1 - I like the trade a lot. 2 - My worst case scenarios have come true over the past 20 years based on longer, not shorter holds. IMO 120 days is a pretty long time for a trade to "play out". But, I still like it. Thanks!
Hi Dave, as always enjoying your videos. I have been doing the same with O, as it is more liquid than LTC. As rates starting to drop I think most REITs will move up and this strategy (I tend to even sell close to ATM to get more premiums) would work nicely. However I have this concern - in Covid crash Mar 2020, REITs dropped a lot, and LTC went from 50s to 30s or about 40% drop in less than a month, so there is RISK that one can lose significant portion of their investment in such event. Sure most stocks/etfs dropped a lot, but the point here is that REITs lost a lot more. And again the other thing about LTC is the liquidity over say O. Other than that I love this strategy and has been good source of income for me.
O is a good option for this and ATM works well. I tend to keep my positions small with these and the pullbacks have rewarded those that have continued to invest.
Thanks for this topic. I'm a holder of LTC and have written CCs but have found the spreads to be challenging for this underlying. Any tips on how you look for entries for this trade or similar situations? Btw, enjoy your videos!
That is an obstacle. I tend to trade long dated expirations and roll out with 30-60 days prior to expiration. With little volume it can be a challenge. Keep checking and look to negotiate. It is one of the few times I will leave an option trade open for the day.
After watching your video I went back and looked at LTC's chart. You did make a little (your 5%). I'm curious what you did when the stock did drop to ~$30 per share. Did you add more? Thanks for all your information and insights.
You can pay to get out but no easy fix when you end up that deep in the money. Good news is you still have the gain in the stock to offset the loss in the option. You can try and roll out far in the future but doubt you can gain much ground.
I'm curious about the possibility of a Wash Sale/Trade if price is above $35 at expiration. Do you accept the wash trade and continue with LTC and the additional paper work when doing taxes or move on to another equity still using this method of an ITM trade. I personally do not like messing with wash sales so I make the strike just above the purchase price. Your thoughts.
I try to stay ahead on the option trades so I close and roll out well before the expiration date. It has been working but it can be a challenge with the low volume on LTC options. If I do get assigned, I take the loss which is not a wash sale. I would likely wait my time before purchasing new shares to avoid any wash sale.
Kinda strange you got lots of questions on ITM calls; I was doing these all the time up until about 2018-2019 when I started to migrate to a more dividend portfolio. The ITM strategy gives a lot more downside hedge, but then managing the short calls to avoid assignment at ex-dividend was getting onerous. To avoid losing my positions AND the dividend, I had to decide should I roll to a higher strike, or just farther out in time, or both? So I don't do ITM calls much unless I'm actually looking to exit long stock.
So what would you have made if the stock went to 38? I am just a little confused about how these ITM calls work. The examples you gave were if the price lowered to the call price and below. My understanding is you make the premium when you sell the covered call. So I assume you would make the full premium. What about the stock appreciation over 37?
Since I sold a call at 35, that is the cap. If it goes to 38, 48, or 58, I would still have to sell at 35. That is the sacrifice of selling ITM. No upside but we have some security from the hedge if the stock/ETF declines. With some stocks and ETFs that pay larger distributions, their is little room for growth so I look to capture the distributions and some option premium.
I do this same technique for ET, F, O, LTC, AGNC, and others. Sometimes a stock gets called just before the ex div date when it's too deep ITM. Is there a way to select an ITM strike price that's not too deep to get called before the ex div date?
If it is too deep ITM this can be hard to do but just add time to the option if there is risk of assignment so that it is not attractive to the owner of the option. From the buyers perspective, they are looking at the value of the extrinsic portion of the option versus the dividend value. So if the stock is $2 in the money and the option is currently worth $2.40 with a $0.70 dividend due they have 2 options... Sell the option right now for $2.40 or take assignment and make $2.00 plus the $.70 dividend for $2.70. Just roll it out to a point where that $.40 of time value is in excess of $0.70. As you get deeper ITM, this may no longer work as it gets harder to add time value.
And one other thought. I like to do this with O and LTC but I don't do it with ET. One of the big benefits of ET and other MLPs is the tax treatment and ROC with their distributions. That will be re-captured when you sell in a taxable account. For that reason, I don't risk having shares called. Once I add shares, they are staying put!
Thanks. I missed that by not paying attention at the beginning. Interesting trade. My question is where did you get that options calculator? Is it part of your trading platform? I’m on Seeking Alpha too but don’t see it there.
@@5584oleta It is in a few of my videos. It is a spreadsheet I made. You can download a copy from here in the description: ruclips.net/video/aSyylRRDpLE/видео.html
Agree with the comment about additional protection. Another strategy I have found successful is to" think in multiples of 3". Looking at the next 6 - 9 months - sell some combination that fits your risk tolerance and anticipated price move (e.g. 1/3 in the money furthest out for most downside, 1/3 at the money about 2 months out & then 1/3 out of the money on the closest maturity for a modest current premium but you may find that you can re-write the slightly out of the money & keep the premium received a number of times.. Just a though & good luck
I like longer dated expirations for these types of trades. Since they are ITM and distribute monthly, there is assignment risk. I add lots of time up front and roll a month or 2 prior to expiration.
Thanks for putting this together for us Dave!
Thanks for watching!
1 - I like the trade a lot. 2 - My worst case scenarios have come true over the past 20 years based on longer, not shorter holds. IMO 120 days is a pretty long time for a trade to "play out". But, I still like it. Thanks!
Hi Dave, as always enjoying your videos.
I have been doing the same with O, as it is more liquid than LTC. As rates starting to drop I think most REITs will move up and this strategy (I tend to even sell close to ATM to get more premiums) would work nicely. However I have this concern - in Covid crash Mar 2020, REITs dropped a lot, and LTC went from 50s to 30s or about 40% drop in less than a month, so there is RISK that one can lose significant portion of their investment in such event. Sure most stocks/etfs dropped a lot, but the point here is that REITs lost a lot more. And again the other thing about LTC is the liquidity over say O. Other than that I love this strategy and has been good source of income for me.
O is a good option for this and ATM works well. I tend to keep my positions small with these and the pullbacks have rewarded those that have continued to invest.
Thanks for that, glad to see you were allowed out of your office :) in the beginning.
Yup. Quick trip down to Florida.
I do this on HRZN and SCM. Monthly with 10% annual dividends yield but I only sell CC after the ex dividend date.
Great to hear! Thanks and if you have any questions, just ask.
Thanks for this topic. I'm a holder of LTC and have written CCs but have found the spreads to be challenging for this underlying. Any tips on how you look for entries for this trade or similar situations? Btw, enjoy your videos!
That is an obstacle. I tend to trade long dated expirations and roll out with 30-60 days prior to expiration. With little volume it can be a challenge. Keep checking and look to negotiate. It is one of the few times I will leave an option trade open for the day.
Thank you Dave! Please tell me where I may find the Covered Call Calculator you are using. It seems to have everything, very clearly explained.
Just search for calculator on my channel. You will find a video and the link is in the description.
Thank you for this video. Interesting sweetener to a month dividend income strategy. What tool were you using to build that covered call calculation?
That is a spreadsheet that I use. You can find a download in some of my videos. Just search for calculator.
@@wealthadventures Thank you. I found that download. I appreciate your work!
After watching your video I went back and looked at LTC's chart. You did make a little (your 5%). I'm curious what you did when the stock did drop to ~$30 per share. Did you add more? Thanks for all your information and insights.
I did in another account but these 300 shares I just continued to sell calls at 35.
Hey Dave liked the recap video. Where can I download your covered call calculator? Thanks.
Search "calculator" under my videos and you should find it.
Thanks.
Dave , what do I do with my IRM, NOV 15, 2024 $75 call ( sold a call) ? Is there a way to get out ?
You can pay to get out but no easy fix when you end up that deep in the money. Good news is you still have the gain in the stock to offset the loss in the option. You can try and roll out far in the future but doubt you can gain much ground.
I'm curious about the possibility of a Wash Sale/Trade if price is above $35 at expiration. Do you accept the wash trade and continue with LTC and the additional paper work when doing taxes or move on to another equity still using this method of an ITM trade. I personally do not like messing with wash sales so I make the strike just above the purchase price. Your thoughts.
I try to stay ahead on the option trades so I close and roll out well before the expiration date. It has been working but it can be a challenge with the low volume on LTC options. If I do get assigned, I take the loss which is not a wash sale. I would likely wait my time before purchasing new shares to avoid any wash sale.
@@wealthadventures As you know, Trader Tax status removes wash sales from concern. One less thing to think about.
Kinda strange you got lots of questions on ITM calls; I was doing these all the time up until about 2018-2019 when I started to migrate to a more dividend portfolio. The ITM strategy gives a lot more downside hedge, but then managing the short calls to avoid assignment at ex-dividend was getting onerous. To avoid losing my positions AND the dividend, I had to decide should I roll to a higher strike, or just farther out in time, or both? So I don't do ITM calls much unless I'm actually looking to exit long stock.
Makes sense to me. I think it is an opportunistic strategy.
So what would you have made if the stock went to 38? I am just a little confused about how these ITM calls work. The examples you gave were if the price lowered to the call price and below. My understanding is you make the premium when you sell the covered call. So I assume you would make the full premium. What about the stock appreciation over 37?
Since I sold a call at 35, that is the cap. If it goes to 38, 48, or 58, I would still have to sell at 35. That is the sacrifice of selling ITM. No upside but we have some security from the hedge if the stock/ETF declines. With some stocks and ETFs that pay larger distributions, their is little room for growth so I look to capture the distributions and some option premium.
I do this same technique for ET, F, O, LTC, AGNC, and others. Sometimes a stock gets called just before the ex div date when it's too deep ITM. Is there a way to select an ITM strike price that's not too deep to get called before the ex div date?
If it is too deep ITM this can be hard to do but just add time to the option if there is risk of assignment so that it is not attractive to the owner of the option. From the buyers perspective, they are looking at the value of the extrinsic portion of the option versus the dividend value. So if the stock is $2 in the money and the option is currently worth $2.40 with a $0.70 dividend due they have 2 options... Sell the option right now for $2.40 or take assignment and make $2.00 plus the $.70 dividend for $2.70. Just roll it out to a point where that $.40 of time value is in excess of $0.70. As you get deeper ITM, this may no longer work as it gets harder to add time value.
And one other thought. I like to do this with O and LTC but I don't do it with ET. One of the big benefits of ET and other MLPs is the tax treatment and ROC with their distributions. That will be re-captured when you sell in a taxable account. For that reason, I don't risk having shares called. Once I add shares, they are staying put!
What is this new background? I'm not good with change!!!
Florida. Short vacation and now heading back to reality.
How did this video drop supposedly five hours ago for a trade made very early in 2023?
It is a re-post of an old video. After my last video, I got lots of questions about ITM calls so figured I would put this back at the top.
Thanks. I missed that by not paying attention at the beginning. Interesting trade. My question is where did you get that options calculator? Is it part of your trading platform? I’m on Seeking Alpha too but don’t see it there.
@@5584oleta It is in a few of my videos. It is a spreadsheet I made. You can download a copy from here in the description:
ruclips.net/video/aSyylRRDpLE/видео.html
Why In the money as opposed to at the money?
Adds a bigger hedge. Trading off potential return for some additional protection.
Agree with the comment about additional protection. Another strategy I have found successful is to" think in multiples of 3". Looking at the next 6 - 9 months - sell some combination that fits your risk tolerance and anticipated price move (e.g. 1/3 in the money furthest out for most downside, 1/3 at the money about 2 months out & then 1/3 out of the money on the closest maturity for a modest current premium but you may find that you can re-write the slightly out of the money & keep the premium received a number of times.. Just a though & good luck
Only missing was a pipe and a martini on the intro!
Good idea! I'll work on that. Lol.
Pssst? Dave, you left the faucet on.
I left the pool jets on.
It is "comprised", not "compromised", which gives it a totally different meaning. Ready to hire a sharp editor for a pittance? 😂
I no read good...
@@wealthadventureshaha
Hi, curious to why you chose the expiration 122 days out on the trade? What was that based on?
I like longer dated expirations for these types of trades. Since they are ITM and distribute monthly, there is assignment risk. I add lots of time up front and roll a month or 2 prior to expiration.