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Rolling Out A New Options Trading Strategy; Deep ITM Covered Calls

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  • Covered calls are a great way to get a little cash upfront in return for giving up some upside.
  • Covered calls are almost universally presented as a secondary trade to do along side your long positions.
  • I will live-report a covered call strategy where the option is the primary trade, with the underlying stock being mostly irrelevant.

I'm rolling out live trades of covered calls using my own trading system.  The system looks for one-week, two-week, or one-month deep ITM covered call trades in which we seek to recover little bits of premium over shorts bits of time.  The results add up to significant annual returns with what appears to be very little risk.  

To set down a verifiable track record, I'll be posting my trades live.  At the bottom of this post is a table of today's fresh buy-writes.

The usual covered call advice is to sell an ATM or OTM call and try to get some cash in the form of time premium.  The cost of this is that you lose all upside if the stock moves above the strike.  And the trade still includes all the risk of naked stock ownership (i.e. owning stocks without protective puts).  If the stock falls, your equity falls.

My system eliminates most of that downside by selling deep ITM calls.  If the call is 10% ITM, then the stock can fall up to 10% (a little more, actually) before we even begin to see a loss.  And we don't care about missing out on upside if the underlying moves higher.  That's great, but it's not the point.  The point is simply to collect the premium, avoid a loss, and move on.  Generally the shares will be called away at the strike price so there is no bid/ask slip on the exit.  If the strike is $60, then our shares go out at $60.  Automatically.  <dusts hands>

Live roll-out  

Below is a table of this morning's positions.  Three of them will expire this Friday.  Two on Dec 18.  Two on Jan 15.

I will post updates!   I plan to write an article on this.

Entry Ticker Strike Shares Contracts Share $ Call $ Net debit Position Expiry
12/7/2020 KODK $9.00 200 2 $12.14 $3.39 $8.75 $1,750.00 11-Dec
12/7/2020 LAZR $30.00 100 1 $38.44 $10.29 $28.15 $2,815.00 18-Dec
12/7/2020 QS $38.50 100 1 $42.54 $5.29 $37.25 $3,725.00 11-Dec
12/7/2020 RIOT $6.00 800 8 $10.01 $4.61 $5.40 $4,320.00 15-Jan
12/7/2020 RIOT $9.00 500 5 $10.07 $1.47 $8.60 $4,300.00 11-Dec
12/7/2020 TRNE $12.50 300 3 $20.18 $8.61 $11.57 $3,471.00 15-Jan
12/7/2020 VERI $25.00 100 1 $31.31 $6.89 $24.42 $2,442.00 18-Dec

Analyst's Disclosure: I am/we are long all the tickers in this post as described.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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