets ATM, ATM, OTM 1 strike, more than 1 strike?
- Scenario: OTM CC becomes further OTM. Q: should I roll down? At what point?
- When Rolling up ITM CC, should I only roll for credit (or possibly even), no matter how far out I have to go?
- When Rolling down OTM CC, should I roll for credit greater than the amount I am rolling down, no matter how far out I have to go?
- For OTM CC, when is it best to allow to expire vs rolling down?
- For ITM CC, does it sometimes make sense to roll out and not up (ie calendar spread)?
Answer those and I will have some more, I’m sure. Thanks!
I think you missed the comment. Please answer the questions by DukeLaCrosse20, it will help clear many doubts.
DukeLaCrosse20 best time to roll is a combo when you have drained most of the extrinsic value and roll when the stick is right atm for max extrinsic value. Once the stock has gone too far itm you will get less and less of a credit
great vids. keep them coming. at 4:50, why buy back the sell put when you can just let it expire and get 1.25 instead of 1.20? am i missing something?
Thanks! Glad you like them!
Buying back the option just removes the risk from the table. If the underlying ripped up in price I would see a big loss. Plus with TD you can buy back short options that are $0.05 or less commission free.
can you please elaborate further on the risk? Do you mean that if the stock suddenly drops below B/E (in this case 72.60) you will start losing money? If I understand this correctly you will still make en extra $100 if it goes up to $80 and you don't lose anything if it goes well beyond $80 strike point
Yes - the risk would be if the stock price dropped below 72.60.
Without making the adjustment, you're correct I could have waited until the short 80 call expired and potentially made another $100 if the stock price goes up to 80. With this adjustment though, I have the ability to make an additional $620 since I'm selling an 84 call which has 4 more points to the upside of potential profit.
However, if I did not close the original call for $0.05 like +meme youyou was referring to, I would have a new 84 short call, plus another short call for one day at 80. That ultimately results in a naked call + covered call, since I only have 100 shares to cover 1 short call, so if the stock price ripped up I would have risk to the upside with the extra short naked call. Just another reason why I closed the call in this example, to keep the strategy a plain covered call.
I hope this helps!
tastytrade so to understand this, if you don't buy to close the original cc it is still active 24 hours after it expires?
So the only reason u would be able to buy the contract back for less even tho its close to strike price is from time decay..?
No one explained it easier than you did, thank you! Great video
This guys is really good at explaining things. Maybe cuz I understand what he’s talking about but it never hurts to get a refresher! Def sending to my amigos
Very well explained.
Hi, how could you buy back your (Sell Call) cheaper 5:16, now that is closer to ATM ??? what I am missing here ??? @anyone please help
Dude, yours are definitely the best videos I've come across. Thanks!
The "realized Profit" is $120.00 not $520.00 it would only be 520 if you sold the shares. Since you are holding the shares the 400 is "unrealized profit"
its a great strategy for being bullish long term but thinking it will stagnate shortterm.
Yup few
Excellent explanation
Question, 4:55min why did you buy back or closed your position? Because you don't want to get assign? And Where did the $520 realized profit come from?? Thank you!
If you have 100 shares of stock, you can only sell 1 call against it if you don't want to have upside risk, so if you're making adjustments you need to buy back the initial call to maintain that.
The $520 realized profit refers to the profit you have right now in that scenario - if you were to close the trade, that would be your realized profit. Keeping the trade open still exposes the trade to risk.
@@tastyliveshow thank you
You missed one scenario, if the stock skyrockets way above the strike, I try to circumvent this by selling a call and holding a very out of the money call using the credit from the short call. Gives the upside more potential but reduces the downside hedge
Like a 5 or 10 delta call. Now u have a call spread
Grande Mike!! Video utilissimo!!
Few questions. @ 5 min of this video, the stock is @ 79 on expiry day with sold call @ 80. If the stock went up above the sold strike within 5 days (@ 85, Sold call @ 80, DTE is 35 days), do we wait for the expiry or buy back the sold call before it goes DITM.
You get assigned ,
In the first example, why buy back the call instead of just allowing it to expire? Im still learning and haven't made an option trade yet, just want to make sure I understand. Thanks, great video explained really well
he misspoke. he had to have. because it doesnt make sense…
These were great!
Very helpful. Just did first CC yesterday!
What about when your call goes in the money, but you want to keep the underlying...when / how do you adjust so that you can continue to collect premium?
The only way to potentially collect more premium in this example is to go further out in time. The problem is that buying back the short call will cost a lot as it is ITM, but if we are able to sell a new call above the stock price that is very far out in time, we might be able to collect more than the debit we have to pay for the option. Other than that, there's not much opportunity to continue collecting premium.
Any these people continue to give examples of a 75$ stock calls at 80$ ?. With current volatility. $5 increase can happen while you sleep in extended market time. But concept is well explained.
This is amazing to do with quality dividend stocks.
Krogzax Ants why those stocks if you don’t mind me asking? Thank you!
That is exactly what I do. First, I sell a cash secured put to obtain the dividend stock I will be selling covered calls on at a discount. Then I sell covered calls (monthly) on the dividend paying equity. On one, I am getting 8% annual dividend PLUS monthly cover call premiums of around $125. All I look for is STABILITY in the price of the holding. I don't want it to rise too quickly! And, it if it drops some I do not worry as I still make my monthly premiums as I have no intention of selling the stock. Win-Win-Win.
@@CarsandCats I am so excited to try this strategy. What dividend stocks are you doing this with?
what happens to the call that you sold? do you have to close that position out after being assigned
Great video here : )
I am confused on where you asked to buy call when its already expiring worthless(because its still below strike price) at video time 6:00. If DTE is 0 days and its under 80 of strike price, why would i Adjust and Buy a call. Let it expire and open new Covered call next day?
It is likely to expire worthless but it is still a liability and may be exercised until 5:30 PM on the expiration day. So, in his example, let's say you sold the call but didn't buy back your call before 4:00pm; at 4:01pm news comes out that the company has tripled its profits. A call holder would likely exercise his out of the money 79call since he knows the stock will be worth much more at market open Monday. So, TL;DR, you buy back your expiring option to ensure you don't accidently find yourself with a naked short call.
assuming that the stock call is worthless some days close to expiry so i consumed all the theta, now to hedge my downside risk can i take a ITM put long and once i break even there, I'll close both positions? can someone advice?
Hi, how do you handle if the stock goes up and ends at $84 on the last day of expiry? What are the adjustments you can make - if you do not want to let go of the shares or else you want to protect your stocks from being exercised during dividend situations? Please share your thoughts.
Thank you, I've just discovered this great channel. Total beginner here so can you please clarify something for me - at around 11:30 minutes, in the scenario where the stock price doesn't change, you said you were able to buy back the call at 10 cents. This is what still confuses me with these videos. What is the difference between just letting the call expire, vs buying it back at 10 cents? Why would you buy it back? Thank you if you are able to explain :)
Maybe to sell another one 45 days out . Lots of risk for 0.10 left
Mike is the best
can I be assigned 1 week before expiration? (Covered call)
Mike if u have just a one short OTM call and the stock goes wildly bullish above it...is it better to still sell further above call and collect hefty premiums or sell Puts lower to reduce the losses..
I mean no other positions just an otm short call is wat u have
Really depends on your assumption - selling more calls would create more risk to the upside and a more bearish position. Selling puts would add risk to the downside and neutralize the bearish deltas a lot. Two different assumptions, neither one is better, they're just different.
@@tastyliveshow Thanks ..I love your channel
Imma try this, just mainly relying on dividends and apprication right now
Can someone demonstrate what to click in TD platform to do all these?
I track my trades in a manual way using Excel. Is there a better automated solution I can do to track my over all cost of ownership for my long stock in TastyWorks? I really like the challenge in making my stock free, however, I don't have a great solution to automate the process. Since this takes place over time it's challenging keep up with all the trades keeping an accurate cost of ownership. Thanks for any advise you're willing to share!
tastyworks is working on a feature that will do this for us, but in the meantime I just look at the activity tab and do some quick math - you can also go to the transaction history tab and select each option that applies to the trade and it does the math for you in the upper right corner - either option takes about 30 seconds to do once you get used to it - I hope this helps!
Hi Mike - Love your videos. This is about a covered call gone bad - would highly appreciate your input on my situation.
I have 5,000 AMD shares at an average cost of $8/share. Didn't touch them for a long time - even when prices went down from $60 to $30+ last year. This year - I discovered options and started selling substantially OTM (80%+) weekly covered calls. Worked well and I thought I was very smart - NOT.
Well - this ER blew up the price and suddenly my $65 July 31 c/calls were ATM. I panicked and rolled over to $75 Oct 16th calls. Now that is ATM as well! I was too greedy.
These are the scenarios that I thought of. Are there any others? I'm in a Canadian Tax Free account - so capital gains taxes don't apply.
1. Buy out the Oct 16th c/call only now--> Don't have the enough cash to do that at $8+ premium
2. Sell stock and buy out the c/call now (combined transaction)--> I'll get about $69 to $70/share.
3. Wait for extrinsic value to drop and buy out closer to expiry. Of course, there is no guarantee that price (and subsequently the premium) will not keep going up
4. Roll over to $85 strike January 2021. I'll get a small credit (since $75 call is expensive). However - this might just be delaying the inevitable while tying up my capital longer (exposed so COVID-related risks etc.)
5. Let my stock go. I assume the buyer/s will do that once extrinsic value becomes negligible. This should be very soon. I will get $75/share - even if the market price may be much higher. Use the money to buy/sell to diversify (since 80% my portfolio value is from AMD).
Regards,
Luke
LOL...just be happy you 7xed your money dude and let it go. This must be a really nice problem to have.
really helpful, thanks a lot!
Nice video. Hope to see more on this same topic! In your 1st scenario, however, was it a real case where the price has so shot up significantly, while you were still able to buy back for only $0.05? My experience has always been that the price to buy back also went up significantly (esp if the price has risen), even it was getting close to the Exp date ( e.g. Amazon, ZM, APPL, etc. ) Any idea what are the characteristics of the type of stocks for which you can Buy to Close at such a low cost as described in the first scenario?
Time left to expiration - if there were minutes left to expiration it wouldn't matter if the stock rose up to the short call that day - the short call is going to expire in a few minutes worthless or with intrinsic value, so this example is really an example of being a few minutes from expiration, rather than a few days, where it would still have some premium.
SUPERB VIDEO TY SO MUCH
I sell cash secured puts on stocks I want to own (in case I get assigned), and sell covered calls on stable dividend aristocrat stocks. Now, I ALWAYS let my covered calls expire when they are under my strike price. But after watching your video, it looks like you always buy to close near expiration. Why would I want to do this when there is no chance of it exceeding my strike price?
I am wondering the same thing - why loose the .05? Why not let it expire and sell a new call on the next opening day? What am I missing?
nice strategy - i like Puts except you need cash in the account for the value of the shares in case you get them assigned, correct?
I bought the XPEV at $20. Same time I sold the cover call strike price at $22.50 for $1.60 EXP 20 Nov, 20. 5 more days to expire. Now I am deep in the money and what kind of correction do I need to do tomorrow?
What about a CC when the price rockets up several weeks before expiration. When should you roll it?
You'd be sitting on a profitable trade, so we'd likely exit if there wasn't much extrinsic value left in the short call. If we're trying to avoid assignment and keep the shares as long as possible, we'd roll up and out before the option went ITM - www.tastytrade.com/tt/shows/trade-managers/episodes/avoiding-assignment-in-covered-calls-12-12-2018
@@tastyliveshow perfect video for my situation... thanks!
Hi need a help for this Novice option trader... I sold a covered call option with strike price 2.5$ and expiration 2022. Now the current stock price is around 2.35$ . Will i get my money back and will be out of contract if stock goes past 2.5$ tomorrow or I shd be waiting till 2022?? again sorry for very basic question but need someone to help me
Nothing will happen most likely - you are waiting for the extrinsic value to come out of the short call, and if it does prior to 2022 you can close the position for near max profit, if it doesn't get exercised. Either way you're looking at max profit if the stock is above 2.5 at expiration.
is there an adjustment where share price went over the strike price for $5? Would it be to buy back call (we have to pay more) and try to find a call in the future that matches that price we just purchased our old call for? Thanks
Here's a segment on this - www.tastytrade.com/tt/shows/trade-managers/episodes/avoiding-assignment-in-covered-calls-12-12-2018
Dang it! What are the best ways to handle it when it goes ABOVE your call? That's what i want to know! And what might you do NEXT?
Usually you can "roll" the call option to a further away expiration date. That includes buy back the call option (higher premium now) and sell another call option. The further away expiration helps you reduce or avoid the higher price that you pay for the buy back.
@@quanOSU Do you have to wait until the day of? What if your expiration is 3 days out?
Great video. This is not intuitive and you did a great explanation.
I think you are not taking into considration the enhancment in the call premiun if the stock price rises. In scenario no.1 you are short a call at 80 and stock price is moving to 79. You are imaging that the call price would remain o.o5 ??? It would be much more than 1.25 which was your selling price... I am considering in the price rise 75 to 79 happens with in first 30 daya instead of near expiration .
Sure - if the stock price rises immediately then the call will certainly be worth more than what I sold it for - this example assumes very little DTE where the extrinsic value is minimal.
In any case, even if the stock price shoots up, it doesn't matter what "losses" I may see on the call - the long shares are static 100 delta, and the short call has a negative delta that is less than that, therefore it will be a net profitable position as it is a net positive delta position. The further the stock shoots up the better, as an ITM short call will have less extrinsic value than an ATM one will, and all intrinsic "losses" on the short call are 100% covered by the long shares, thus the covered call strategy name.
I hope this helps!
Suppose I am the seller of a covered call. I see the advantages as the seller. What are the advantages of the buyer?
Not many - you'd be short the shares and you'd be buying a protective long call, similar to a protective put with long shares.
I may have missed it, but wouldn't another strategy be simply to collect premium at expiration, as long as your strike price isn't reached your underlaying Stock has very little chance of getting called away?? Im doing this now with strike prices Id be very happy to get calleded away at, with couple week DTE with small profit but cant seem to lose and can repeat often
That's correct! this is more for defending the shares, but if the plan is to hold shares very long term, it could be as simple as what you described.
In order to. Do a covered cAll that is going up that expires on may as of now. Would I need the capitol to buy the shares or own the shares themselves to do a covered call. ? If possible please email bc I’m lost a bit
If you have a covered call position, you must already own 100 shares of stock, in which case you sell a call against those shares to reduce cost basis and generate cash revenue. The risk in the short call is "covered" by the 100 long shares of stock.
If the short call is in the money at expiration, you'd be left with no position, as the short call would turn into 100 short shares, and wipe away your 100 long shares. You'd be left with max profit on the position.
You didn't talk about the stock price going above the strike price. What would you do if you want to keep the stock other than buying back the option?
Good question!
If my ultimate goal is to keep the shares as long as I can, I do my best to NOT let the short call go ITM. It's an advanced, offensive tactic, but here is more on this idea:
www.google.com/url?client=internal-element-cse&cx=015477303216471237373:u_cnlyqjhzi&q=www.tastytrade.com/tt/shows/trade-managers/episodes/avoiding-assignment-in-covered-calls-12-12-2018&sa=U&ved=2ahUKEwj1_8Ht1N7oAhVBVs0KHRZbCtcQFjAAegQIABAC&usg=AOvVaw12dJ-YDXcVsIvf0H4N0B0a
Why are commissions not discussed in your calculations
Thanks
Say you wanted to sell a call far out a few months and the price rises and you want to buy it back to close early, won't you have to pay alot more back because the premium rises with the stock price?
On stock price increases. How is it a realized $520? Wouldn’t only the premium ($1.20) be realized and the stock appreciation unrealized?
So what if you own 400 shares of MSFT and are just looking to collect premium every week, can you just sell 4 call options or do you have to "write"? in your brokerage account?
If you already own 400 shares of MSFT you can sell 4 calls against those shares and the brokerage will recognize that you own the 400 shares - you would be capping your upside profit potential in exchange for cash now through the short call.
If the stock price is above the Covered Call strike price before expiration can it be assigned?
It certainly could, but your long shares protect you if this happens. Furthermore, it is very rare as the exerciser would be giving up extrinsic value by doing this. If there is $0.20 of extrinsic value for example, they would be burning that value when they exercise and most traders realize this.
In your first example you show buying back the call option for $1.20 less than where you bought it even though the price is approaching the strike. Either I am doing everything wrong(totally possible), or that is a bit of a contrived example. If I did something like that I would have lost money because the value of the option would be more than the premium I was paid.
EDIT: about 5 seconds after posting this I realized... that's because you rolled the strike up, is that right?
Sorry for the confusion - I have 0DTE listed next to the option signifying the option is about to expire, so it doesn't matter if the stock has rallied a bit, that option is about to expire worthless, but instead I buy it back for $0.05 and sell a new call against my shares in the new 45 DTE cycle, and further OTM. Now my max profit is higher since my strike is higher, and my breakeven is improved to the downside on my shares because I'm collecting another $1.15 net credit by selling the new option.
excellent and very clear.... beautiful.
Very good & clear video, thank you! Try to upload a similar concept for a protective put
Covered Put:
ruclips.net/video/1OoRbmvCMLA/видео.html
Another:
www.tastytrade.com/tt/shows/mike-and-his-whiteboard/episodes/3-covered-put-adjustments-05-18-2016
tastytrade
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.
Mike . Covered call adjustment strategy is well explained. But u r not considering the brokerage fees and execution fees in ur calculation. This has huge impacy
True - this should always be considered, but most US brokerages charge almost nothing these days to execute stock/options trades - check out tastyworks.com which is the brokerage we use on the show.
Sooo, what if the price runs up way past the exercise price about a week into the cycle rather than at expiration?
It'll feel similar to expiration - the short call would lose a lot of extrinsic value, and intrinsic value gained on the shares would be offset by the short call. You'd be near max profit most likely.
I don't quite get how you're buying back your short call for $.10 and then selling it back for $1.40. Is the expiration the same date or are you selling a new expiration date?
can these type of trades be done on Robinhood?
Sure - these are basic options strategies that can be executed on most brokerage platforms with the right permissions.
Cover call is sale call ?
what happens when your stock price go up crazy like 95$? will you buy your option back and increase the cost basis?
No - the position would be at max profit and you can close the whole position to exit. If you're trying to maintain the shares, you'd need to avoid letting the short call go ITM, which can be done by rolling out in time AND up strikes for a credit prior to the strike going ITM - www.tastytrade.com/tt/shows/trade-managers/episodes/avoiding-assignment-in-covered-calls-12-12-2018
Can people from India open tastytrade margin account. Do you have Indian Tastytraders?? I think it might not allowed here as per laws but regardless I heard lot of people have account???
Yes they can! Here is a list of all areas that can open accounts at tastyworks:
tastyworks.freshdesk.com/support/solutions/articles/43000435355-which-countries-can-open-tastyworks-accounts-international-accounts-
When the stock price goes below your B/E, you only lose money if you decide to sell the stock, right? Couldn't you just keep the stock and repeat the process after the first call expires?
Yes you certainly could - and selling another call would reduce your breakeven even more, since you would collect another credit for selling the call.
But yes, losses are only realized when the position is closed.
tastytrade Thank you!
Why not let the option expire in your first scenario to avoid brokerage fees?
There is no commission cost to close trades at tastyworks.com where we're trading, and also, it doesn't make sense to hold trades to expiration if we've already realized almost all profit on that trade - we're just holding risk for little reward at that point. Totally up to you though!
At those prices, the implied volatility must be like 100 per cent.
That's another great video from you. I need your help on 2 scenarios -
1) I want to know isn't it risky when you sell another call when the stock goes down upto $70. What if the price suddenly rises (due to any external event) and rallies beyond $77 or even $80. The long position in the equity would be profitable, but since 2 calls have been shorted, the loss could be much higher ?
2) When the price has gone to $70 and we are in loss, what if we sell put options of say $67, $65 (if we are able to analyse that the stock will bottom out and will fall only this much in the current series) and buy another put option at say $63 to hedge the short put options if the stock keeps falling ?
Thanks!
Glad you liked it!
1) If there is a scenario where there is an uncovered call, then yes if the stock price goes up the overall position could see losses if it goes too far.
2) It's certainly something we could consider. It would basically be doubling down on our bullish assumption by putting on another bullish trade.
Thanks for clarifying that. Your videos are very impressive and easy to understand, I wonder why you put up these as free on youtube ? Do you sell any online courses (advanced level) or something like that... ?
Very interesting!!
why would you buy back option that's $1 where you're going to pay more on fee then just letting it expire because it's worthless? waiting till Monday won't change the price much of that new Call that you're going to sell...
There are no closing commission costs at tastyworks, and if the stock sells off from Friday to Monday, you missed the hedge. The flip side is if the stock rallies, you now have unlimited profitability on the shares, so that's the tradeoff you have to decide to take or not take.
but you didnt consider those provisions for the broker
How come the call value could be 0,05? It went from out of the money to at the money. It’s value would close to 1,25
if the option is about to expire it will expire worthless if it's OTM
Although the math is right, you would not buy back the call if there are only hours left to expiration. Just let it expire. Also you will never get that much premium only 10 days out when the current price of the underlying is 10% away from the strike price.
HELP - I am a newbie & i have a very very simple question & its driving me nuts..
Q: In tasty or for that matter any platform, when u have 20+ some vertical spreads (call/puts), WHAT trick do u guys use to identify whether the position is short or long vertical?? I keep hearing i shud know the trade i place but being new, i do know the trade i made BUT after a few days when u see 20+ positions, I can’t tell if i made a short or long decision given vertical is a buy & sell trade. Thanksin advance.
Generally speaking, if the trade was done for a credit, it's a short vertical, and if it was done for a debit it's a long vertical.
Another way to look at it is where the strikes are.
In a short vertical, the short strike is closer to the stock than the long strike. In a long vertical, the long strike is closer to the stock price than the short strike.
tastytrade Sorry but this does not help because like I said in my question I know what a short & A long vertical is when i place a trade. I just get confused when I click the position tab and I C 20 positions all vertical & figure out if I was short call order short put and similarly long call or along put.
however can you please help me confirm if looking at Delta is the easiest way to tell whether your position is a short or long vertical please.
well how are you looking at it? Are each of these trades isolated in groups or are you talking about your overall delta? You'd need to isolate each vertical into a group and then you can use this:
calls : positive delta = long vertical, negative delta = short vertical
puts : positive delta = short vertical, negative delta = long vertical
Keep learning, you'll get it.
missing what happens when stock goes ABOVE call strike price and you have to roll - and lose money
What happens if you write a covered call with a strike price lower than the initial purchase stock price? what are the ratification of that?
This math is hard to follow unless you're actually writing it out on your "white board"
This information is slightly misleading. Since when is it cheaper to buy back a covered call option when it’s closer to the money or in the money? It’s cost more!
true
When you say "which would wipe out my position" when the stock price is above 80, what would happen to those 100 shares that I owned previously? Would I loose them all?
ruclips.net/video/i8eeZBmXdto/видео.html
Yes you would - they would be "called away" if the short call is ITM through expiration, and you'd be left with $625 profit in this first example.
What if my short is ITM way before expiration?
I appreciate your effort and I understand covered calls but your math is scary and confusing.
👍
I’m confused
selling a call with 45 days to go? are you nuts?
I come cuz zeppelin
Its not really an adjustment if you just write another separate call lol
In these examples I'm closing the old call and selling a new one, so not adding risk, just adjusting the one I had.
@@tastyliveshow If it continues to go up only then what we have to do.
Much better let the call expire worthless in the neutral scenario you save money because you don't have to buy it back and commissions from the broker
This is too hard to understand. I simply want to know when is the best time to get out of my covered call without losing money. This is not for someone like me who needs to see elementary things in small doses.
Speak slowely. pls