The PROBLEM With Covered Calls (Are They Worth It?)

Рет қаралды 129,698

Күн бұрын

✅ New to options trading? Master the essential options trading concepts with the FREE Options Trading for Beginners PDF and email course: geni.us/options-trading-pdf 💰 Get up to $3,000 when you open and fund your first tastytrade brokerage account: geni.us/tastytrade
🔥 Learn data-driven options strategies: optionsforbeginners.teachable...
Covered calls are one of the most popular options strategies that traders use, but are they worth it? In this video, we'll learn the dark side of covered calls, and understand what we're really doing when we enter one of these trades.
To understand the problem with covered calls, we'll look at a potential trade I could make with my SQ stock position and run through four scenarios that could play out after entering the trade.
0:00 Introduction
0:14 Covered Call Benefits
0:43 Covered Call Setup Recap
1:44 Example Covered Call in Square (SQ)
3:20 Scenario #1: Neutral Stock Price
4:24 Scenario #2: Bearish Stock Price
6:04 Scenario #3: The GOLDEN Covered Call Trade
8:00 Scenario #4: The PROBLEM Outcome
10:30 What You're REALLY Doing When Trading Covered Calls
12:33 How Covered Calls Can INCREASE Your Share Cost Basis
14:50 Don't Miss This Resource!
Covered calls can outperform simple buy-and-hold stock positions in many scenarios, but be mindful of the fact that you are agreeing to sell your upside on the shares when entering into the position.
I dislike the covered call strategy on stocks I'm holding with long-term intention. I don't want to be put into a situation where I have to buy back the short calls for a loss if I trade a covered call and the stock goes to the moon.
In short, I will only trade a covered call on a stock position that I truly don't mind selling at the given strike price of my choosing. Many options traders THINK they are ok with selling their shares at the strike price of the call, but change their minds when the stock rallies above the strike. Be absolutely sure you're ok with selling your upside on the shares of stock!
== Recommended Resources/Videos ==
➥ Covered Calls for Beginners: • Covered Call Options S...
➥ Options Trading for Beginners (The ULTIMATE Guide): • Options Trading for Be...
➥ Vertical Spreads for Beginners (The ULTIMATE Guide): • The Vertical Spread Op... tastytrade, Inc. (“tastytrade”) has entered into a Marketing Agreement with Project Finance(Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’ brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade and/or any of its affiliated companies. Neither tastytrade nor any of its affiliated companies is responsible for the privacy practices of Marketing Agent or this website. tastytrade does not warrant the accuracy or content of the products or services offered by Marketing Agent or this website. Marketing Agent is independent and is not an affiliate of tastytrade.

Пікірлер: 610

@projectfinance Жыл бұрын

✅ New to options trading? Master the essential options trading concepts with the FREE Options Trading for Beginners PDF and email course: geni.us/options-trading-pdf

@dustoffmedic71 3 жыл бұрын

You didn’t “lose” any money on the covered calls in the last scenario. You kept the entire premium. That’s not a loss. You just didn’t make all of the upside of the stock. It was still profitable. Every scenario is profitable. Some just more than others.

@sitarang07 3 жыл бұрын

Depends upon your objective, if you were hedging a downside and don’t mind selling the stock it’s a profit but if it is a high conviction stock and you loose the potential future upside it’s a loss.

@matt_h_27 3 жыл бұрын

🎯 Besides, you should never sell calls on shares you aren’t willing to lose. Trying to play both sides of the fence is not typically a winning strategy. I never mix my long positions with my options trading account. I may use the same stocks, but you can’t be mad if you get assigned. That’s part of the game.

@donaldlyons17 3 жыл бұрын

@@matt_h_27 Being assigned is a good thing isn't it? I liked making just 15% on Gamestop even though it made a lot more months later. I don't have anything else returning 15% in the year except the Gamestop stock!!!! Your quote: (Besides, you should never sell calls on shares you aren’t willing to lose. Trying to play both sides of the fence is not typically a winning strategy. I never mix my long positions with my options trading account. I may use the same stocks, but you can’t be mad if you get assigned. That’s part of the game.)

@BH-pl7vg 3 жыл бұрын

@@matt_h_27 Pro tip: Double down if share price begins rising above strike with stop loss set at strike. You’ll be sacrificing brokerage fees although if you’re passionate about your position than it’s a well worth it strategy.

@DeepBlueSynthesizer 3 жыл бұрын

In the last scenario, you could have profited way a lot if you didn't open a sell call position, but since you did then your profit is limited by the price range between the stock price at which you bought and the sell call strike price plus the premium you get from sell call itself

@mattjones2111 3 жыл бұрын

Pick a strike price your happy with, collect your premium and wait. If your shares are called away, sell a cash secured put at a price you’d be happy buying them back for. Or just wait until the share price goes back down to a reasonable moving average.

@joesemo 3 жыл бұрын

"The Wheel" in action

@gsabic 3 жыл бұрын

I don't sell covered calls at prices that I am not comfortable selling, If the price get close to the strike and I change my mind about selling I roll it

@xxIndridcold99xx 2 жыл бұрын

Taxes !

@JinTalzeus 2 жыл бұрын

@@xxIndridcold99xx No taxes for Roth IRAs.

@xxIndridcold99xx 2 жыл бұрын

@@JinTalzeus obv

@azeritis 3 жыл бұрын

Not disagreeing here but you can always a) roll the calls out for premium if still bullish on the stock, b) buy 120-150 shares so you still participate on the upside even if the option is exercised.

@stylishbuddy4683 3 жыл бұрын

Yep!

@JoesTowingBaltimore 3 жыл бұрын

In laymans terms, what is "roll the calls out for premiums"? Not sure how to even google that 🤣

@SafarWIP 3 жыл бұрын

yes, roll is good but make sure youll not close/buy back later the rolled options:)

@Nates33 3 жыл бұрын

@@JoesTowingBaltimore Rolling the expiration dates on the covered call options, which is basically closing one down for a loss (September expiration) and opening another one up for a credit (October expiration) and this way you are coming out of this in more credit than 900$ and also you have another extra month which might enable the stock to go back below the 280 strike price and hence why not having to sell your shares or sell your option for a loss. Hope that helps 👍🏼

@JoesTowingBaltimore 3 жыл бұрын

@@Nates33 yes that makes sense. Thank you!!

@ATLJB86 3 жыл бұрын

You have the wrong mindset on Covered calls.. You seem to think getting your shares called is an issue.. First of all you don’t lose anything.. All you do is miss out on “unrealized” gain. That’s a concept you have to get into your head because I remember debating you about this in the past. SQ moves down just as much as it moves up. If the price was at $260, I would have sold a call at $265. I could care less if it goes to $280 because that’s unrealized gain.. It will just come right back down to $260 so what did you lose? Nothing! Those shares get called away from me at $265 then I turn around and sell puts at $260 until it falls under that and it will. Collecting premiums the whole time.. You have to get the concept of unrealized gain in your head because you are looking at unrealized gain as actual gain.

@ATLJB86 3 жыл бұрын

Oh look… SQ dropped to $247 today… Who would have thought…

@jmitterii2 3 жыл бұрын

Two options to make up for loss of opportunity loss, if you have reserve you can simply buy another 100 shares or more to ride the blast off to the moon. Second option is to options call up in strike and into the future; buy back at a loss, sell back at some higher strike and often premium is more than the loss on your buy back. You do have to watch it and make your decisions sooner rather than later. As he mentioned, buying back increases average price on purchase price... but selling another up and out usually gives you even more premiums than the loss on the buyback. AND you get to enjoy a bit more higher price even if it does get to assignment still than otherwise.

@ATLJB86 3 жыл бұрын

oh look SQ jumped up to $272 today…

@Lawliet734 3 жыл бұрын

@@ATLJB86 "I could care less if it goes to $280" means "I care if it goes to $280," which I don't think is what you intend. If you mean you don't care, you have to write "I could _not_ care less" or "I don't care."

@ATLJB86 3 жыл бұрын

@@Lawliet734 Clearly the conversation is going over your head. I made a point and my follow up comments confirm it… Try to keep up 👌🏾

@TraderTimmy 2 жыл бұрын

I think you should have mentioned about rolling over the position. So, yes, buying back the calls at the same time as selling a new call position for another premium gain. I would add that to your video. Rolling over is key to managing this type of trade.

@ATLJB86 3 жыл бұрын

More people need to learn the wheel strategy… Covered calls are one of the best things you can do combined with selling puts. Covered calls lower your price basis so I can’t imagine why anybody wouldn’t use them.. You sell a call at a higher strike price than you paid.. Now you are getting 2 forms of income. 1 from the premium of selling the call and one from price appreciation. You do that until the shares are called away. You then turn around and sell puts at a lower strike price until the shares are put back to you. That further lowers your cost basis.. Rinse and repeat… What’s the problem again???

@iraqiboy 3 жыл бұрын

some covered calls are not even worth to sell. if its not over $100 is not worth it.

@ATLJB86 3 жыл бұрын

@@iraqiboy If you say so.. Why people don’t understand the concept of lowering your cost basis is beyond me…

@dudesalegend2356 3 жыл бұрын

@@iraqiboy IV needs to be decent on the stock, like 50+. You should be selling as many contracts as possible, own like 500+ shares of the stock for 5 contracts. Don’t set the strike price too far OTM. Lastly set the expiration date further out to collect more extrinsic value. There are several things that can increase premium collected.

@dudesalegend2356 3 жыл бұрын

The wheel is awesome, but too capital intensive for most.

@ATLJB86 3 жыл бұрын

@@dudesalegend2356 If you own 100 shares, how is it capital intensive… All you are doing is selling and making money.

@joesemo 3 жыл бұрын

"So I Only Made $5800" - What the Hell Man - you picked the Strike Price and made $5800. Also you had 200 shares. Next time Ladder your Strike Prices. Have the second Covered Call be at the next higher strike (or only sell Covered Call on half your position). I make 1000's of Covered Calls trades a year on over 200 stocks in my IRA. Safest way to control risk management and create income. Covered Calls are another form of a Bullish Debit Spread - You Know this. So are you saying you are not a fan of Debit Spreads?

@2cents128 2 жыл бұрын

Four outcomes with covered call: Stock price down, flat, up slightly & up greatly. Three out of the four favor the covered call position. Those are better odds than trying to continually find a “home run”. Also, If one uses weekly options, the premium income will be higher and rolling over is less expensive.

@projectfinance 2 жыл бұрын

You're right. The point here was to say that all positions shouldn't be covered calls if the investor has 100 shares. If you're really bullish on the stock then the upside shouldn't be sold. With weeklies, you can roll the short call more often, but you'll have to sell a strike closer to the current stock price to collect a decent premium. A short-term rally could easily leave the short call ITM in that scenario.

@Eastbaypisces Жыл бұрын

what u mean rolling over less expensive???what suggestions do u have ?

@Eastbaypisces Жыл бұрын

@@projectfinance have u done this w weeklies?? and what u mean u can roll the short call more often w weeklies?? why is that?? if u roll the short call u dont collect the premium on the original short call or do u? or can u roll short call and keep premium and get another premium from the roll??? still new to this

@mgm153 Жыл бұрын

@@projectfinance Hedge the covered call by also buying options above the price of call if you think the price is going to rocket up. I have done this and gotten premium, stock gains and gotten right back into stock. It is very rarely the case that a stock rockets up however. It certainly depends on stock, but I am doing this with a huge portfolio and a lot or blue chip stocks. So, the volatility is lower that for high growth stocks. I am happy to make guaranteed return on different accounts with large balances. In fact, I think being more patient if starting with lower portfolio and building it into a sizeable portfolio it is more rewarding and guarantees viability long run. Searching for home runs is no way to live.

@happyhamster1411 2 жыл бұрын

I think the secret is setting a call price that you’re happy selling your shares at. That way along with with premium it would still be better than just owning the shares. Or could just buy back your own call option?

@officesuperhero9611 3 жыл бұрын

Thanks so much for sharing your knowledge. Much appreciated. What about just rolling the option to time and price that allows you to break even or make a profit?

@owensd81 3 жыл бұрын

So, there's a fundamental problem with how you are describing scenario #4 (and there are actually two different versions of this scenario). And in general, I think you're presenting CCs way too narrow. Since your premium was $900/contract, your break even price is $289 on your $280 CC. Your math in the video checks out, but your risk graph isn't conceptually correct and your explanation is a confusing way to look at it. Of course, if you contrive an example of the stock shooting up to $325 or even $500, the CC looks like a braindead option. However, this produces a false dichotomy: this isn't the _only_ position you need to have and there would be entries for you to add back to such a strong position, further negating that potential upside "loss". Your scenario #4 doesn't talk about when the stock ends between $280 and $289. In this case, you're still better off with the CC. Lastly, you don't take into account the real-world applications of CCs. In all likelihood, you would have already collected the premium one, two, or maybe even three times before the stocks were called away (potentially more depending on your profit percentage: I typically close at 65% of target). Sticking with your $900 premium, I would be selling my CCs when I hit $585 of profit. If I've done this two times on these shares, that's an additional $1170 each contract @ 65% profit or $1800 if they went to expiration. So in your contrived example, the $7200 potential upside is even further reduced. 65% profit targets => $7200 - $2340 (existing CC profits) - $1800 (current premium) = $3,060 potential missed profits 100% profit => $7200 - $3600 (existing CC profits) - $1800 (current premium) = $1,800 potential missed profits Of course, the in-between premium values wouldn't have been the same, but that's not the point. The point is when you run CCs, you are collecting profit without selling shares (unless assigned) with the goal to do that multiple times on them. This limits both your upside potential loss **and** your downside potential loss if the underlying tanks.

@brianjc4013 3 жыл бұрын

I'm trying to learn to trade options but the video makes it very confusing, either I'm not getting it or he's not explaining it right. In his scenario #2, isn't it just unrealized lost if the stock goes down? If I intend to actually hold the stock and buy when it dips, wouldn't covered calls just end up being consistent form of profit. In his scenario #4, again isn't it unrealized lost in the form of potential gains? Sure anything is possible and the stock can go to 1 million dollars, but if it is that strong, you can just buy more. And what I don't understand is, what if the covered call strike price is a price I want to take profit from, wouldn't it just be profit taking as the stock goes up + premiums? Like if I own 1000 shares of a stock and I want to slowly take profit 100-200 shares at a time, then wouldn't CC be a perfect thing to do?

@owensd81 3 жыл бұрын

@Brian JC this isn't his best video, some of his others are better. Also, In the Money has some good videos as well. CCs can be a bit problematic for taking profits. Say your strike is $285 and the stock hits $290. Well, the your CC will most likely be in the red, so you are waiting for someone to exercise those options in order to take profit. If the stock drops back to $286 before the CC expires (or is exercised by a 3rd-party), then you do loose out on some gain potential here (e.g. the $4 difference from $286 and $290). Of course, the premium you collect might make up that difference, but that is something to think about. Sometimes you'll get stuck in a position that you might want to exit earlier in this scenario.

@treydrier3169 7 ай бұрын

I'm new to covered calls but there's a strategy called "roll up and out" that you need to understand. What it does is it allows you to take advantage of the upside but not the entire upside. Basically my understanding is you pay to roll that call option up to a higher strike price as the stock increases in value. Thus, you minimize the upside risk by paying for a higher strike price. You won't make as much as you would have if you had just held the stock but you won't lose like you are in the scenario you outline in the video.

@junxu7608 2 жыл бұрын

For the last scenario, I would roll up to a higher trigger price point event I have to pay some premium, this way I gain more upside room and still keep the premium.

@Eastbaypisces Жыл бұрын

what u mean trigger price? u mean strike price?? what u mean if u have to pay premium, he s selling cc u collect premium

@christophertaylor3150 3 жыл бұрын

A bird in the hand is worth 2 in the bush. You don´t have to allow your shares to get called away. You can roll out and up for net credit and repeat process until you are really ready to sell. This is much better than letting shares do nothing in your account. If the price of the shares move down, you can roll out and down for even more net credit. I have found Covered Calls to be a very flexible way to generate income on the shares I own.

@DaveD0121 3 жыл бұрын

I think covered call has a lot of flexibility, I usually try to identify resistance levels and sell short term CC when approaching resistance. The if price breaks resistance I can either roll up and out or close for a small profit/loss (profit coz sometimes theta gain is bigger than delta loss). It had been working well for me.

@kanegs1 2 жыл бұрын

It's one of many option strategies out there, it has its purpose...as you say, it has its opportunity cost, so true. One thing everyone needs to be aware of with Covered Calls...there is NO RISK with the option! All the risk is with the stock! Covered calls are for income generation from a stock, and to reduce cost basis. I like them (along with its cousin, the Cash Secure Put). Sometimes you have to let a stock run, and not write CCs against them, its all part of the game and the fun! Great video!

@siegelpmp 3 жыл бұрын

I agree with the Jeramy. When you say 'lost' it only is a loss if you had the money in your account at some time and then it was removed. You shouldn't change the definition of a loss that is only demonstrated by a paper thought experiment. You need to talk about the gain from the premium at the same time: I gained X but missed out on a higher gain of Y. Missed out is not equal to lost.

@kevinhawthorne5257 3 жыл бұрын

Thank You for all of your videos that you did. I am enjoying all of them.

@sarkiskalfaian8502 3 жыл бұрын

How do you choose your call option strikes? do you choose base on delta? or far out OTM to pay less premiums?

@C013ain Жыл бұрын

I think it depends on the market, cover calls are a good option if u hold stocks long term, and the market goes neutral or bearish, and than if the market goes bullish u can manage ur short calls according to time left on the contract and where do u think the market will go :) great video again btw!!!!

@lsc21 2 жыл бұрын

Good video. To address the fourth scenario, you could buy an additional far OTM call around the time of earnings to hedge your tail risk.

@Eastbaypisces Жыл бұрын

to off set it?? what do u do usually???

@edgarolea8004 3 жыл бұрын

It is a good idea to do a CC on a stock that I have about 50% negative? Does that change anything?

@HumanThoughtExpression 3 жыл бұрын

Something to keep in mind, if you are selling options on a stock over a long enough period, getting some shares called away in less than ideal scenarios can still be net positive as your cost basis is continually being lowered via the premium you collect. If I've collected $1k of premium on a stock and it gets called away from me $400 below my last entry price, I've still got a $600 buffer before I'd be in the red for my all time cost basis

@Eastbaypisces Жыл бұрын

yup and even if its gets called away u can buy it back for cheap unless its above ur cost basis

@shanthanalur4714 2 жыл бұрын

The last scenario is not really a loss, it is what could have been a profit, a lost opportunity but not a loss

@craigharris3351 3 жыл бұрын

Great video. I would add one another comment. The big advantage with covered calls is that your shares get called away sometimes and you realize the gain on the shares and collect the premium. Then you use a cash covered put to get back in at a lower price. If you just hold the shares as the price goes up and down and don’t sell the stock you never realize the gain. You just ride the roller coaster:)

@Eastbaypisces Жыл бұрын

what suggestions u got for somebody new to options i got some stocks w 100 shares and wanna do covered calls

@mgm153 Жыл бұрын

Exactly! If you get in and out of the stock at the same prices in the options, you make premium and on calls the gains in price over cost basis. Simply owning stocks gets you nothing.

@mgm153 Жыл бұрын

@@Eastbaypisces Do the wheel. Use 1-2 weeks (ie don't create covered calls or cash secured puts outside this time) as a time horizon to realize premiums quickly. I use this strategy and have consistently made large returns no matter what the market or stock are doing.

@Eastbaypisces Жыл бұрын

@@mgm153 wym in n out of stock at the same prices in options?? u mean covered calls??

@Eastbaypisces Жыл бұрын

@@mgm153 yea i ve been doing cc and just continuosly been rolling them further out and i get premium like that, is that not a good strategy??

@thesmartguy7191 3 жыл бұрын

As some comments said ,you don't lose money in the 4th situation but you would miss on the profit.The real problem when the stock tank, then you will not be able to use covered call as the periumim will very low plus big loss in the stock.

@tangwendeo 3 жыл бұрын

THE VERY BEST option trading class on the KZfaq! Even math idiot like me can understand! Thank you. I practice cover call as soon as I purchase a stock, and set it at my target selling price just to squeeze a little more $ (never thought of my P/L or performance). The thing confuses me is that [on the cover call option chain, which one really is golden?] can you make a video of selecting golden scenario? Thx

@ElvisRandomVideos 3 жыл бұрын

Thanks for sharing this! In your last scenarios where the stock reaches $325, I’d say roll the covered call if possible. I’m sure you’re aware of this, it’s just another way of avoiding buying back your position.

@Eastbaypisces Жыл бұрын

so would u do that?? also what platform ru using??

@nelsonelnene 3 жыл бұрын

that's the fastest shirt change I have ever seen!

@Aparlse35 3 жыл бұрын

I really appreciate your videos and thank you for diving into this.

@SafarWIP 3 жыл бұрын

when the underlying goes up big it is a huge disatvantage to have a covered call on that 100 share if you want to cash out, like the recent Apple and AMD jump:)

@kindzis1 3 жыл бұрын

I haven't started trading yet but as soon as I heard about options trading I started to investigate it I found your 2.5h video where you explain everything in detail and it helped a lot, your videos are very easy understandable and the slide examples are cherry on top, thank you for all the effort and work🙏🙏🙏

@EatABigBlackDIcK 3 жыл бұрын

Do more research on IV Crush, also if volume is not high or average do not purchase the option. Those were my two biggest struggles losses in options trading

@theniftytrade5807 2 жыл бұрын

Yahh do practice more and more on Vix, adjustment of strategy and strategy I thing u need not to learn anything else.

@theniftytrade5807 2 жыл бұрын

And besed on vix which strategy can be a better strategy

@Nice-Y 3 жыл бұрын

Hi Chris, any chance you could do a call/put ratio spread/backspread video?

@samareshgupte 3 жыл бұрын

What kind of stocks are best candidates for Covered calls? Is it the high IV or great fundamentals of the company?

@bozzicone 3 жыл бұрын

could you explain the wheel strategy and which is the most profitable options strategy'?

@gqbantrader3028 3 жыл бұрын

I've gotten away from selling covered calls to now selling call ratio spreads instead. I do give up some premium but now I've given myself the potential of capturing the upside move. Essentially, my short calls are paying for my long calls.

@macman231 3 жыл бұрын

So are you buying two and selling one or selling two and buying one? Your statement seems confusing as you say your are selling a ratio spread but also say you can capture the upside move, if you are "selling" then you should be short a extra call but that means your short to the upside...

@gqbantrader3028 3 жыл бұрын

@@macman231 Sorry for the confusion. I'm buying 1 and selling either 2 or 3. When I say selling that means I'm receiving a net credit. To capture the upside what I do is 1 of 2 things. 1). If I don't mind my stock to be called away then I just sell the long leg for additional profit. 2). If I don't want my stock to be called away I would continue selling my long leg but roll the shorts for additional credit and maybe convert it to vertical spread.

@tahntalus 2 жыл бұрын

If I buy an spx call could I use the covered call strategy to sell a call against my bullish position?

@morfeuss85 Жыл бұрын

in the 2nd senario if you do not sell the shares you do not loose it right?

@ThaRealERAQ 3 жыл бұрын

when you select a strike to sell you need to look at the seasonality of the stock. If that is a hot time period, you need to go further otm or do shorter term expirations.

@altcountyemo 9 ай бұрын

If I Only Knew Dept. I am losing money on the 100 shrs of stock, Is a Covered Call a less painful way to exit the position. Adding upside if Assigned?

@pebre79 3 жыл бұрын

I agree w everything you say and ive learned a lot from you. The point about it not making sense if it doesnt make a dent on your cost basis. If it does though thrn in makes sense

@kemi707 Жыл бұрын

You can always roll over your calls. You buy back the contract and sell another one. Not to mention the new contract almost always has a higher premium.

@Ken_M_M 10 ай бұрын

Exactly, if a stock falls a lot you should roll down the sold call to keep collecting more premium. No one should just sell a CC and let the delta roll all the way down to nothing. Roll it if it drops to 15 delta etc.

@allan28693 3 жыл бұрын

I have a Question How much can the IV increase to maximum? Can it go from 30 to 150? I currently have open strangle positions with IV at 30 on both sides. Please explain Thank you

@SureshP-ug1ei 3 жыл бұрын

Thank You Very Much

@KpxUrz5745 2 жыл бұрын

There are a number of factors to weigh. I often look forward to my stock reaching the strike price and being called away because its an unexpected windfall profit augmenting the option premium already received. This clears the deck and gives the opportunity to purchase another stock. Or, if this same stock pulls back under the strike price later, perhaps I want to buy it again. So one consideration is how strongly do you wish to retain ownership in this stock. I normally select a strike price very unlikely to be reached, and seldom set expiration much beyond one month.

@nixer65 2 жыл бұрын

Exactly as you should look at this.

@Bbfanatic Жыл бұрын

@@nixer65 what if you are ok with assignment .I think selling the call right ATM is smarter to collect higher premium. This strategy should work well with big blue chips that won't move much like a TSLA. Tsla in 2022 is not going to run 10 points in a week like it used to two yrs. ago.

@stormvo 3 жыл бұрын

The best comments are just explaining how to get the best results even further from covered calls. Great audience, thank-you.

@jz5748 3 жыл бұрын

How to roll over covered calls?do u get credit agaib?

@hobo3763 3 жыл бұрын

Can you make a video on the four types of broken wing butterflies?

@piipa74 3 жыл бұрын

There is no harm in managing your positions as per usual. I might opt for shorter time spans and avoiding earnings announcements. It kinda depends on your outlook on a particular stock.

@1plurb 2 жыл бұрын

What happens if the strike price is reached before the expiration date? Is the sale exercised or is it just at the expiration date? How are your shares sold? Are they sold for you?

@ChrisTorino1 2 жыл бұрын

outstanding description! as always.

@1gumbah 3 жыл бұрын

You own the stock period ! And sold a call above what you paid for the stock! You collect a premium and we’re NOT assigned nor did you buy the option back avoiding assignment so it’s a win win period! Why make it more complicated by countin money you could have possibly made!

@JM-gj7de 3 жыл бұрын

Great vid! Thank you.

@brentonasmith 2 жыл бұрын

you did a great job of explaining this, good pace, great diagrams and well spoken. oh I love CCs.

@CarlCreange 5 ай бұрын

Optimal factors to enter the strategy: - you don't foresee a short term upside on the stock (capped by a major resistance, market is overall neutral, this is usually a low volatility stock) - Implied volatility is relatively high at the moment of selling the call but you expect it to go down (a few days after the movements of earnings or major news) - selling the stock has negative implications (tax), no other more promising investment opportunities (ie there is no opportunity cost to own 100x the stock), legal or contractual obligations to hold. It is often said to be a passive strategy. An active approach is optimal: - monitor news and possible signals of the stock moving up to buy back your call early (at a loss on a call but to avoid squeezing profits on the stock) - Roll out regularly, on relatively short periods. If you own a stock it is because you expect mid to long term appreciation. The appeal of "free money" from the sale of a put should not contradict the core of your investment strategy.

@projectfinance 5 ай бұрын

Perfectly said and I agree with you 100%. I approached this past video more black and white and didn't factor in the active management/rolling possibilities. It's definitely something I see as a "pick your spots" strategy as opposed to a rigid perpetual strategy.

@pattyswitzer4063 2 жыл бұрын

Do you get to keep your shares on the covered call if a $40 call ends at $30 at the end of contract?

@frankb7645 2 жыл бұрын

You might want to make a future video about what to do if your strike price gets blasted through and you don’t want to let your shares go at that price. For example, you can buy back your call and sell a future-dated call for a bit more premium, or sell a future-dated call at a higher strike for the same premium (which will pay you more if you finally do let your shares get called away).

@jrrguitar 2 жыл бұрын

This is why I prefer hedging a 100 shares with a back ratio as opposed to selling a call or buying a put. A) if a stock plummets, the back ratio will profit alot more than a covered call b) if a stock rockets up, you can roll your back ratio up and lock in the profit. The opportunity cost though is if a stock stays in consolidation, since you pay for the back ratio. But I’ve never lost more than I paid for it in a month. Ie i at least break even after rolling up or down. Im usually up a good amount. You get far more protection out of a back ratio than a covered call though

@arthurwagner5940 Жыл бұрын

But it is perfect to stabalize your portfolio or. Especially when I am just huntig Dividends and Premiums of the options. But one thing does this also work with ETFs can I sell options on my ETFs??

@projectfinance Жыл бұрын

Yes you can short calls against shares of ETFs you own

@ShihabPersonalFinance 3 жыл бұрын

They are great if you use them as synthetic puts, terrible if you think you can capture capital appreciation and call premium at the same time, you will eventually get caught.

@jcantonelli1 2 жыл бұрын

I personally think they (ITM Covered Calls) are great as synthetic put spreads at the tops of ranges, etc. They (OTM Covered Calls) can also be used to generate income with room for some capital appreciation. Getting assigned is not the terrible fate it's made out to be, especially if you have a great cost basis.

@milenao4455 Жыл бұрын

You are amazing, thank you a million times for your videos ;) !!!

@benhendricks260 6 ай бұрын

What if you’re satisfied to hold those shares forever over the long term? But wouldn’t mine getting closed out for a gain in the short term?

@alwaysrighton Жыл бұрын

Your explanation and illustrations are perfectly clear.

@projectfinance Жыл бұрын

Glad you think so! Though that may not be true in all of my videos, I appreciate your feedback here. Thanks!

@JamJells 3 жыл бұрын

Noticed you have smoothed and paced your videos. Much better. Now if I could practice and scale into trading options. Thanks so much. Got some TT blings recently. Love the cherry pin.

@projectfinance 3 жыл бұрын

Thanks for watching and commenting! It did take me a while to slow things down. It’s unfortunate because now I have to redo some old videos :(

@JamJells 3 жыл бұрын

@@projectfinance No need to do that if the motivation to learn about options are there. Maybe do a video on that. How to motivate and give oneself small wins. Most people jump in and think that they're a trading God and then blow an account up trying to find the sweet spot where the small wins reward and then can go on to the more complicated and larger scale positions. Wanting to be a Karen in options not the Karen like on those Oblivion videos but the tasty trade Karen types that's what I aspire to be.

@pc3822 2 жыл бұрын

Nice video. IMHO, you don't really loose $7K in that first scenario, unless you decide to sell those shares after the covered call expires. Otherwise, just wait and it will probably come back around. So, I'd keep writing covered calls and collecting the premiums and not worry about the price volatility (high volatility = higher premiums).

@Eastbaypisces Жыл бұрын

what u mean wait tho??

@mgm153 Жыл бұрын

@@Eastbaypisces Wait for price to come back down to come in. You can wait to re-buy stock or better, use cash secured put to get back into stock and collect premiums that way.

@Eastbaypisces Жыл бұрын

@@mgm153 yea , which strategy do u use?

@butterbossnick Жыл бұрын

Holy fuck dude thank you I was looking for someone with this response I’m glad I’m not the only one who thought that

@teresab208 2 жыл бұрын

Newbie doing this so I'm doing small stuff. I'm glad I'm learning this.

@williamchristensen1270 3 жыл бұрын

If you have enough capital you could have a buy order at the strike price you pick and assign those new shares to that option, so you don’t lose out on the gains while also keeping the premium.

@jmg1962 2 жыл бұрын

Great point, William. You're absolutely right. The possibility of buying back the short call at the strike was never mentioned in the the Cliffs Notes book on Covered Calls Chris Butler casually skimmed over prior to making this critical KZfaq video about why covered calls are not worth it. You clearly understand how covered calls work because you've actually sold them before. Chris Butler on the other hand...

@Eastbaypisces Жыл бұрын

what ? explain that

@williamchristensen1270 Жыл бұрын

@@Eastbaypisces let’s say you own a stock that you bought at like $30 and it’s not at $50. You sell a call at $52 to collect the premium. You then set a buy order of 100 shares at $52. So that if the stock does go up to 52 you will buy 100 shares and then assign them to that call. That way you can save the shares you bought a long time ago and not sell them. Obviously there is risk in this in case the stock goes down right after buying but the idea is to isolate the premium

@ac-ir9gs Жыл бұрын

Brilliant

@Ash-vv8zg Жыл бұрын

@@williamchristensen1270sorry to bother you on an old thread. Is the reason to assign the newly bought shares instead of old shares because selling the old shares would entail higher capital gain taxes? But how do you choose which shares to be assigned? I didn't know u can do that

@paulweldon3134 3 жыл бұрын

Managing the position is important. Only short if you don’t mind losing the underlying

@lksa983a 3 жыл бұрын

Thanks for a great video once again but, but... Scenario #2 You did not incur any losses, you made $1800 and are now down $7000 on the stock but you still have the shares. This is only paper loss at this point not a real loss, you would now of course use the same shares to sell another call option. Scenario #4 In my opinion it's pointless to speculate how much you could have made. Every evening I could speculate how much money I, possibly, lost when I did not buy or short the biggest movers of the day. Once you sell CC that's the price and possible profit you decided to be happy with and whatever happens after that is irrelevant.

@dannyb2580 2 жыл бұрын

IMO and I am sure you will agree...You can't go broke taking a profit! To many get rich quick theories out there, people need to remember it was the tortoise that won the race, not the hare. Or another way to say it...Having the cake and eating it too! Peace from Australia...

@alexmartins8182 4 ай бұрын

That's not losing, my friend, that's failing to win, and it's very different. Moreover, the "covered call" is designed for stocks of solid and established companies, not rockets like some people look for. And in this case, you can ride the price increase by selling "call" contracts weekly, and in this way, the frequent premium, in addition to the stock's rise, is a fantastic gain in the medium and long term. Sometimes, ambition blinds us to the positives of truly golden opportunities. In any case, thank you for your video. Very enlightening.

@projectfinance 4 ай бұрын

Very true. I was hard on the strategy in this video and it’s been years since making it. The CC is definitely a great strategy to use, and can be used in ways the reduce the likelihood of getting assigned. Lately, I’ve come to think that selling short-term CCs into parabolic stock moves can offer huge short term yields capitalizing on an explosion in short term option prices due to the stocks recent run. Far OTM calls can be sold after such runs for huge premiums in short term expirations

@lyonheirholdings285 2 жыл бұрын

I have learnt so much from this guy its unreal, thanks from the UK i don't know you but i appreciate you. Regards keep up the great work. 😄

@mwfdude8260 Жыл бұрын

good video. Time Value of Money could be an opportunity cost as well. How much $ does one wrap up for a period of time to get a small fee?

@projectfinance Жыл бұрын

The risk free return on a 30-60 day treasury position would be super small compared to an options strategy like a CC or cash secured put since there’s a lot more risk with the options

@ga7216 3 жыл бұрын

I do use them as: - partial hedge - sold with delta below 30 if weekly or 20-25 if monthly - try to sell after a recent run up - sell calls and buy stock on extrinsic premium rich instruments, example: VIAC vs. T, VIAC is quite “juicy” , T isn’t.

@user-er9ri2wo5n Жыл бұрын

THANK YOU

@mxmillion 3 жыл бұрын

Well explained!

@elli003 2 жыл бұрын

You wouldn't sell your 200 shares @ 35. You keep the $1800 from the option and reposition you next call @ 37.50 on a shooter, then roll up or down depending on current market value of underlying stock.

@reindeer5953 10 ай бұрын

Looking at the current share price of $43, Covered call would've a very good option :)

@g.ajemian4968 10 ай бұрын

I definitely think this strategy is more for someone who is trying to add cash flow to a retirement situation more than trying to grow a portfolio because if you’re an older investor, you’re not really looking to own stocks for a long time you’re looking to just generally cash flow, and under that last scenario, it would be OK. You just moved to another position.

@projectfinance 10 ай бұрын

That's a great point and I agree with that scenario

@user-pn3oz7jp6n 8 ай бұрын

You can always buy another call option back with the same strike price to balance the one that you sold.

@unclephil6771 3 жыл бұрын

Roll over your position to a different expiration date and take advantage of the volatility to receive a higher credit

@StephenBiggers 2 жыл бұрын

executing a covered call should be about defining a strategy where you lower your cost basis. You can't have your cake and eat it too. One needs to have in mind the reasons behind the strategy. Could be an excellent way to leverage consolidated stocks that you are looking to take some off the table. Other side: sell puts in a stock you would like to own at a discount. the fear of getting assigned or exercised makes people get complicated fast. but that being said it only comes into play where you are owning stocks. to each their own.

@danielharris7652 3 жыл бұрын

I have made a truckload selling covered calls on Tesla this year. Can always roll them up and out if needed.

@MaxAtLarge 11 ай бұрын

You should only sell the covered call if willing to give the stock up if it goes past your strike price. That is the name of the game! Can't cry over something you knew could happen!

@krazywally5685 Жыл бұрын

Irrespective of the loss on the equities if you were to treat these as a vehicle to make money as long as you didn't get spiked so that you had to sell them at a crystallised loss you could potentially sell calls all the way down over an extended time horizon and again in reverse at incrementally increasing strike prices on the way back up? But repeating the short call on shorter timeframes still ensures you have liquidity (assuming the trade moves against your option trade) enabling you to come out and look elsewhere?

@mgm153 Жыл бұрын

You can; or once sitting on cash use puts as well. Eventually rolling back into a call position all the time collecting premium and collecting gains on stocks on the call side. Anyone with reasonable sense can make the wheel work wonderfully.

@LivePlayWatchPixels 5 ай бұрын

I think the only problem in cover calls is if you dont own the stocks to sell them, thats basically what I think the only risk, other scenarios are positive.

@kelleycaptain73 2 жыл бұрын

Great video Chris.

@robwinter3183 3 жыл бұрын

Do you use delta when considering a covered call or just pick the max price you think it will reach in 48 days (for example)

@kcy1365 3 жыл бұрын

When you sell a covered call, select the price you’d be willing to accept if called out that way if assigned you hit a decent profit. When you sell you the call, you’re saying you think the price shouldn’t get here( if you want to keep the stock and the premium in the call). Delta comes more in to play when buying calls. Theta matters more when selling the call.

@robwinter3183 3 жыл бұрын

@@kcy1365 Select the price... I understand. I am buying call options - so that is why I said delta....but selling a CC I'll review Theta....Thank you.

@AAmtb 2 жыл бұрын

In scenario #2, are you realizing the loss by selling or is your broker holding the shares since you've sold options against those shares?

@kenhmusicchanelhoangdung4120 Жыл бұрын

Rất cảm động và biết ơn Anh

@projectfinance Жыл бұрын

Thank you:D

@rogerrtewwr4723 3 жыл бұрын

great video ty

@ashishgarg9536 3 жыл бұрын

In the 4th scenario , the call premium will close at $ 45 , however since you have already collected 19 $ premium at the time of call writing so effectively you loose 26$ per call and not 45$. Pls correct me if am wrong.

@joseprofeta8159 2 жыл бұрын

you do not lose any money at all, however, you do miss out on the potential upside. he just misrepresented the way the strategy works. So, you will get paid for 100 shares at the strike price(SP) + whatever premium you earn - the potential upside; that is your "loss" but if you have the SP set above your cost basis you come net positive out of the trade.

@charlesbrenneman4150 3 жыл бұрын

Fantastic explanation of covered calls of covered calls but I will say that I do think it's a good strategy except when there's a stock that you know will just take off

@ThinkMoneyBenny 3 жыл бұрын

all scenarios turned out to be positive. As long as you know what you’re doing & you agree to the possible outcomes it’s a win win.

@putansug 3 жыл бұрын

Exactly, yeah there are some missed profits but you still get the premium and some benefit from the long stock position.

@JeremysRants 2 жыл бұрын

Good explanation

@ibadidas17 2 жыл бұрын

this was a great explanation. thank you for using graphics. Trying to pass my SIE

@projectfinance 2 жыл бұрын

Thank you and good luck to you!

@ibadidas17 2 жыл бұрын

@@projectfinance do u have one like this ☝️ for protective puts?

@projectfinance 2 жыл бұрын

@@ibadidas17 I do not! Haven't done a video on that strategy in a while.

@devil0756 3 жыл бұрын

I love this strategy... I keep doing this every week. Its risky as I don't want to give away my positions and get assigned. Good Info!

@joseprofeta8159 2 жыл бұрын

then you prob should not be doing this with a stock you are in love. Eventually, you will be assigned and you will have to sell your shares.

@cjefferson4247 Жыл бұрын

Either exit the position and reposition another CC or roll the short position up and out.

@cjefferson4247 Жыл бұрын

????

@rubikscube6722 5 ай бұрын

I have been doing them for the last three years but honestly they seem to be a “wash” for me because I win them 50% of the time and the other 50% I either buy my call back by paying more than I should have or I lose my shares to a price far higher than my strike. It’s just too hard to predict. They also cause me anxiety. Just not worth it. I make WAY more just sitting, doing nothing, and waiting for the stock to go up, sell when they hit my target price and rebuy later if I want

@millardbrown9121 3 жыл бұрын

Once the price of the stock hits the strike price on the option, just close it or buy a call one strike above making it a credit spread or roll it out and up 4 weeks out.