One problem the video totally failed to mention is not all stocks are suitable for selling covered calls. Before picking a stock you want to sell covered calls on, look at the option chain, specifically the volume and open interest. If both are low to zero, you aren't going to sell any nor be able to roll or buy to close. In this case, pick another stock. In general, the more popular the stock is, the better the market. Also applies to puts. I've found as a rule-of-thumb, if there are weekly options, there is enough of a market. If monthly only, the market for options ranges from thin to non-existent.
Not exactly, so don't mislead people. Unsuitable and unable are two different things. Absolutely agree many stocks are unsuitable, but you ARE able to trade the options if options are offered. The market maker's job is to do just that: ensure there's a price to buy/sell any of the options available. So you can ALWAYS be assured of a trade. Now whether that trade is at a favorable price is another story and not the point of my comment. Also should a stock be halted, all options, liquid or not, are affected.
A quicker way to gauge it is by looking at the bid ask spread. The closer the bid ask is the more liquid it generally is. As the bid ask spread widens then you'll for sure want to look at volume/oi. It's probably good habit to look at it anyway, but if you feel lazy you can use the bid ask spread gauge.
All valid considerations. In actual practice most of my covered calls represent solid income, and then I am able to sell new calls again. But I have been quite good at picking robust stocks, so a number of them move up so high as to exceed the strike price on the calls. In some cases, I decide to just let the shares be assigned. In other cases I bite the bullet and pay up to cover the calls, keep all the profits earned, and then resell the calls at a higher strike. Yes, there are a lot of considerations when venturing into options, but overall I have to say that I have no complaints about how it all works out over time. Steadily growing the portfolio. There is no free lunch on Wall Street. Just keep learning and being cognizant of all possible outcomes.
Covered calls are also tricky on taxes. If you sell a covered call for less than 30 days duration your holding period resets if you were short term. So if you had a stock for 11 months and wrote a 2 week covered call your holding clock would reset back to 0. If you sell an ITM call, the duration doesn’t count towards your holding period to qualify for long term capital gains or the holding period for a qualified dividend. So if you bought a stock in January for 30 and you’re sitting at December at 50 and are worried about the stock going down and you want to take profits but you don’t want to pay the short term tax rate you can’t sell a February Call at 40 to get you there since your holding period would be suspended for the duration of the call since you wrote it ITM.
I like JEPQ more than JEPI. They are very similar but JEPQ writes their covered calls 5-10% out of the money. In this scenario you get a little upside appreciation should the underlying go up in value. JEPI I believe would lose less in a bear market but you take the risk with the rewards. JEPQ typically pays out about 1-2% more in dividends, per month, than JEPI. Of course this is dependent on both the dividend payout as well as the price of the ETF itself. I've owned them both and would continue to buy either. They are both excellent, IMO.
Nice overview! But don't confuse "7% early assignment" with rate of assignment _at expiration_ Also, the distribution of the 7% is highly skewed -- basically 100% of those are for dividends (and short borrow fees when applicable) Meaning someone might mistakenly think "7%" means they're very likely to keep the dividend on their stock when the call goes ITM, when that may not be the case (possibly causing them to miscalculate potential returns). But you mentioned closing early and delta, so I wouldn't say there was zero coverage on this possible confusion point. Anyway, good overview!
Can you please cover the real scenarios where you can actually lose money selling covered calls? 1. The stock goes above the strike price at or before expiration. Is your opinion to let us get assigned or to roll? Because the only real way to avoid a loss here is to let it get assign and then re-buy the shares to do the CC strategy again. If you roll, you are losing money, which is what I face more often than I like. I would like to pick a strike price further out of the money, but the spread is nearly worthless so it's like a no win scenario. 2. The stock is trading lower than when you bought it and the strike prices are lower than your purchase price of the underlying stock. If scenario 1 from above occurs and you get assigned, you're losing money. Whether you let yourself get assigned or roll, you're losing money. What is the best thing to do here? It kind of sounds like your strategy with CC is not to hold a particular stock indefinitely like dividend investors would, but to use this options samurai tool to pick a stock for the duration of the CC and if it gets assigned let it go and start over with a new stock. Is that right?
The only way you'll lose money in a covered call trade is if the stock moves lower than the breakeven point - but even then, it's a paper loss. It's not crystallized until you hit the sell button.
@@RickOrford Here's how you lose money in a covered strategy: Week 1: You buy 100 shares of MSFT at 420, and sell a call with strike price of 421 (just out of the money), premium is 3.21 per share ($321 total) expiration is at of week. End of week comes and price closes at 420.5, so option expires worthless. We keep the stock and the premium. Week 2. Monday trading opens with MSFT price at 413 (bad news over the weekend, stock opens much lower). We do the covered call strategy again. We sell a call at strike price of 414, premium is 1.75 per share ($175 total), expiration is end of week. The week ends and the price is now 415, passing the strike price and we get assigned. Our 100 shares of MST that we originally bought at $420 now sell for $414, ( $41,400 - $42,000 = -$600). Our premiums gave us $321 + $175 = $495, but we still are at a net loss ($495 - $600 = -$105). We didn't sell (intentionally), we didn't roll, yet we still lost money.
Thank you for your teaching. I know now when the stock price get down. The premium can be worthless on the expiration date. Then you can collect full premium. When stock not only hit the strike price. You can get the full premium. If it goes above the strike price . It may be assigned. You get the premium and the stock price increase strike price.
My simple, no stress, profit making strategy is to sell OTM short strangles --especially for stocks I hold in my portfolio -- so I can get premium on both sides IE selling calls and puts simultaneously. This can also be construed to mean selling a combination of secured Put+ selling a covered call for the same stock at different strikes,.
You can hedge with a put or if you're long on that stock, it doesn't matter what happens in the short term. You're holding long anyway. But yes, if you're doing CC on random stocks and chasing premiums, that can be one way you can get burned. I do CC on my kids dividend positions, I am holding super long anyways so it's a good strategy for me.
The thing is, if you planned on holding the stock you wouldn’t have sold at the top anyway. It would have crashed back down and you would have said, “I could have sold it for $1,000 and now it’s only $850”. I can say with a great degree of certainty, if a stock jumps that much the average person is not going to sell in hopes that it goes up more. Were greedy. That is one nice thing about selling calls, it draws a line in the sand. Odds are, if a stock jumps that much, in a month or so it will come right back down and you can buy back in cheaper than what you sold. You sold, made money, be happy. “Could have” and “should have” will end up losing you money in the market.
@@RickOrford I hope it didn’t come off like I’m trying to argue with you, that is not my intention. I’m one of those people that has been down the “should have” and “could have” way too many times. I’ve missed out on months of premiums because “it’s gonna hit and I’ll miss out on the big move”………years later……..
I didn’t think you were arguing! Part of one’s trading strategy is intuition- based on their own experiences! And I appreciate you taking time to leave some feedback :)
It’s amazing this guy wrote a book it’s even more amazing that people listen to him. He takes forever to get to the point. Talked for three or four minutes at the beginning without saying anything.
Another tax consideration is performing a covered call strategy in an IRA, which can provide other hedging opportunities since there is no tax bill until the investor starts withdrawing from the IRA.
When you buy to close, there is no guarantee you’re still net positive. The new premium could be much more than you received, or much less. It all depends on how high (or low) the underlying moved from the time you sold the call, to now…
Premiums are calculated based on the time remaining before expiration, underlying price, and IV. Example: all things being equal, an OTM option will have a higher premium, the more days there are to expiration.
@@blp9724 These factors are all covered in what are known as the "greeks" -- delta, theta, gamma, and vega. Rick was keeping it simple by only focusing on delta. If your stock didn't move in share price, and the call was out of the money, then the decay of the option premium over time is the theta. Theta decay means you buy back a call cheaper than when you sell it, assuming no change in the underlying stock or volatility.
I design covered call trades WITH the intent that it get called. I did it recently on Ford. Did a buy/write covered call. Bought at 10.75. Sold a 35 day expiration call at $11.00 for .41 cent premium. Delta was 43. I could possible also collect the dividend of .15 if not called early....but trending like it might get called early.
What are your thoughts on SVOL? I’ve used it over the years for income, but sell it when IV is low and then buy again when IV is higher. I prefer credit spreads and try to keep a delta of 20 on the short leg
TBH, I never heard of SVOL, but it looks interesting, thank you! As for selling spreads with a 20 delta, you’ll get less premium, but at the same time, wont likely face a trade that goes offside- at least not often. Thanks for the tip and for watching!!
Thanks for the video! I’ve been selling CC for years now and there are so many ways to manage these even if ITM or even after being assigned. Also instead of using CC as income I have been using them to compound shares or LEAPS, do you know of anyone also doing this? Maybe another channel, I posted some videos and so far noone have said they are doing the same. I wonder if others have the same idea.
For long calls with long durations, I prefer those that are deep ITM. It allows me to control 100 shares for a fraction of the cost. And as it’s deep ITM, there’s lots of intrinsic value off the top. That said… the underlying needs to be a quality company. Any less and it’s a crap shoot. Thanks for the question!!
How do you handle covered call when the equity drops below breakeven? Do you continue on faith or try to buy protective put or roll down and out the covered call. Do you still consider even rolling up and out?
I’m not entirely clear on the question. Say you own ABC stock, it trades at $100 and you sell a CC. Then, ABC drops to $80. At this point, the call option will be worth much less, so you can buy to close, retaining a large chunk of the original premium. Then, there’s the question about ABC going forward. If you continue to believe in the stock, think about keeping it. Otherwise, I’d sell. Hope that helps!
@@RickOrford got it thank you. I’m still trying to figure out all the ins and out of options but I find it very intriguing once you understand risks/rewards and probabilities, I’m still trying to get comfortable with certain options that requires high margins held which ties up your capital in a way so I’m always calculating return on capital in proportion to DTEs. Thank you that was very helpful.
Anytime. If I can recommend- try paper trading for 6 months to a year. In my experience, it’s the best education possible! Also, feel free to join us on discord :)
@@RickOrfordsite as an example with numbers, please. You said if ABC drops to $80, much worth less, you keep the premium, and buy same stocks,ABC for less to closed. Or if ABS shoot higher than $80, you keep the premium, and buyer bought your stock,ABC for higher price.
opportunity loss is NOT considered a risk. That is no difference than if I sold a stock and the price jump right after I sold. That happens a lot. There is no risk in doing a covered call IF you are planning to hold that stock for the long-term anyway. And if your stock got called away, then you can take that money and look for other opportunities.
Is it only worth buying out a covered call and holding the stock if it shoot the moon? In most situations i don't think I've heard or seen anyone on YT show a buyback of ITM, usually rollover or expire. There also isn't a lot of ITM conversation maybe because once you understand the options available to you its one of the 2. I'll check out more of your channel. Probably don't' use Webull or an interface similar but if do any option tutorials interesting to watch.
Fantastic Video. This clearly explains how to 'avoid' assignment by "Rolling the Trade". Also, great guidance on referencing the "Delta" prior to selling the Covered Call. These are two amazing tips not covered in other Covered Call videos. Thank You!!
You said if my stock is called, I will get to collect the price at the strike price plus the premium? I thought minus the premium 🤔 can you confirm please? Thanks.
Opportunity cost is a real problem. I benchmark my weekly returns against qqq. The reason I do this is if I can’t beat either qqq, then I am wasting my time.
You are such a great professor, I have no knowledge about options at all, after watching other option traders’ videos all day, your video made me understanding better and relaxing, thank you again.
Can you sell the call spread instead of covered call and manage it manually? If short leg is breached, the long leg profits while rolling out the short leg up and out .
Vertical or diagonal call spreads both work for this. On a stock like NVidia which shoots up like a weed, a vertical spread would be far safer than a vanilla covered call. Or just go with a synthetic covered call, which is basically a diagonal spread with a long duration long call. Problem solved.
Thank you again Rick , I sold NVDA put at strike 1125 expired June 21 for premium 1630.00 ,as of June 13 , there is profit around 1500.00, should I close the position and move on ?
In a speculative position like that, I like to “take profits” when the short option has lost ~80% of its value. If you can buy back your put for under $350, you’ll have a profit of $1300… enough to give yourself a nice pat on the back for the weekend. Ps: I invite you to join us on discord: rickorford.com/discord
Delta is relatively useful to evaluate the probability of assignment.. it’s changing every single moment.. so basically the probability of assignment is real only in the moment you enter the order 😅
I never hold stocks for a year or more. I ride the stock up and get off before I give back any profits. Stocks are cyclical. They go up and down frequently. When a stock enters a downtrend I sell. When the downtrend reverses I buy it back lower than where I sold it. Never give back profits. If I have to pay a higher tax so be it. They never take more than you make.
I appreciate and learned so much with your teaching. I just started practicing on paper trade with selling covered calls. I sold a call DTE 24May at av price $2.51. Now my portfolio shows last price is 3.40 and the market is -325. Unrealized profit is -73. Interactive Brokers computation is so confusing. I seek your assistance to help me understand these figures if you can. Thanks in advance.
Thanks for your kind words! First, congrats on using a paper trading account - this is the best way to learn. I do not know the stock price or the strike price- which would be helpful to form a more accurate response, so I’ll go with what I have. If you sold a call for $2.51 and now it’s $3.40, then the price of the stock went up. Similarly, the chances of assignment are also higher. A broker will show that as a “loss”, only if you bought back the call right now… it would cost you $3.40 * 100 per contract. However, as you (assuming) already have the stock, its price would have also risen. So, the profits will be (at least partially) reflected there. As it’s a paper account, I recommend letting the trade run its course. Also consider selling spreads. Right now, markets are moving up, so a put credit spread will probably do better than a call credit spread.
@@RickOrford Thank you so much for the speedy reply and I am a fan of your teaching skills. I bought Google shares at 144.86 to practice the sell call in the paper account. I fully understand your explanation. Up to now, I only know both sell put and sell call. I will continue to watch your videos to learn 2 leg strategies. You made the videos with such clarity and described them with details that a person new to option trading can understand. Your efforts are much appreciated. I can't understand my Brokers's webinars. Your videos are tailored with new beginners in mind. I will be trading in my real account in a jiffy.
@@RickOrford I sold one covered call and the shares got called away. That's not a problem because it was at a profit. However, I sell put on quite a few trades in my paper trading and all were profitable. When I sold a put in my real account, the trend had changed and the trade was ITM as the share price had fallen below my strike price. I missed the chance to close the trade at a lesser loss but missed it. It is nighttime over here when US market opens. The premium is too high for me to close the trade... not worth it. Now I am left with 40 days to expiry and will have to pick up those shares that I actually didn't want to own. So, there is no choice, I will have to try earning premiums with covered calls on this if it gets assigned. Since I do not have a margin, I had to do cash covered..... Will be taking time to look at Samurai....Cheers!
Ok... When you make your first covered call trade then the math works great. If your stock tanks then what happens? Because the way I see it, if you write another 20% delta covered call on the stock then the price that your shares could get called away at could be lower than what you paid for them? So that's a loss. Or if you stick with a strike price where you don't lose money if you are called out then the premium is practically nothing so now your stock has tanked and you're not getting premiums. How do you manage a trade where the stock has tanked?
Do you still want to own the stock or has it tanked for a reason? Other things to do is what for a bounce to write a new call. If you still want to own it, many so to continue to write the call at the same strike as before.
Yep it can happen anytime before expiration and for any reason- though it’s rare. Usually, holders will sell the option if there’s time value baked in.
At expiration, even if the stock is only 1 penny above the strike price, the call option will be exercised at expiration. It happened to me with Ford just in July or August just before it crashed. My covered call was executed 1 penny above strike at expiration.
A equities option is based on 100 shares. You can sell a call/put with less than 100 shares, however, it’ll be partially secured by $$. Be sure you know what you’re doing!!!
I would like to point out something. Typically assignment doesn't happen unless the stock price + premium received is reached or surpassed. In the Nividia example of NVDA strike of $860 and the premium received of $46.70 that means that the stock price would need to reach $906.70 or close to it before the option would be exercised. If the stock price reach $870 at expiration the likelyhood of assignment is 0%
Good point- Before expiration, OTM assignment is rare, however, anything can happen. At expiration, if the option is ITM even by 0.01, it’ll be assigned.
@@RickOrford I've been surprised with assignment on OTM calls. It generally happens near expiration when the bid/ask spread gets unusually wide, or for a stock that is heavily shorted, and somebody is buying a call with a low time premium to cover their short on a hard to borrow stock.
In the NVDA example, how do you come up with 27.80 per share premium? I see .67 per share premium at that strike or 67.00 dollars per contract. The remaining difference of 180.00 per share NAV appreciation at assignment.
What about you buy and the stock price goes down and you are locked in a contract . The value of the original purchase loses more than the premium you got you are negative. How do you put a stop loss on them
If you have or buy 100 of XYZ and sell a call, then the stock goes down, you can still sell the stocks, and, the premium on the call will be lower than what it was at the beginning. Eg. you could have collected $2 a share at the start. Stock plummets and you decide to sell. Buy back the call at the new price, ie $0.50 - netting you $1.50. So you’d actually be ahead (better off than owning the stock alone)
There use to be a thing called "married position" does anyone know if that still applies to a stock in a married position is disqualified for long term capital gains for that time?
Hi Rick. In case of NVDA if you sold a Covered Call let say at 27 and the stock jumped 100$ thus pushed the Call price to let say to 60 at the expiration didn't you loose on the overall deal? Of course you gained on share price yet you lost 60-27=33 which 3300$ on the Covered Call. Why didn't you include it at the calculation?
@@RickOrford I see, is there any strategies to get passive income on loosing positions using options? Like PayPall bag-holding 100 shares at 120 with the current price of around 60? maybe you can create a video on it. Really appreciate it. thanks
You can always sell a covered call on shares you currently own- regardless of the cost basis. You can also sell them (tax loss harvest) and move on to the next trade :)
Rick, if your shares get called away, can't you just buy the shares back at the higher price? If you have alerts and you buy the moment you get called you should not suffer opportunity loss, no?
@@RickOrford Right, that makes sense. Not a good thing, but another consideration is now at least the capital gain is then out of the way up to that point in price movement.
Which are the cheapest platforms, as far as fees go, to sell covered calls. Robinhood? eTrade? I forget the others. And I'm guessing if you aren't assigned, you DO have to sell out eventually? I've been watching so many videos, my head is spinning. Must I go to my computer several times a day to see what's happening? Also, any special tax forms that must be filled out for covered calls??? I know there's a K-something that people say is a nightmare. Not sure if that's for covered calls though.
Robinhood will be cheap- my preference is Interactive Brokers. As for assignment on a covered call- you’d have to sell your shares if assigned. If you sell a covered call on a stock you’d like to keep, long term, you’ll need to monitor it. As for taxes- that’s another story- though, you can do it in a Roth IRA and not worry about taxes.
The stock can go down and keep going down and you'll lose on the stock. However, i can NOT ever lose on a CC. How? Cause i sell the call at rhe price that im gonna sell at. If i habe a stock currently at $25.04 that i bought at $22.71 then im out at $27. If the price gets to $27 then im out period. So, if i sell a CC at $27 and i get paid 13 cents per share? Ive just paid $13 i wouldn't have at otherwise.
one of the risks of selling calls on a portfolio is that 1-2 stocks will run much higher than the calls sold and those lost stock price increases can offset much the premium collected on the portfolio as a whole - any it does happen. Opportunity cost is a real cost that options traders don't always account for.
That’s not what opportunity cost is. Opportunity cost is, essentially, the other ways that resources can be spent. The opportunity cost of buying a $10 option is, say, a fast food meal. “Missing out of profit” is not opportunity cost. What it is, instead, is FOMO thinking. I’m not saying missing profit because of a stock run-up past your call position is great. I’m saying it’s not a loss. It might cost you more to buy back into the position if you want to, but you didn’t lose any money. You missed profit, but that is *not* the same thing.
@@theREALlouthelou To add to that; minus a crystal ball a good portion of times when a stock hits a certain price we would have sold anyway. Only in that case we would sell but miss the premium of having first sold the covered call. I mitigate much of this by selling further OOM for most of my cc options.
Opportunity loss is just a state of mind. Don't be sentimental about stocks. If you really want to keep the stocks, don't sell the options. In other words, keep your eye on the money more than on the stocks.
So working my normal job is like constantly making short term capital gains. Did I miss how that’s bad? Sounds like a comparison of opportunity cost once again..
@@RickOrford following Tesla's WeRobot even TSLA fell to $219, I bought my calls back keeping around 20% of the premium, over $1500. I will wait for price to recover and sell calls again.
I am very new to covered calls. It appears that the only risk is losing POTENTIAL income, but not your initial investment. This sounds too good to be true. Is this really the only risk other than the stock you hold tanking?
Go about 6 weeks to 8 weeks out for a good premium. Use that to buy a long call. Still a good premium. Any over run on the price will be compensated by the long call.
If you think opportunity is a real possiblity, you can sell a vertical debit spread and pay some insurance to keep most of that opportunity. This means buying a call at a higher strike than the call you sold. In the case where your vertical is $2 - $3 spread on a lower priced stock, it's much easier to roll $200 to $300 of lost opportunity into selling another call than it would be to lose maybe $500 to $700 in total missed opportunity. You do lose some of your CC premium though, usually about 1/3 to 1/2.
You could! But here’s the thing- there will be the difference between the strike price and the current market price- which is the opportunity loss! If the strike is $100 and the market price is $120… thats $20 of of opportunity loss! Btw: are you on discord? If so 🚀 rickorford.com/discord - see you there!!!
Lost opportunity? But there is always the opportunity to re buy the shares that were assigned. You have the cash to buy 100 shares again at the assigned price if you buy them immediately. There is only lost opportunity if you don't rebuy shares. What am I missing here?
Good point- yes, you can always buy them back when assigned… however, say they are assigned at $100, and the market price is $120. The opportunity loss is $20! Ps: by chance, are you on discord? If so 🚀 rickorford.com/discord - see you there!!!
@@RickOrford Oh ok let's see if I have this straight. Say the current price is $80 and you sell a call at $100 strike. Market goes up to $100 and now the call is in the money. I'm assuming the call will be exercised at $100 immediately. If so, you can rebuy shares at $100, so no lost opportunity because you gained from the rise of shares from $80 to $100 and if you rebuy immediately, will gain from a theoretical share rise from $100 to $120. But what you seem to be saying is the call holder might not exercise the option till the price is at $120 ? At which point they will be assigned at $100 and I will indeed have missed out on $20. Is that right?
@@StillChrist ITM options are normally assigned at or around expiration, but could happen anytime. Eg. If XYZ's current price is 80, and you sell a call at 100... then the price goes to 100, or 110, or higher, assignment isn't 100% guaranteed. Many times the holder will simply sell the option to someone else and take a profit - infact, if the timing is correct, it might be more advantageous to the holder to sell the option rather than assign it. PS Do you use discord? If so, feel free to join us!
Thank you for all of your great videos. I have learned so much. Your training also gave me the confidence to start a trading account. I started in the middle of January with the $10K minimum that Fidelity required. Now three months later, I have earned over $2,500 with just simple trades of selling PUT and recently a few CALL options. My plan is to use these option strategies on a $50-60K trading account to earn an extra $20K per year starting next year when I retire. I plan on using this extra income to fund travel. And the best thing is that I can still do option trades while on extended trips overseas. That way I can keep funding my travels while I am actually traveling. I tell friends what I am doing and I refer them to your videos, but I don't think that I have gotten anyone to give it a try yet. But I will keep trying to spread the dream. Thank you so much.
Very kind of you to say! And yes, selling options in the right market (while not foolproof) can be very profitable. Look out for my next video about exit strategies- I think you’ll like it, especially if you’re travelling!
So you are thinking you can earn 35 - 40% per year just selling options? If it was that easy , everyone would do it. That level of premium would require selling options on high vol stocks and taking risky option positions, esp if you are selling puts and calls outright.
@@someguy95376 You are correct. I should be more specific. I have added funds over that period. I now have just over $25K in total account assets. I didn't originally count the 100 shares of TSLA, but since I sold a CALL on them last week @ $180 ($338 premium for 37 day contract). I need to count those shares as capital at risk. I have lost $642 on one trade, but overall low risk, small trades, most trades earning between $50 and $200 per trade. 30 trades in total. I want to earn slow and steady.
@@someguy95376 You are correct. I should be more specific about my account balance. I have added to my account and it now sits at about $25K. I have been selling cash secured PUTs on stocks below $100 value. I have had 30 trades; with contract premiums from $50 to $200. Last week I sold a CALL on TSLA at $180 for 37 days and a premium of $338. On average my trades have an annualized return of about 30-35%. The trades are small. I also lost $642 on a PUT trade where the stock drop more than 30% in a couple of hours. Overall, the I find the Wheel strategy on stock I want to own or do own to be relatively low risk. I have other accounts that are all long term buy and hold type of investing. My options trading account is separate and I track the results carefully to learn from my mistakes and my successes.
Maybe, but consider this. Maybe your position of 100 shares is now up 50, 100, 200% or more. This could mean 10’s of thousands of dollars of unrealized capitals gains. If the shares are assigned, you could end up with a huge tax bill in April of the following year!
Sell calls on retirement accounts so you don’t need to worry about taxes on those profits, but only when you’re cashing from them. And if on a ROTH IRA no taxes at all!
He says " Your goal for the Call option is to expire out of the money" Says who Rick ? What if you are bearish on a stock and have sold a Call that is deep in the money ? You have 3 choices to make when selling a Call, as to where, in the money, at the money and out of the money. Which one you choose depends on whether you are bearish or bullish on the stock. Selling a Call deep in the money buys you a hedge that you don't get if you sell one out of the money. This is what those products do that you recommend at the end of your presentation do. But apart from that you do a good job in introducing people to options. Have a nice day.
I hear you! Covered calls are probably the least risky trade- but there’s things to consider: Have you ever had shares called away at a price higher than you paid? This is tax risk. Have you ever sold a covered call, only to get the shares called away as the stock skyrocketed? This is opportunity loss.
I'm looking to do a covered call on AMC, I noticed some closer to the current stock price have the p/l graph shows a point where the premium could go down, is that true? So wat otm don't have a loss on the scale, should I just get those
I’m not a fan of covered call strategies because they trade potential income and limited loss protection for missing out on significant stock appreciation. While they may outperform in bear markets, they tend to underperform in bull markets-and historically, we spend more time in bull markets. Those big trading days where a stock can jump 10%+ are critical to long-term returns. Over time, a simple 60/40 stock-bond portfolio will likely leave you with more wealth. Plus, if you’re in a taxable account with highly appreciated stocks, getting called could create an unnecessary tax liability.
@@RickOrford Thought I would try it as a technique...use it to make a premium if stock goes up, or getting the stock called away if it dips to much...strike price about where I would put the stop loss. Lately I have been trying "optionsplay" with Fidelity rather than me thinking I am very smarty pants with The Greeks. I do it more in retirement account for tax reasons. I also did did in my taxable account a few years ago on stocks that where long term for capital gains...and when they got called away I used tax loss harvesting. I was planning to sell anyway for the tax loss, and bought similar funds immediately.
You said twice that covered calls are "typically" written against stocks that you already own. NO, they are ALWAYS written against stocks that you already own! That's why they are called "covered" calls! If you didn't own the stock it would be called a "naked" call, which is a totally different risk profile! So please stop suggesting otherwise and confusing things for the novice options trader!
Ahhh… You’re looking at the stock price alone… don’t forget to add in the distributions (which YF/GF doesn’t compute). Here’s the distributions by month: www.nasdaq.com/market-activity/etf/jepi/dividend-history - add those to the stock price and your return will be better :-)
If you want to own the stock - you can only lose if the company goes bankrupt. The stock goes down - you dca and sell more contracts. You get called, you sell puts on an attractive price for you. You get assigned, you go back to selling calls, lather, rinse, repeat. Who cares about the taxes because it’s taxes on money wouldn’t have had with selling the options.
opportunity loss. He failed to mentioned if your stock is assigned and you sell it, nothing is preventing you from buying it back at the higher price. When I pull the trigger too soon I just buy the stock again and continue on. This is not rocket science!
@lj4001 Im saying to know the odds. There’s many screeners out there, the ones I mention happen to be the ones I like. If you’re only looking for odds of the call expiring worthless, you can find it free in the delta!
@jeffjones114 that’s certainly a risk and it’s worth considering for future trades. That said, try and consider the silver lining… if the capital gains tax is high, your profit on the trade will be significantly higher!
🔥 Join me on Discord: rickorford.com/discord
One problem the video totally failed to mention is not all stocks are suitable for selling covered calls. Before picking a stock you want to sell covered calls on, look at the option chain, specifically the volume and open interest. If both are low to zero, you aren't going to sell any nor be able to roll or buy to close. In this case, pick another stock. In general, the more popular the stock is, the better the market. Also applies to puts.
I've found as a rule-of-thumb, if there are weekly options, there is enough of a market. If monthly only, the market for options ranges from thin to non-existent.
Good point- if there’s weekly’s, there’ll probably be more liquidity! Will keep that in mind in the future.
Not exactly, so don't mislead people. Unsuitable and unable are two different things. Absolutely agree many stocks are unsuitable, but you ARE able to trade the options if options are offered. The market maker's job is to do just that: ensure there's a price to buy/sell any of the options available. So you can ALWAYS be assured of a trade. Now whether that trade is at a favorable price is another story and not the point of my comment. Also should a stock be halted, all options, liquid or not, are affected.
A quicker way to gauge it is by looking at the bid ask spread. The closer the bid ask is the more liquid it generally is. As the bid ask spread widens then you'll for sure want to look at volume/oi. It's probably good habit to look at it anyway, but if you feel lazy you can use the bid ask spread gauge.
yea good input for me Robert I'll keep eye on that.
All valid considerations. In actual practice most of my covered calls represent solid income, and then I am able to sell new calls again. But I have been quite good at picking robust stocks, so a number of them move up so high as to exceed the strike price on the calls. In some cases, I decide to just let the shares be assigned. In other cases I bite the bullet and pay up to cover the calls, keep all the profits earned, and then resell the calls at a higher strike. Yes, there are a lot of considerations when venturing into options, but overall I have to say that I have no complaints about how it all works out over time. Steadily growing the portfolio. There is no free lunch on Wall Street. Just keep learning and being cognizant of all possible outcomes.
Thanks for the kind words! As you say, there’s no free lunch on wall street… I’d add that growth isn’t linear :-)
Covered calls are also tricky on taxes.
If you sell a covered call for less than 30 days duration your holding period resets if you were short term.
So if you had a stock for 11 months and wrote a 2 week covered call your holding clock would reset back to 0.
If you sell an ITM call, the duration doesn’t count towards your holding period to qualify for long term capital gains or the holding period for a qualified dividend.
So if you bought a stock in January for 30 and you’re sitting at December at 50 and are worried about the stock going down and you want to take profits but you don’t want to pay the short term tax rate you can’t sell a February Call at 40 to get you there since your holding period would be suspended for the duration of the call since you wrote it ITM.
100%! I mentioned it :)
THANK YOU for clarifying; i was unclear
Yoy can definitely sell weekly CC, otm and make more profit than you'd save on the tax.
I like JEPQ more than JEPI. They are very similar but JEPQ writes their covered calls 5-10% out of the money. In this scenario you get a little upside appreciation should the underlying go up in value. JEPI I believe would lose less in a bear market but you take the risk with the rewards. JEPQ typically pays out about 1-2% more in dividends, per month, than JEPI. Of course this is dependent on both the dividend payout as well as the price of the ETF itself. I've owned them both and would continue to buy either. They are both excellent, IMO.
Absolutely correct!
Nice overview!
But don't confuse "7% early assignment" with rate of assignment _at expiration_
Also, the distribution of the 7% is highly skewed -- basically 100% of those are for dividends (and short borrow fees when applicable)
Meaning someone might mistakenly think "7%" means they're very likely to keep the dividend on their stock when the call goes ITM, when that may not be the case (possibly causing them to miscalculate potential returns).
But you mentioned closing early and delta, so I wouldn't say there was zero coverage on this possible confusion point.
Anyway, good overview!
Thanks for the kind words!
Can you please cover the real scenarios where you can actually lose money selling covered calls?
1. The stock goes above the strike price at or before expiration. Is your opinion to let us get assigned or to roll? Because the only real way to avoid a loss here is to let it get assign and then re-buy the shares to do the CC strategy again. If you roll, you are losing money, which is what I face more often than I like. I would like to pick a strike price further out of the money, but the spread is nearly worthless so it's like a no win scenario.
2. The stock is trading lower than when you bought it and the strike prices are lower than your purchase price of the underlying stock. If scenario 1 from above occurs and you get assigned, you're losing money. Whether you let yourself get assigned or roll, you're losing money. What is the best thing to do here?
It kind of sounds like your strategy with CC is not to hold a particular stock indefinitely like dividend investors would, but to use this options samurai tool to pick a stock for the duration of the CC and if it gets assigned let it go and start over with a new stock. Is that right?
The only way you'll lose money in a covered call trade is if the stock moves lower than the breakeven point - but even then, it's a paper loss. It's not crystallized until you hit the sell button.
@@RickOrford Here's how you lose money in a covered strategy:
Week 1: You buy 100 shares of MSFT at 420, and sell a call with strike price of 421 (just out of the money), premium is 3.21 per share ($321 total) expiration is at of week. End of week comes and price closes at 420.5, so option expires worthless. We keep the stock and the premium.
Week 2. Monday trading opens with MSFT price at 413 (bad news over the weekend, stock opens much lower). We do the covered call strategy again. We sell a call at strike price of 414, premium is 1.75 per share ($175 total), expiration is end of week. The week ends and the price is now 415, passing the strike price and we get assigned. Our 100 shares of MST that we originally bought at $420 now sell for $414, ( $41,400 - $42,000 = -$600). Our premiums gave us $321 + $175 = $495, but we still are at a net loss ($495 - $600 = -$105).
We didn't sell (intentionally), we didn't roll, yet we still lost money.
@@RickOrford Why was my response deleted? Your website actually describes the same scenario I did on how you can lose money with a covered call.
Thank you for your teaching. I know now when the stock price get down. The premium can be worthless on the expiration date. Then you can collect full premium. When stock not only hit the strike price. You can get the full premium. If it goes above the strike price . It may be assigned. You get the premium and the stock price increase strike price.
My simple, no stress, profit making strategy is to sell OTM short strangles --especially for stocks I hold in my portfolio -- so I can get premium on both sides IE selling calls and puts simultaneously. This can also be construed to mean selling a combination of secured Put+ selling a covered call for the same stock at different strikes,.
Excellent advice! We’d love to have you in our discord community and learn more!
I recognize some of those words.
Main risk in Covered calls is not stock going up but tanking, fa far more than the CC premium received
You can hedge with a put or if you're long on that stock, it doesn't matter what happens in the short term. You're holding long anyway.
But yes, if you're doing CC on random stocks and chasing premiums, that can be one way you can get burned.
I do CC on my kids dividend positions, I am holding super long anyways so it's a good strategy for me.
@@denko44 Not cheap, especially if it takes years for the stock to recover.
The thing is, if you planned on holding the stock you wouldn’t have sold at the top anyway. It would have crashed back down and you would have said, “I could have sold it for $1,000 and now it’s only $850”.
I can say with a great degree of certainty, if a stock jumps that much the average person is not going to sell in hopes that it goes up more. Were greedy.
That is one nice thing about selling calls, it draws a line in the sand. Odds are, if a stock jumps that much, in a month or so it will come right back down and you can buy back in cheaper than what you sold.
You sold, made money, be happy. “Could have” and “should have” will end up losing you money in the market.
👍
@@RickOrford I hope it didn’t come off like I’m trying to argue with you, that is not my intention.
I’m one of those people that has been down the “should have” and “could have” way too many times. I’ve missed out on months of premiums because “it’s gonna hit and I’ll miss out on the big move”………years later……..
I didn’t think you were arguing! Part of one’s trading strategy is intuition- based on their own experiences! And I appreciate you taking time to leave some feedback :)
It’s amazing this guy wrote a book it’s even more amazing that people listen to him. He takes forever to get to the point. Talked for three or four minutes at the beginning without saying anything.
Thank you for sitting through it 😂 I’ll try and ramble less in the beginning!
It's pretty easy to scroll the bottom of the screen to skip parts unnecessary for you.
Another tax consideration is performing a covered call strategy in an IRA, which can provide other hedging opportunities since there is no tax bill until the investor starts withdrawing from the IRA.
Absolutely!!
When u buy to close a CC are you still net positive the amount of premium? Is the BTC amount about equal to the stock price appreciation?
When you buy to close, there is no guarantee you’re still net positive. The new premium could be much more than you received, or much less. It all depends on how high (or low) the underlying moved from the time you sold the call, to now…
Isn’t there a close relationship between stock appreciation from time of CC sale, time of buy to close and change in option price?
Premiums are calculated based on the time remaining before expiration, underlying price, and IV. Example: all things being equal, an OTM option will have a higher premium, the more days there are to expiration.
@@blp9724 These factors are all covered in what are known as the "greeks" -- delta, theta, gamma, and vega. Rick was keeping it simple by only focusing on delta. If your stock didn't move in share price, and the call was out of the money, then the decay of the option premium over time is the theta. Theta decay means you buy back a call cheaper than when you sell it, assuming no change in the underlying stock or volatility.
I design covered call trades WITH the intent that it get called. I did it recently on Ford. Did a buy/write covered call. Bought at 10.75. Sold a 35 day expiration call at $11.00 for .41 cent premium. Delta was 43. I could possible also collect the dividend of .15 if not called early....but trending like it might get called early.
Seems like a very tax inefficient way of doing covered calls
@@jaygatsby3039 HSA account or IRA accounts
What are your thoughts on SVOL? I’ve used it over the years for income, but sell it when IV is low and then buy again when IV is higher. I prefer credit spreads and try to keep a delta of 20 on the short leg
TBH, I never heard of SVOL, but it looks interesting, thank you!
As for selling spreads with a 20 delta, you’ll get less premium, but at the same time, wont likely face a trade that goes offside- at least not often.
Thanks for the tip and for watching!!
SVOL is one of my favorite income ETFs.
Thanks for the video! I’ve been selling CC for years now and there are so many ways to manage these even if ITM or even after being assigned. Also instead of using CC as income I have been using them to compound shares or LEAPS, do you know of anyone also doing this? Maybe another channel, I posted some videos and so far noone have said they are doing the same. I wonder if others have the same idea.
I did a leaps video a while ago- might need a refresher. Thanks for the suggestion!
Thanks Rick for sharing your knowledge. What do you think about having LEAP Calls instead of Shares in a covered call strategy. Too risky?
For long calls with long durations, I prefer those that are deep ITM. It allows me to control 100 shares for a fraction of the cost. And as it’s deep ITM, there’s lots of intrinsic value off the top. That said… the underlying needs to be a quality company. Any less and it’s a crap shoot.
Thanks for the question!!
How do you handle covered call when the equity drops below breakeven? Do you continue on faith or try to buy protective put or roll down and out the covered call. Do you still consider even rolling up and out?
I’m not entirely clear on the question. Say you own ABC stock, it trades at $100 and you sell a CC. Then, ABC drops to $80. At this point, the call option will be worth much less, so you can buy to close, retaining a large chunk of the original premium.
Then, there’s the question about ABC going forward. If you continue to believe in the stock, think about keeping it. Otherwise, I’d sell.
Hope that helps!
@@RickOrford got it thank you. I’m still trying to figure out all the ins and out of options but I find it very intriguing once you understand risks/rewards and probabilities, I’m still trying to get comfortable with certain options that requires high margins held which ties up your capital in a way so I’m always calculating return on capital in proportion to DTEs. Thank you that was very helpful.
Anytime. If I can recommend- try paper trading for 6 months to a year. In my experience, it’s the best education possible! Also, feel free to join us on discord :)
@@RickOrfordsite as an example with numbers, please. You said if ABC drops to $80, much worth less, you keep the premium, and buy same stocks,ABC for less to closed. Or if ABS shoot higher than $80, you keep the premium, and buyer bought your stock,ABC for higher price.
opportunity loss is NOT considered a risk. That is no difference than if I sold a stock and the price jump right after I sold. That happens a lot. There is no risk in doing a covered call IF you are planning to hold that stock for the long-term anyway. And if your stock got called away, then you can take that money and look for other opportunities.
one more thing for covered call is it is been sold as insurance for the short stock sellers.
What kind of taxation exist for premium ? Income or capital gain ? Thanks
Short term capital gains which is whatever your income tax bracket is.
the tax implication risk can be eliminated if you trade out of an IRA account.. correct?
Is it only worth buying out a covered call and holding the stock if it shoot the moon? In most situations i don't think I've heard or seen anyone on YT show a buyback of ITM, usually rollover or expire. There also isn't a lot of ITM conversation maybe because once you understand the options available to you its one of the 2. I'll check out more of your channel. Probably don't' use Webull or an interface similar but if do any option tutorials interesting to watch.
How would the returns of a "DIY" monthly/Delta20 CC strategy, compare with a CC Fund such as JEPI/JEPQ? Thank you..
That's tough to answer - The returns on a 20 Delta CC would depend on the underlying security, strike, days to expiration, and volatility!
Fantastic Video. This clearly explains how to 'avoid' assignment by "Rolling the Trade". Also, great guidance on referencing the "Delta" prior to selling the Covered Call. These are two amazing tips not covered in other Covered Call videos. Thank You!!
Thanks!
You said if my stock is called, I will get to collect the price at the strike price plus the premium? I thought minus the premium 🤔 can you confirm please? Thanks.
Premium is always yours to keep as the stock option writer - selling the call or selling the put.
@@ronloftis9080 thanks a lot. That makes big difference.
Opportunity cost is a real problem. I benchmark my weekly returns against qqq. The reason I do this is if I can’t beat either qqq, then I am wasting my time.
You are such a great professor, I have no knowledge about options at all, after watching other option traders’ videos all day, your video made me understanding better and relaxing, thank you again.
Thanks kindly!!! Did you by chance join my discord??
Can you sell the call spread instead of covered call and manage it manually? If short leg is breached, the long leg profits while rolling out the short leg up and out .
You certainly could!
Vertical or diagonal call spreads both work for this. On a stock like NVidia which shoots up like a weed, a vertical spread would be far safer than a vanilla covered call.
Or just go with a synthetic covered call, which is basically a diagonal spread with a long duration long call. Problem solved.
Thank you again Rick , I sold NVDA put at strike 1125 expired June 21 for premium 1630.00 ,as of June 13 , there is profit around 1500.00, should I close the position and move on ?
In a speculative position like that, I like to “take profits” when the short option has lost ~80% of its value. If you can buy back your put for under $350, you’ll have a profit of $1300… enough to give yourself a nice pat on the back for the weekend.
Ps: I invite you to join us on discord: rickorford.com/discord
I closed the position on Friday for 160, net profit around 1500.00, thank you Rick😊
How do I join your discord?
I saw the link just now, thank you.
I plan to sell covered call for NVDA, but I don’t want to be called away, how do I play for June 21 2024 selling covered call
Delta is relatively useful to evaluate the probability of assignment.. it’s changing every single moment.. so basically the probability of assignment is real only in the moment you enter the order 😅
Yep- but over time, I think you’ll find delta is pretty accurate- it’s also the basis for how options are priced!
Thank you Rick
You're a really good teacher
Learned a bunch
David
Very kind of you to say, thanks!
what is the max number of stock to trade options on?
Hi! Thanks for watching! I don’t believe there’s a maximum. Maybe your broker has one- but, I’m not aware.
Your brainpower to be able to manage them all.
I never hold stocks for a year or more. I ride the stock up and get off before I give back any profits. Stocks are cyclical. They go up and down frequently. When a stock enters a downtrend I sell. When the downtrend reverses I buy it back lower than where I sold it. Never give back profits. If I have to pay a higher tax so be it. They never take more than you make.
Understood. I have many stocks I’ve held for 10+ years, and trade others in a more tactical nature. To each their own!
Which one is better to use, Barchart or Option Samurai?
Depends. I lean toward Barchart as it gives me more flexibility and data.
Compare the data:
rickorford.com/barchart
With
rickorford.com/samurai
@@RickOrford Thank you!
I appreciate and learned so much with your teaching. I just started practicing on paper trade with selling covered calls. I sold a call DTE 24May at av price $2.51. Now my portfolio shows last price is 3.40 and the market is -325. Unrealized profit is -73. Interactive Brokers computation is so confusing. I seek your assistance to help me understand these figures if you can. Thanks in advance.
Thanks for your kind words! First, congrats on using a paper trading account - this is the best way to learn.
I do not know the stock price or the strike price- which would be helpful to form a more accurate response, so I’ll go with what I have.
If you sold a call for $2.51 and now it’s $3.40, then the price of the stock went up. Similarly, the chances of assignment are also higher.
A broker will show that as a “loss”, only if you bought back the call right now… it would cost you $3.40 * 100 per contract.
However, as you (assuming) already have the stock, its price would have also risen. So, the profits will be (at least partially) reflected there.
As it’s a paper account, I recommend letting the trade run its course.
Also consider selling spreads. Right now, markets are moving up, so a put credit spread will probably do better than a call credit spread.
@@RickOrford Thank you so much for the speedy reply and I am a fan of your teaching skills. I bought Google shares at 144.86 to practice the sell call in the paper account. I fully understand your explanation. Up to now, I only know both sell put and sell call. I will continue to watch your videos to learn 2 leg strategies. You made the videos with such clarity and described them with details that a person new to option trading can understand. Your efforts are much appreciated. I can't understand my Brokers's webinars. Your videos are tailored with new beginners in mind. I will be trading in my real account in a jiffy.
How’s the progress?
@@RickOrford I sold one covered call and the shares got called away. That's not a problem because it was at a profit. However, I sell put on quite a few trades in my paper trading and all were profitable. When I sold a put in my real account, the trend had changed and the trade was ITM as the share price had fallen below my strike price. I missed the chance to close the trade at a lesser loss but missed it. It is nighttime over here when US market opens. The premium is too high for me to close the trade... not worth it. Now I am left with 40 days to expiry and will have to pick up those shares that I actually didn't want to own. So, there is no choice, I will have to try earning premiums with covered calls on this if it gets assigned. Since I do not have a margin, I had to do cash covered..... Will be taking time to look at Samurai....Cheers!
You are an excellent teacher. Subject thoroughly explained. Great information.
Esta bueno el video, la alternativa al lanzamiento empieza en 14:01. Si, siempre el temor de los lanzadores es que vendamos la accion y siga subiendo
Ok... When you make your first covered call trade then the math works great. If your stock tanks then what happens? Because the way I see it, if you write another 20% delta covered call on the stock then the price that your shares could get called away at could be lower than what you paid for them? So that's a loss. Or if you stick with a strike price where you don't lose money if you are called out then the premium is practically nothing so now your stock has tanked and you're not getting premiums. How do you manage a trade where the stock has tanked?
Do you still want to own the stock or has it tanked for a reason? Other things to do is what for a bounce to write a new call. If you still want to own it, many so to continue to write the call at the same strike as before.
Can you not get assigned even if the stock price is a little above the strike price at the expiration date?
Yep it can happen anytime before expiration and for any reason- though it’s rare. Usually, holders will sell the option if there’s time value baked in.
At expiration, even if the stock is only 1 penny above the strike price, the call option will be exercised at expiration. It happened to me with Ford just in July or August just before it crashed. My covered call was executed 1 penny above strike at expiration.
The best part about covered calls is that you make $$ just by letting time go by. That’s a heck of a lot of income for nothing
Right!?!
Hey 😊 What if you own less than 100 shares? Can you still do options? Calls or puts?
A equities option is based on 100 shares. You can sell a call/put with less than 100 shares, however, it’ll be partially secured by $$. Be sure you know what you’re doing!!!
I would like to point out something. Typically assignment doesn't happen unless the stock price + premium received is reached or surpassed. In the Nividia example of NVDA strike of $860 and the premium received of $46.70 that means that the stock price would need to reach $906.70 or close to it before the option would be exercised. If the stock price reach $870 at expiration the likelyhood of assignment is 0%
Good point- Before expiration, OTM assignment is rare, however, anything can happen. At expiration, if the option is ITM even by 0.01, it’ll be assigned.
@@RickOrford I've been surprised with assignment on OTM calls. It generally happens near expiration when the bid/ask spread gets unusually wide, or for a stock that is heavily shorted, and somebody is buying a call with a low time premium to cover their short on a hard to borrow stock.
if strike is 860 and share price at expiration is 870 the likelihood of assignment is 100 percent.
@davidleonard4925 correct!
In the NVDA example, how do you come up with 27.80 per share premium? I see .67 per share premium at that strike or 67.00 dollars per contract. The remaining difference of 180.00 per share NAV appreciation at assignment.
$27.80 was an example at the $880 strike earlier this week!
@@RickOrford yes sorry I saw that after I checked the correct monthly. Thanks for the info - I really appreciate it!
@steveb.7120 happy to help- do let me know if you have more questions and maybe I’ll Make a video about it. Thanks again for watching :-)
5:55 why would the buyer NOT choose to exercise?
They can’t afford it.
What about you buy and the stock price goes down and you are locked in a contract . The value of the original purchase loses more than the premium you got you are negative. How do you put a stop loss on them
If you have or buy 100 of XYZ and sell a call, then the stock goes down, you can still sell the stocks, and, the premium on the call will be lower than what it was at the beginning.
Eg. you could have collected $2 a share at the start. Stock plummets and you decide to sell. Buy back the call at the new price, ie $0.50 - netting you $1.50.
So you’d actually be ahead (better off than owning the stock alone)
There use to be a thing called "married position" does anyone know if that still applies to a stock in a married position is disqualified for long term capital gains for that time?
Which generous I buy calls or selling puts in spreads
The bull put and bear call are excellent strategies!
Hi Rick. In case of NVDA if you sold a Covered Call let say at 27 and the stock jumped 100$ thus pushed the Call price to let say to 60 at the expiration didn't you loose on the overall deal? Of course you gained on share price yet you lost 60-27=33 which 3300$ on the Covered Call. Why didn't you include it at the calculation?
Sure- that’s opportunity loss!
@@RickOrford I see, is there any strategies to get passive income on loosing positions using options? Like PayPall bag-holding 100 shares at 120 with the current price of around 60? maybe you can create a video on it. Really appreciate it. thanks
You can always sell a covered call on shares you currently own- regardless of the cost basis. You can also sell them (tax loss harvest) and move on to the next trade :)
appreciate you covering risks of all options as opposed to others who only share upside
Thanks for the kind words! You’re right- it’s not a commonly covered topic.
Rick, if your shares get called away, can't you just buy the shares back at the higher price? If you have alerts and you buy the moment you get called you should not suffer opportunity loss, no?
Yes, you absolutely can buy them back! The risk is related to tax as it could trigger a capital gain.
@@RickOrford Right, that makes sense. Not a good thing, but another consideration is now at least the capital gain is then out of the way up to that point in price movement.
Which are the cheapest platforms, as far as fees go, to sell covered calls. Robinhood? eTrade? I forget the others.
And I'm guessing if you aren't assigned, you DO have to sell out eventually? I've been watching so many videos, my head is spinning. Must I go to my computer several times a day to see what's happening?
Also, any special tax forms that must be filled out for covered calls??? I know there's a K-something that people say is a nightmare. Not sure if that's for covered calls though.
Robinhood will be cheap- my preference is Interactive Brokers. As for assignment on a covered call- you’d have to sell your shares if assigned. If you sell a covered call on a stock you’d like to keep, long term, you’ll need to monitor it.
As for taxes- that’s another story- though, you can do it in a Roth IRA and not worry about taxes.
Do you have or can you please make a video of ALL RISKS OF SELLING 'PUT CREDIT SPREADS', AND 'SELLING CALL CREDIT SPREADS' ???
Noted!
I use covered calls to raise cash to pay for my RMD in an IRA (NO TAXES ON USING COVERED CALLS!!)
The stock can go down and keep going down and you'll lose on the stock. However, i can NOT ever lose on a CC. How? Cause i sell the call at rhe price that im gonna sell at.
If i habe a stock currently at $25.04 that i bought at $22.71 then im out at $27. If the price gets to $27 then im out period. So, if i sell a CC at $27 and i get paid 13 cents per share? Ive just paid $13 i wouldn't have at otherwise.
one of the risks of selling calls on a portfolio is that 1-2 stocks will run much higher than the calls sold and those lost stock price increases can offset much the premium collected on the portfolio as a whole - any it does happen. Opportunity cost is a real cost that options traders don't always account for.
Absolutely true- and it was the one of the first risks I covered!! I’d hate to lose a position I’ve owned for years!!
That’s not what opportunity cost is. Opportunity cost is, essentially, the other ways that resources can be spent. The opportunity cost of buying a $10 option is, say, a fast food meal.
“Missing out of profit” is not opportunity cost. What it is, instead, is FOMO thinking.
I’m not saying missing profit because of a stock run-up past your call position is great. I’m saying it’s not a loss. It might cost you more to buy back into the position if you want to, but you didn’t lose any money. You missed profit, but that is *not* the same thing.
@@theREALlouthelou To add to that; minus a crystal ball a good portion of times when a stock hits a certain price we would have sold anyway. Only in that case we would sell but miss the premium of having first sold the covered call. I mitigate much of this by selling further OOM for most of my cc options.
@KOH777-gp6ut gotta love the wheel
Opportunity loss is just a state of mind. Don't be sentimental about stocks. If you really want to keep the stocks, don't sell the options. In other words, keep your eye on the money more than on the stocks.
If I sell a covered call do I get paid the premium immediately or do I have to wait until the expiration date to get paid? Subscribed BTW! 👍👍
You get the premium immediately
❤ it. What if I have just $1000: Can I sell covered calls for stocks under $5/what are the stocks to consider if we want grow the account?
You need 100 shares of the underlying to write a covered call- so if you have $1000 it’s possible with 100 shares of a $10 stock.
Google: Poor mans covered call
Can you sell LEAP calls for Profit?
So working my normal job is like constantly making short term capital gains. Did I miss how that’s bad? Sounds like a comparison of opportunity cost once again..
I just rolled breached short calls out in time and up to a higher strike to Jan 17 to push the tax consequences into 2025 for an additional credit.
Excellent! Let’s hope is goes well!
@@RickOrford following Tesla's WeRobot even TSLA fell to $219, I bought my calls back keeping around 20% of the premium, over $1500. I will wait for price to recover and sell calls again.
What about selling covered calls within a Roth IRA? Then any gains aren't taxed.
Correct- Roth gains aren’t taxed!
Or, just get a covered call ETF, like JEPI or similar.
Right! Some folks don’t want the hassle or can’t sell calls… a fund takes a lot of the “fun” away, but, why not.
Thanks for watching to the end!
where is the cash secured put on optionsamarai
Hi! Check “naked put”.
At first I thought another video bash on CCall. But you sir is a good teacher. I really enjoyed this video.
Thanks for the kind words!
Do you have any content on selling options instead of using a stop loss on shares
Hi! Almost all my content is about selling options… what would you like to know?
What screener would you use?
I live on Option Samurai: rickorford.com/samurai
Yes many stocks have run on me, that’s the risk
I am very new to covered calls. It appears that the only risk is losing POTENTIAL income, but not your initial investment. This sounds too good to be true. Is this really the only risk other than the stock you hold tanking?
That and maybe capital gains if your stocks are called away AND you’re holding them in a taxable account.
Go about 6 weeks to 8 weeks out for a good premium. Use that to buy a long call. Still a good premium. Any over run on the price will be compensated by the long call.
Very good idea.
👍
Lol that’s called hedging
To avoid potential missed opportunities, if you have sufficient liquidity, why not consider repurchasing as the price nears the strike price?
Absolutely!
If you think opportunity is a real possiblity, you can sell a vertical debit spread and pay some insurance to keep most of that opportunity. This means buying a call at a higher strike than the call you sold. In the case where your vertical is $2 - $3 spread on a lower priced stock, it's much easier to roll $200 to $300 of lost opportunity into selling another call than it would be to lose maybe $500 to $700 in total missed opportunity. You do lose some of your CC premium though, usually about 1/3 to 1/2.
Well explained with the visuals. Thank you
So rolling up or down doesnt exist?
Of course it does! But that’s a topic for another video :)
Great video... thanks for explaining the process in detail
Happy to help! Have you made any trades?
To deal with the opportunity lost why not just buy more of the stock?
You could! But here’s the thing- there will be the difference between the strike price and the current market price- which is the opportunity loss! If the strike is $100 and the market price is $120… thats $20 of of opportunity loss!
Btw: are you on discord? If so 🚀 rickorford.com/discord - see you there!!!
Lost opportunity? But there is always the opportunity to re buy the shares that were assigned. You have the cash to buy 100 shares again at the assigned price if you buy them immediately. There is only lost opportunity if you don't rebuy shares. What am I missing here?
If it goes up past the premium you also lose the additional upside as if you just owned the share
@@JimMcNutty Yah but why can't you go right back into the market and repurchase same number of shares before price goes up?
Good point- yes, you can always buy them back when assigned… however, say they are assigned at $100, and the market price is $120. The opportunity loss is $20!
Ps: by chance, are you on discord? If so 🚀 rickorford.com/discord - see you there!!!
@@RickOrford Oh ok let's see if I have this straight. Say the current price is $80 and you sell a call at $100 strike. Market goes up to $100 and now the call is in the money. I'm assuming the call will be exercised at $100 immediately. If so, you can rebuy shares at $100, so no lost opportunity because you gained from the rise of shares from $80 to $100 and if you rebuy immediately, will gain from a theoretical share rise from $100 to $120. But what you seem to be saying is the call holder might not exercise the option till the price is at $120 ? At which point they will be assigned at $100 and I will indeed have missed out on $20. Is that right?
@@StillChrist ITM options are normally assigned at or around expiration, but could happen anytime. Eg. If XYZ's current price is 80, and you sell a call at 100... then the price goes to 100, or 110, or higher, assignment isn't 100% guaranteed. Many times the holder will simply sell the option to someone else and take a profit - infact, if the timing is correct, it might be more advantageous to the holder to sell the option rather than assign it. PS Do you use discord? If so, feel free to join us!
When was Nvidia 700 and 800 a share? Highest price over last year is about 145 a share? I don't get it. What stock is he talking about
NVDA was trading around $1000 in May 2024 when they decided to execute a 10 to 1 stock split on 6/7/24.
Thanks for answering it- apologies I only saw this comment now. Like @crystalthomas7904 said, the stock split earlier this year.
Thank you for all of your great videos. I have learned so much. Your training also gave me the confidence to start a trading account. I started in the middle of January with the $10K minimum that Fidelity required. Now three months later, I have earned over $2,500 with just simple trades of selling PUT and recently a few CALL options. My plan is to use these option strategies on a $50-60K trading account to earn an extra $20K per year starting next year when I retire. I plan on using this extra income to fund travel. And the best thing is that I can still do option trades while on extended trips overseas. That way I can keep funding my travels while I am actually traveling. I tell friends what I am doing and I refer them to your videos, but I don't think that I have gotten anyone to give it a try yet. But I will keep trying to spread the dream. Thank you so much.
Very kind of you to say! And yes, selling options in the right market (while not foolproof) can be very profitable.
Look out for my next video about exit strategies- I think you’ll like it, especially if you’re travelling!
So you are thinking you can earn 35 - 40% per year just selling options? If it was that easy , everyone would do it. That level of premium would require selling options on high vol stocks and taking risky option positions, esp if you are selling puts and calls outright.
Who said 35-40%- I certainly didn’t. And you’re right, hitting that rate would certainly require taking on risky bets.
@@someguy95376 You are correct. I should be more specific. I have added funds over that period. I now have just over $25K in total account assets. I didn't originally count the 100 shares of TSLA, but since I sold a CALL on them last week @ $180 ($338 premium for 37 day contract). I need to count those shares as capital at risk. I have lost $642 on one trade, but overall low risk, small trades, most trades earning between $50 and $200 per trade. 30 trades in total. I want to earn slow and steady.
@@someguy95376 You are correct. I should be more specific about my account balance. I have added to my account and it now sits at about $25K. I have been selling cash secured PUTs on stocks below $100 value. I have had 30 trades; with contract premiums from $50 to $200. Last week I sold a CALL on TSLA at $180 for 37 days and a premium of $338. On average my trades have an annualized return of about 30-35%. The trades are small. I also lost $642 on a PUT trade where the stock drop more than 30% in a couple of hours. Overall, the I find the Wheel strategy on stock I want to own or do own to be relatively low risk. I have other accounts that are all long term buy and hold type of investing. My options trading account is separate and I track the results carefully to learn from my mistakes and my successes.
Forgot to say: thank you for the videos 😊. Good stuff. Keep up the good work
Thanks! I really do appreciate it ;)
With the amount of profit you can get from covered calls vs the risk, I find it’s just not worth it. Cash-secured puts are better
hoping to learn something new but already know everything mention in video.. i take that bad.. i learn about optionsamuri..didn't know that..
Thanks for watching! Now you’ve got a new tool for your arsenal! And they have a free trial to get you started!
Can't you just buy the stock back if your options get exercised?
You certainly can!
What is false about what you say assumes you need to keep ownership of the stock shares
Sorry? I’m not clear on what you’re trying to say…
@@RickOrford Allowing the buyer to purchase the shares at the strike price is not the end of the world and might be more profitable.
Maybe, but consider this. Maybe your position of 100 shares is now up 50, 100, 200% or more. This could mean 10’s of thousands of dollars of unrealized capitals gains. If the shares are assigned, you could end up with a huge tax bill in April of the following year!
@@RickOrford Not if you use buy-writes
Sell calls on retirement accounts so you don’t need to worry about taxes on those profits, but only when you’re cashing from them. And if on a ROTH IRA no taxes at all!
He says " Your goal for the Call option is to expire out of the money" Says who Rick ? What if you are bearish on a stock and have sold a Call that is deep in the money ? You have 3 choices to make when selling a Call, as to where, in the money, at the money and out of the money. Which one you choose depends on whether you are bearish or bullish on the stock. Selling a Call deep in the money buys you a hedge that you don't get if you sell one out of the money. This is what those products do that you recommend at the end of your presentation do. But apart from that you do a good job in introducing people to options. Have a nice day.
You’re right. Some folks actually want their shares to be called away- especially in a buy-write. I should have said “usually” 😂
Thank you so much !
Thank you for watching! What was your biggest takeaway?
Hey brother, there is absolutely NO RISK/ ZERO RISK in selling covered calls !!! ... I do it all the time and it's nothing but MONEY.
I hear you! Covered calls are probably the least risky trade- but there’s things to consider:
Have you ever had shares called away at a price higher than you paid? This is tax risk.
Have you ever sold a covered call, only to get the shares called away as the stock skyrocketed? This is opportunity loss.
@@RickOrford Everything is a risk!
I'm looking to do a covered call on AMC, I noticed some closer to the current stock price have the p/l graph shows a point where the premium could go down, is that true? So wat otm don't have a loss on the scale, should I just get those
Hey brother, tell us you don't understand financial risk or investing without telling us you don't understand financial risk or investing.
The risks here are numerous when your stock goes way up or way down..😩
I’m not a fan of covered call strategies because they trade potential income and limited loss protection for missing out on significant stock appreciation. While they may outperform in bear markets, they tend to underperform in bull markets-and historically, we spend more time in bull markets. Those big trading days where a stock can jump 10%+ are critical to long-term returns. Over time, a simple 60/40 stock-bond portfolio will likely leave you with more wealth. Plus, if you’re in a taxable account with highly appreciated stocks, getting called could create an unnecessary tax liability.
100% agreed! Thanks for the insight :)
Thanks, Rick!
Thank you for watching! May I ask… What was the biggest takeaway?
I mostly use covered calls as a possible stop loss.
Interesting. What’s the thought process behind it?
@@RickOrford Thought I would try it as a technique...use it to make a premium if stock goes up, or getting the stock called away if it dips to much...strike price about where I would put the stop loss. Lately I have been trying "optionsplay" with Fidelity rather than me thinking I am very smarty pants with The Greeks. I do it more in retirement account for tax reasons. I also did did in my taxable account a few years ago on stocks that where long term for capital gains...and when they got called away I used tax loss harvesting. I was planning to sell anyway for the tax loss, and bought similar funds immediately.
You said twice that covered calls are "typically" written against stocks that you already own. NO, they are ALWAYS written against stocks that you already own! That's why they are called "covered" calls! If you didn't own the stock it would be called a "naked" call, which is a totally different risk profile! So please stop suggesting otherwise and confusing things for the novice options trader!
Excellent point!
JEPI has only given 3,53% profits in 1 year and MINUS 5,51% in 3 years! Why’d you invest in this fund
Ahhh… You’re looking at the stock price alone… don’t forget to add in the distributions (which YF/GF doesn’t compute). Here’s the distributions by month: www.nasdaq.com/market-activity/etf/jepi/dividend-history - add those to the stock price and your return will be better :-)
Probably worth mentioning rolling as a concept…
Thank you
Thanks for watching so quick!!!
Is the net profit from a poor man’s cover call equal to the profit minus the covered call cost?
The net profit of a PMCC is the difference between what you get for the sold call, minus the price you pay for the long call.
easy money bro. just my opinion.
If you want to own the stock - you can only lose if the company goes bankrupt. The stock goes down - you dca and sell more contracts. You get called, you sell puts on an attractive price for you. You get assigned, you go back to selling calls, lather, rinse, repeat. Who cares about the taxes because it’s taxes on money wouldn’t have had with selling the options.
Good point and I agree! The issue with taxes is that some might not want their shares called away.
opportunity loss. He failed to mentioned if your stock is assigned and you sell it, nothing is preventing you from buying it back at the higher price. When I pull the trigger too soon I just buy the stock again and continue on. This is not rocket science!
That’s bc he is trying to sell you the Screener and the idea of Covered Calls, Not do an actual Tutorial 😅
@lj4001 Im saying to know the odds. There’s many screeners out there, the ones I mention happen to be the ones I like.
If you’re only looking for odds of the call expiring worthless, you can find it free in the delta!
LOL so relatable, since I am worried my Nvidia shares are going to be called away, so I googled this!
What makes you worried about having the shares called away? Capital gains tax? Or?
@@RickOrford yep capital gains tax
@jeffjones114 that’s certainly a risk and it’s worth considering for future trades. That said, try and consider the silver lining… if the capital gains tax is high, your profit on the trade will be significantly higher!
@@RickOrford yeah champaign problems 🙃
🤪 btw would love for you to join our discord! Have a super weekend!