Sell (Call Options) In May And Go Away [View article]
To maximize your profit you want the stock to finish exactly at the strike price you sold. But as long as it's above the net debit you will have some profit. And anything higher than the strike price and you will be capped on your profit. If the stock finishes below the net debit then you can sell another option for the following period. The article I mentioned above, http://bit.ly/Lbldia, has some thoughts on how to do this.
Sell (Call Options) In May And Go Away [View article]
For any underwater stock, there are a few repair choices. They are summarized here http://bit.ly/Lbldia First decision is to ask yourself if you still like the stock you're holding, or has the fundamental situation changed? Also, is there another stock you'd rather own (highest and best use of capital)? Is the stock too big of a % of your portfolio? Sometimes you just have to take a loss and move on. You won't win them all. If you do still want to keep it then take a look at the repair strategies outlined in url mentioned above.
Sell (Call Options) In May And Go Away [View article]
Hey John, Thanks for catching the typo. I don't have a way to edit a posted article but duly noted (and sorry about that)! The Net Debit is your break even price for the 2-part trade. It is the amount you paid for the stock minus the amount you received for the option. As long as the stock closes above the net debit on expiration day you've come out ahead. Example: Buy AAPL at 569.48 and sell a 560 strike call option for 46.30. Your total cash outlay on day 1 of this trade is 523.35 per share. If AAPL is at $530 on Aug 18 then you've made 6.65 per share (530 - 523.35), even though AAPL dropped 39.48 (569.48 - 530) during the time you owned it. The reason it works like that is because the intrinsic value and time premium of the option you sold provides some downside protection. You made more on the short option than you lost on the long stock. It is possible to make money with covered calls even if the underlying stock drops while you own it; you just need the stock to stay above your net debit in order to have a profit.
Sell (Call Options) In May And Go Away [View article]
Not really. Depends on your outlook for the underlying, and your return goals. If you go too far in the money you remove a lot of risk and won't make much reward. So you should go as deep as you can where you still make the return you are looking for.
How To Get Another 100 Points Out Of Apple [View article]
Yes, you can accomplish a similar return with naked puts, assuming you are allowed to write naked puts in your account (some IRA accounts won't allow that). Also, depends on the margin requirements at your broker.
A cash secured naked put ties up the same amount of capital as a covered call. On the other hand, an unsecured naked put at a given strike ties up the same amount of margin dollars as a covered call at the same strike, if you are trading in a margin account. At the end of the day, naked puts and covered calls are the same trade so it comes down to personal preference and account privileges.
$116 Million Per Day In Option Time Decay [View article]
If you write calls on core stock positions that you don't want called away then, yes, write out of the money calls so you can capture that time premium and still leave yourself some upside potential on the underlying stock. That's one of the popular ways to use covered calls.
$116 Million Per Day In Option Time Decay [View article]
Selling covered calls (where you buy stock and sell a call option against it) is often an income-investor's game, and not one designed to profit from underlying stock appreciation. It's more defensive in nature, especially if you write in-the-money calls. The goal is to capture time premium, not stock appreciation (although, if you write out of the money call options you have some upside potential on the capital appreciation side, too).
Many times people buy stock specifically for the purpose of writing calls against it (a 'buy-write' trade) and in those cases they are happy to have the stock called away as that was usually their intention when they put the trade on. Yes, they didn't make as much as they could have if the stock shoots way up, but they captured the time premium, which is an amount they could calculate in advance and which they were happy with when they initiated the trade.
Collect Yield On Apple In Advance Of Dividends [View article]
Rolling options is a good strategy to maximize time premium capture or to avoid having an assignment where there could be tax consequences caused by selling the underlying. Yes, when AAPL moves up 30 points in a week it is time to roll up and out (or at least up). I wouldn't go all the way to an at-the-money strike because as you say the stock is probably a bit overbought after this week. But if you now find yourself 40+ points in-the-money and not much time premium left then moving the strike up so that it's 15 or 20 points in-the-money and maybe out 1 month seems reasonable.
Collect Yield On Apple In Advance Of Dividends [View article]
Selling naked puts at a given strike price is the same trade as selling a covered call at that strike price. There can be differences in margin requirements depending where you trade. And there may be 1 less commission if selling a naked put (if not assigned) than the equivalent covered call (but, again, with $1 commissions it may not be material). Lastly, some types of accounts (IRAs at some brokers, for example, or regular taxable accounts for less experienced account holders) do not allow selling of naked options so covered calls may be the only choice.
As for the choice of time period, selling naked puts that are multiple months out (or selling covered calls for the same time frame and at the same strike, which is the same trade) your time decay per day will be less than a series of shorter-term options you write (http://bit.ly/zqumWq). Since AAPL is one of the stocks that trades weekly options, investors who like to collect time premium most likely write a series of weekly covered calls (or naked puts) rather than a single longer-term option.
Collect Yield On Apple In Advance Of Dividends [View article]
Jsr123, you are correct. The % was a mistake. I meant to say 'points'. Both the %s and the points are listed in the article and I simply made a mistake when talking about it. To be clear, as of the time of writing, the 5% and 10% dividend-like yields allowed for 26 and 46 points (5.4% and 9.5%) upside potential in the underlying by the Mar 17 expiration date. Thanks for the correction; sorry about the error.
Collect Yield On Apple In Advance Of Dividends [View article]
Yes, I have >200 shares of AAPL. But if you're worried about commissions eating into single contract buy-writes or covered calls then trade at Interactive Brokers. $1 to buy stock. Less than $1 to sell a single option contract.
Yes, weeks like this week result in leaving some money on the table. But for the typical week, you will come out ahead. And, as mentioned in the article, the 5% and 10% dividend yields can be achieved while leaving yourself 26% upside potential over a month's time.
10 Option Trades For The Next 10 Days [View article]
I use covered calls almost exclusively for my personal investing (90%+). Because I'm not a trade recommendation service, nor managing other people's money, I don't publish annual returns. My target goal for my personal investing is 1.5% per month. I don't get there every month, but some months I do better than that, too. I'm happy with my results or I wouldn't still be doing it. As for at-the-money, I sometimes do that with AAPL but almost all of my covered calls are in the money or deep in the money.
10 Option Trades For The Next 10 Days [View article]
Hi Rick, In the section on "Commissions" in the article I address this. First, you should trade at Interactive Brokers which charges around $1 to buy stock, $1 to sell options, and $0 for assignment. I don't think that $2 round-trip is too much commission for a $46 profit in 10 days. Second, if you're going to trade at a higher commission broker then you will want to trade more than 100 shares at a time.
Weekly Trade With Apple Covered Calls [View article]
Sell (Call Options) In May And Go Away [View article]
If the stock finishes below the net debit then you can sell another option for the following period. The article I mentioned above, http://bit.ly/Lbldia, has some thoughts on how to do this.
Sell (Call Options) In May And Go Away [View article]
First decision is to ask yourself if you still like the stock you're holding, or has the fundamental situation changed? Also, is there another stock you'd rather own (highest and best use of capital)? Is the stock too big of a % of your portfolio?
Sometimes you just have to take a loss and move on. You won't win them all.
If you do still want to keep it then take a look at the repair strategies outlined in url mentioned above.
Sell (Call Options) In May And Go Away [View article]
Thanks for catching the typo. I don't have a way to edit a posted article but duly noted (and sorry about that)!
The Net Debit is your break even price for the 2-part trade. It is the amount you paid for the stock minus the amount you received for the option. As long as the stock closes above the net debit on expiration day you've come out ahead.
Example: Buy AAPL at 569.48 and sell a 560 strike call option for 46.30. Your total cash outlay on day 1 of this trade is 523.35 per share.
If AAPL is at $530 on Aug 18 then you've made 6.65 per share (530 - 523.35), even though AAPL dropped 39.48 (569.48 - 530) during the time you owned it. The reason it works like that is because the intrinsic value and time premium of the option you sold provides some downside protection. You made more on the short option than you lost on the long stock.
It is possible to make money with covered calls even if the underlying stock drops while you own it; you just need the stock to stay above your net debit in order to have a profit.
Sell (Call Options) In May And Go Away [View article]
How To Get Another 100 Points Out Of Apple [View article]
A cash secured naked put ties up the same amount of capital as a covered call. On the other hand, an unsecured naked put at a given strike ties up the same amount of margin dollars as a covered call at the same strike, if you are trading in a margin account. At the end of the day, naked puts and covered calls are the same trade so it comes down to personal preference and account privileges.
$116 Million Per Day In Option Time Decay [View article]
$116 Million Per Day In Option Time Decay [View article]
Many times people buy stock specifically for the purpose of writing calls against it (a 'buy-write' trade) and in those cases they are happy to have the stock called away as that was usually their intention when they put the trade on. Yes, they didn't make as much as they could have if the stock shoots way up, but they captured the time premium, which is an amount they could calculate in advance and which they were happy with when they initiated the trade.
Collect Yield On Apple In Advance Of Dividends [View article]
Collect Yield On Apple In Advance Of Dividends [View article]
As for the choice of time period, selling naked puts that are multiple months out (or selling covered calls for the same time frame and at the same strike, which is the same trade) your time decay per day will be less than a series of shorter-term options you write (http://bit.ly/zqumWq). Since AAPL is one of the stocks that trades weekly options, investors who like to collect time premium most likely write a series of weekly covered calls (or naked puts) rather than a single longer-term option.
Collect Yield On Apple In Advance Of Dividends [View article]
Collect Yield On Apple In Advance Of Dividends [View article]
Yes, weeks like this week result in leaving some money on the table. But for the typical week, you will come out ahead. And, as mentioned in the article, the 5% and 10% dividend yields can be achieved while leaving yourself 26% upside potential over a month's time.
10 Option Trades For The Next 10 Days [View article]
Because I'm not a trade recommendation service, nor managing other people's money, I don't publish annual returns. My target goal for my personal investing is 1.5% per month. I don't get there every month, but some months I do better than that, too. I'm happy with my results or I wouldn't still be doing it.
As for at-the-money, I sometimes do that with AAPL but almost all of my covered calls are in the money or deep in the money.
10 Option Trades For The Next 10 Days [View article]
10 Option Trades For The Next 10 Days [View article]
In the section on "Commissions" in the article I address this. First, you should trade at Interactive Brokers which charges around $1 to buy stock, $1 to sell options, and $0 for assignment. I don't think that $2 round-trip is too much commission for a $46 profit in 10 days. Second, if you're going to trade at a higher commission broker then you will want to trade more than 100 shares at a time.