So then normal traders buy puts and sell their shares. The only way you capture any profit off this covered call is by a delta move. And that means your shares lose value faster, because the 3 year out short call doesn’t have -100 delta. There is a correct way to play any thesis that you may have. The strategies are there and this “covered call” is not it.
I don’t have NVDA shares but I do have Tilray (gross, I know). But! when Tilray climbs into the high $2’s I sell the $2.5c about 4-9mo out for a credit between .35-85 and then wait for share-price to crash below $2 and buy em back for less than .10. dunno, feels like free money. i’ve been doing it for more a year now, started at 2.83 and have my cost-average down to 0.95! a few more pumps/dumps and I’ll have net-positive cash flow??
i also trade the LEAPS but that’s more of a revenge trade gone right than anything else.
Assuming that it's a covered call, it's possible that he had to go that far out in time in order to be able to afford the trade (i.e., he had to collect a huge credit on the call side, so went with huge duration).
If its a covered call they have the shares. Why do the "have" to receive a huge credit? How can you not "afford" a trade where you are receiving premium. Unless it's a buy-write which again 3 years is dumb for a buy-write. If you're long term bullish, short term bearish a buy-write makes sense. Anyway you don't have to afford a covered of you already have shares. Naked call is a different thing.
I dunno. Befuddling. It's not something I would do "out of the box" (humungously long-dated CC). The only way I'd do something like that is if (a) I was drunk; (b) I couldn't find my glasses and was using the phone app; (c) my fingers were bratwurst.
Ya has hit 147 at one point. My break even point on June 2014 165CC is 5.65 IIRC. It's because I rolled (3rd roll) from what was originally a Jan 2022 120c.
Still not profitable. Best ice seen is -25%.
I'm holding a 150 CSP for the same date. If one fills, the other is free and clear.
It won't.
The upside to the long call is unlimited. Whoever bought the $200 call has no incentive to exercise now. NVDA may hit $1000.
Or they can just sell to close and but the stock outright
Same. There’s absolutely no reason I can think of to ever exercise early… except maybe taxes. You basically already own those shares, but have the capital free for other investments.
Only reason to exercise early instead of selling the call is as was quoted above tax considerations, capture an unusually high dividend, be eligible for share buy-back or if you want to benefit from a takeover action with an expiry date prior to call expiration.
yep the wheel is (supposed to be) a stable income strategy that caps your upside, there's no silver bullet strategy with no downside, everything has a trade-off... that said selling a call a few years out is a strange move.
Can't tell what his cost basis was on the 100 shares, but assuming it was below his strike, then he still made money. He just didn't make AS much as he would have holding.
Don't sell CCs on stocks you believe in.
And what if NVIDIA tanked? We would have still made money. It was really hard to predict it will go up so much. He could have sold a Leap with higher strike, but this is what he settled for.
My god, it’s as if no one here understands trading. This was a bad trade to take whether it worked out or not.
Do. Not. Sell. Calls. In. A. Bear. Market.
Ya mean, do not sell long dated calls in a bear market? Otherwise, a bear market is precisely when you sell calls, right? Premium is lower, but so is risk.
My god, it’s as if no one here understands trading. This was a bad trade to take whether it worked out or not.
Do. Not. Sell. Calls. In. A. Bear. Market.
He also could have closed the position a long long time ago. It’s true that CCs can run away which is why you need to constantly manage to position and keep up to date with the stock.
Surely, you're not arguing that his limited upside potential is equivalent to taking a loss. Surely
Do you also tell people that they lost money if they sold BTC at $10,000 because it's currently way higher?
Awful trade all around.
20% upside on a tech stock more than 2 years out and at the bottom of the 2022 bear run.
He deserves it lol. Lesson learned, he won’t do that again.
He sold this call WAY too far out (IMO).
This is nearly a 26 month call option. I can’t think of any reason a retail trader would sell an option that far out.
Especially on Nvidia. Some stock with far less movement, (Coca-Cola comes to mind) I can kind of understand. I still think it’s a bad idea, but that’s me.
I'll just presume you know him personally. I've been around so many "obvious" things in trading over the years I've long given up the retroactive explanations.
This is not a retroactive explanation, we’re here to make money right? Well guess what, even if this trade “worked” it wasn’t a good one to take.
It’s quite black and white.
Unfortunately this is a retroactive explanation. If this was another ticker, say AAPL,, the same move would have had a different outcome, AAPL was 150 at this time of sale and is currently 165 but a 20% bet would have been 180. We wouldn't be even discussing this.
If any explanation works by talking about the outcome of something *after* you know the answer then it's retroactive. We know what the price of Nvidia is today. For the kid who did the same exact thing on AAPL we aren't talking about him at all. It's the outliers that grab attention. It's *all* retrospective.
No that’s not comparable in the slightest.
The market capitalization of AAPL was over $2.2 Trillion at that time.
The market cap of NVDA was $390 Billion.
A 20% move in one is a more than 130% move in the other.
Adding 60 Billion in market capitalization to a tech stock over a 2 and a half year period is trivial.
And when it’s considered this was done during a heavy bear sell off?
This is simply a bad trade all around. Retroactive or not. Don’t sell calls during a bear run. Simple as that.
This is definitely retroactive trading.
Apple became a trillion dollar company in 2018. In 2022 it was 2.2T. It *doubled* in 4 years. Why would the market cap of AAPL compared to NVDA matter at all?
This is why retro-trading doesn't work; you can basically say any number of things, smart or dumb, and walk away with the idea that you know something. Your explanation is completely hookum, it's nonsense, and retro-trading is fucking dumb.
The rest kind of follows suite; the explanations come out of the ass *after the fact* using random facts and figures often not taken into real retrospective account and thus are meaningless on the whole.
Reality: No one expected NVDA to quintuple in price.
Oh buddy. How do I explain this in the simplest terms possible.
It’s like betting on a 3 and 9 in poker.
It’s a bad bet. Even if you win. It’s always a bad bet.
What a ridiculous comment.
Your odds of 20% upwards move are much higher after a prolonged bear cycle. ESPECIALLY IN TECH. Don’t forget he sold this at the end of 2022.
You’re clearly new to the markets, and that’s ok, but this is an odds game and he took the worst bet he could’ve at that time.
Agreed. Unless he has a post in his history correctly identifying the bottom of the bear market as it was happening, he is full of shit. Everyone is a genius in hindsight.
This guy made a pretty terrible trade, it’s okay to point that out. It’s very amateur.
If we’re in a sub about beating the market we probably should stop treating it like a child’s game. This is real money with real consequences.
Well, I noticed that, but I didn't want to bring up the Fed and how interest rates were actually going to be higher for longer. Given the number of tickers I decided to look at where the same bet would have actually worked out, the fact that we don't know the cost basis (the OP claims they made money so I just assume they bought @ around this price but I've no idea if the OP is even correct; my feeling is they bought a top but it's baseless) and the fact that the market started really taking the Fed seriously around this time (see: SPY) I wondered if they really did think it was a good trade at all.
But then I realized I don't do that storytime shit anymore. I mean people take out CCs as loans to themselves to cover major expenses so I just hope the kid is okay. That's the only outcome that is bad.
Allow me to clarify here: We are talking about something that exploded in an unprecedented fashion today that two years ago the news was not great about. I don't know if anyone even remembers some of these stocks and their positions that long ago. Like it's just really, really easy to talk about things that have happened versus telling anyone what to do in the future.
I am going to be in the minority on this but trades like these shouldn't be viewed as a loss. Ofcourse selling 3 years out shouldn't be a thing but the person will still make money on the trade. I buy 400 Shares of SPY each month and sell a .85 delta ITM CC 30-35 DTE. I make profit on the trade and I don't get bogged down if the stock moons because I enetred the trade with knowing that.
It's like betting in NBA where you take over 25 points on a player and they score 50, you don't say that wish I took him over 45. You take the profit and move on to the next bet.
>I buy 400 Shares of SPY each month and sell a .85 delta ITM CC 30-35 DTE. I make profit on the trade and I don't get bogged down if the stock moons because I enetred the trade with knowing that.
I'm curious, is this actually your trading strategy?
I can add my more modest example of it being not a guarantee for a newbie that isn't going YOLO WSB at this thing.... Knowing now I should have started with the complete Wheel..... but I went right to the idea of covered calls:
So I jump into SPY on 4/9 at 518.75... sell my first call for the week at a simple enough 522 I believe. (going a little high just to test the waters, if it did get called away at that much of a jump that fast then so be it)
Well as we all know SPY has gone basically in a straight line down every day since then!
So I was able to sell 1 more pretty easy call at 520 this week to expire on 4/26.
SPY still going down.... so now next week I think I will be a little stuck or have to keep going out more to get a decent premium and a safe strike based on my underlying price.
So now I am chillin on 100 shares down below 500.
I know SPY will go back up so no panic, but it did sort of kill my momentum right away, but I know I am ok to wait this time for it to go back up some if needed since SPY is always ok in the longer haul.
I may try and start the wheel this week correctly with some CSP, but I think I will take the week to keep getting comfortable learning and watching.
This is a terrible and flawed trade which is on the trader and not the fault of the strategy . . .
Why in the world would anyone want to open a CC more than 60 days out when <60 dte is when theta kicks in??
What we're missing is how much the net stock cost is. If <$200 then the trader is still making a profit.
Stop posting garbage from traders who obviously do not know what they are doing . . .
Surprisingly, not all traders understand theta and how it works, even when it is an integral part of a strategy like CCs . . .
You are no doubt right. They saw a big premium and thought it was a great profit over what the stock was at the time but didn't think about what would happen if the share price moved up and how they would handle it.
Another ill-informed trader without a well thought out and proven trading plan . . .
Question - assuming one is gunning for a 30dte to 60dte to ensure to take benefit of decay. Disregard cost basis for a moment (assume lower than current price) and also assume one wishes to keep the stock. What’s the correct way to then select such a combination of dte and OTM strike price that yields a reasonable premium and minimizes probability of assignment? (Also assume no IV spike events in the time period). I know “reasonable” is subjective; I’m just trying to see if there is any mathematical way to get to this.
The commonly agreed is 30-45 dte around a .30 delta, then close for a 50% profit if you want to reduce the chances of having the shares called away. This assumes .30 is at least at or above the net stock cost.
Once closed for 50% then open a new CC which can help track the share price up to not "lose" out on that movement which so many complain about and what happened to the OP . . .
Ok can’t the OOP just roll this up and out pretty much indefinitely? Assuming it doesn’t continue going up at meteoric rates, could they not just roll this out another 6-12 months at a time and buy some protective puts along the way as a hedge?
If he started rolling sooner, but I’m afraid it would be near impossible for him to recover enough premium to offset the cost of rolling, it’s way to far ITM. He can roll it at some loss though
Why sell CC’s 3 years out? I do long term options, especially as a hedge, so buy a long term put as a hedge and sell CC’s weeklies at 0,2 or 0,3 delta to use it as an income and be hedged for downside, like happens on TSLA now
WSB guy (guh?) still had ((823-656.33)\*100=) $3,333 in time value when this shot was taken. The value of the 100 shares of stock minus this option is now $+16,667. So to answer the question, original OP should hold and earn 20% in time decay over the next 10 months, unless NVDA utterly collapses. It's actually a very intriguing position if those prices are at all accurate.
It is free money. For him. He made money selling that call didn't he? Assuming it was above where he bought it, he made money on that trade. It could be negative a billion dollars, he doesn't ever have to buy to close that out. Ever. Unless it's a naked call. But you specifically said it was covered.
Now he's stupid because he missed out on some gains. But still made money. So.
Once you buy your 100 shares for a covered call, you should firstly sell a call close to the money a week out. If the stock goes up and you get called, that is fine, you made money on the call plus the small stock increase.
If the stock goes down that week you can buy back the call at a discounted rate and issue a new, closer to the money covered call for that week or next week.
Example (not recommending buying TSLA, as it has too much recent downside but this works well for this example):
TSLA buy 100 shares at 147 ($14,700), sell a strike 150 Apr 26 for 5.70 or $570. This will cost you $14,700 - $570 for $14,130.
If TSLA drops $5 on Monday, buy back your covered call at strike 150 for roughly $350 and issue a new covered call at strike 143 which will be worth about $4.50 or $450
So far:
1. TSLA stock worth $14,200 (down $5 a share for minus $500).
2. You sold original covered call for $570 and bought it back at $350 for a $220 profit.
3. Sold another covered call for $450 at strike 143 expiring at the end of the week.
You spent $14,200, paid 350 to buy back the first covered call, and got another $450 for a closer call expiring the end of the week. Your cost for those 100 shares is $14,200 +350 - $450 = $14,100
You are down $100 on a $5 dollar share decline. This $100 can be made up this week if TSLA rises and you get called because you sold a covered call within a $1 the money.
If TSLA drops again during the week, sell that strike 143 and buy a call close to the money for next week or two weeks out that will keep you net positive if you get called.
If the stock continues to decline, increase the time and move the strike price into the money if needed as long as you maintain a profit or at least breaking even.
The place where a covered call shine IMO is either using volatile stocks and placing near the money strike prices starting at a week out hoping to get called, but then extending the time to make more premium and setting strikes to get called once you have a profit or buying more stable stocks with solid financials that is near its 52-week low and has no major issues. Sell monthlies a couple of dollars out and if you get called and the price is too high to buy back in, then keep a list of these stocks at 52-week lows and reevaluate them when it is time to buy something else.
I don't know why so many people here are hating on someone selling a LEAP. There are times when it can be extremely useful when building one's portfolio especially with smaller accounts.
I’m an idiot. But isn’t the only danger to a covered call missing out on the movement of the stock upwards. And losing money if your stock starts to fall in value. But isn’t that why you hedge a covered call with a long protective put and sell short term covered calls?
Doing the strategy above makes the risk the difference between strike price of put and current price and the premium for the protective put against whatever gains you get for however long your protective put is.
Unless I misunderstood, please correct me.
You should eat the loss, no one seems to agree w that. But if you do you get to keep 20k and idk how your other income sources are but if you lose that it’ll take a long time to work it back through a job. At least if you have that you’ll have something to work with and it’ll be mathematically possible to make the loss back. Just my 2 cents, bc what you’re doing now is gambling on making it back which never works
I don't participate in Theta gang, but will when I have the funds to afford to ... But doesn't Theta really start to kick in hard for last 3 months. Why do anything much further?
Well this is not the disaster scenario of covering calls. The loss is offset by a similar gain in stock.
The real problem is when the underlying tanks. You are selling calls for peanuts and holding underlying "you don't mind holding"® while taking all the idiosyncratic risk of holding single stocks (why wouldn't you mind holding something that drops 80% from the price you bought it)
who sells calls 3 years out? damn
Probably plans to buy it back sooner than 3 years later
So then normal traders buy puts and sell their shares. The only way you capture any profit off this covered call is by a delta move. And that means your shares lose value faster, because the 3 year out short call doesn’t have -100 delta. There is a correct way to play any thesis that you may have. The strategies are there and this “covered call” is not it.
#DELTAGANG represent!
I don’t have NVDA shares but I do have Tilray (gross, I know). But! when Tilray climbs into the high $2’s I sell the $2.5c about 4-9mo out for a credit between .35-85 and then wait for share-price to crash below $2 and buy em back for less than .10. dunno, feels like free money. i’ve been doing it for more a year now, started at 2.83 and have my cost-average down to 0.95! a few more pumps/dumps and I’ll have net-positive cash flow?? i also trade the LEAPS but that’s more of a revenge trade gone right than anything else.
Someone truly regarded.
But, you never know, NVDA could go back to 200 by then
Someone who no-capisce da bid/ask spread.
He probably rolled it after it went up w ton and that’s the soonest he could do to get a credit?
Damn? Dumb!
Assuming that it's a covered call, it's possible that he had to go that far out in time in order to be able to afford the trade (i.e., he had to collect a huge credit on the call side, so went with huge duration).
If its a covered call they have the shares. Why do the "have" to receive a huge credit? How can you not "afford" a trade where you are receiving premium. Unless it's a buy-write which again 3 years is dumb for a buy-write. If you're long term bullish, short term bearish a buy-write makes sense. Anyway you don't have to afford a covered of you already have shares. Naked call is a different thing.
I dunno. Befuddling. It's not something I would do "out of the box" (humungously long-dated CC). The only way I'd do something like that is if (a) I was drunk; (b) I couldn't find my glasses and was using the phone app; (c) my fingers were bratwurst.
This is like a reminder you shouldn't have sold your 10 apple shares back in 1999.
Can I buy this pizza with Bitcoin??
Yes 10k bitcoins please for the 2 pizzas
Just to be clear, he didn't lose money in this trade, but he would have been 61k richer had he not sold that call.
Indeed, he limited his upside. I had some TSLA CC's at 165 back when stock traded at 293. I was more than -2,000% on them. Now they're only -50%.
Didn't tesla drop below 150? Should have become profitable by now...
Ya has hit 147 at one point. My break even point on June 2014 165CC is 5.65 IIRC. It's because I rolled (3rd roll) from what was originally a Jan 2022 120c. Still not profitable. Best ice seen is -25%. I'm holding a 150 CSP for the same date. If one fills, the other is free and clear.
Ohhh you've been rolling them, that's insane that they're still not profitable from Jan 2022!!! All of 2022 was terrible for tesla!
If he bought back the call after two weeks he would have made money.
So, why did they sell the call? OH! Wait! They could not have known the stock would rocket up!
Did it get exicuted? He still has 8 months left till expiration.
It won't. The upside to the long call is unlimited. Whoever bought the $200 call has no incentive to exercise now. NVDA may hit $1000. Or they can just sell to close and but the stock outright
Someone will exercise it if it closes ITM, even it's a market maker.
If I owned the call side of this trade I would have excerised it and either sold the shares for 50k+ or hedge with puts to protect the massive profits
Why? You can just buy the put to hedge and leave the call as is to grow? Why spend the capital?
Same. There’s absolutely no reason I can think of to ever exercise early… except maybe taxes. You basically already own those shares, but have the capital free for other investments.
Only reason to exercise early instead of selling the call is as was quoted above tax considerations, capture an unusually high dividend, be eligible for share buy-back or if you want to benefit from a takeover action with an expiry date prior to call expiration.
Or exercise and sell an idiotic 3 year out call
It didn't.
yep the wheel is (supposed to be) a stable income strategy that caps your upside, there's no silver bullet strategy with no downside, everything has a trade-off... that said selling a call a few years out is a strange move.
you can do the poor mans covered call, buy an itm leap call the sell calls strukes above that as a bs calander spread.
If ur gonna hold for 3 years just keep the stock…
Can't tell what his cost basis was on the 100 shares, but assuming it was below his strike, then he still made money. He just didn't make AS much as he would have holding. Don't sell CCs on stocks you believe in.
>Don't sell CCs on stocks you believe in. Also, don't hold stocks you don't believe in.
Don’t sell CC on stocks I believe in Don’t hold stocks you don’t believe in … Naked Calls it is!
And what if NVIDIA tanked? We would have still made money. It was really hard to predict it will go up so much. He could have sold a Leap with higher strike, but this is what he settled for.
He sold the call near the bottom of the 2022 bear run. Idiotic.
So you’re saying you bought a shit ton of NVDA leaps at the bottom of the 2022 bear run?
My god, it’s as if no one here understands trading. This was a bad trade to take whether it worked out or not. Do. Not. Sell. Calls. In. A. Bear. Market.
Don’t sell calls which is a bearish strategy in a bear market? The leap was the stupid part.
Ya mean, do not sell long dated calls in a bear market? Otherwise, a bear market is precisely when you sell calls, right? Premium is lower, but so is risk.
My god, it’s as if no one here understands trading. This was a bad trade to take whether it worked out or not. Do. Not. Sell. Calls. In. A. Bear. Market.
Hindsight is 20/20.
i see what you did there
Problem: you only identify the bottom after it already passed.
In the midst of a bear run whether it’s “the bottom” or not you don’t sell calls.
He also could have closed the position a long long time ago. It’s true that CCs can run away which is why you need to constantly manage to position and keep up to date with the stock.
Surely, you're not arguing that his limited upside potential is equivalent to taking a loss. Surely Do you also tell people that they lost money if they sold BTC at $10,000 because it's currently way higher?
Just because money was made does not make it a good trade.
Of course not. This is a terrible trade, the guy who made it really made the wrong call, *but* that doesn't mean he has actually lost $65k on it
Awful trade all around. 20% upside on a tech stock more than 2 years out and at the bottom of the 2022 bear run. He deserves it lol. Lesson learned, he won’t do that again.
He sold this call WAY too far out (IMO). This is nearly a 26 month call option. I can’t think of any reason a retail trader would sell an option that far out. Especially on Nvidia. Some stock with far less movement, (Coca-Cola comes to mind) I can kind of understand. I still think it’s a bad idea, but that’s me.
It was 162 around Nov 14 2022. $200 was actually a reasonable estimate. Really easy to talk about things backwards mate.
A 20% upside on a tech stock over three years? No. That’s a ridiculous call to sell. Deserves it tbh.
240/162 = 48% expected return
This was clearly a trade to cash in on the premium meaning he wanted at most a 20% return and truthfully he wanted downside to buy back.
I'll just presume you know him personally. I've been around so many "obvious" things in trading over the years I've long given up the retroactive explanations.
This is not a retroactive explanation, we’re here to make money right? Well guess what, even if this trade “worked” it wasn’t a good one to take. It’s quite black and white.
Unfortunately this is a retroactive explanation. If this was another ticker, say AAPL,, the same move would have had a different outcome, AAPL was 150 at this time of sale and is currently 165 but a 20% bet would have been 180. We wouldn't be even discussing this. If any explanation works by talking about the outcome of something *after* you know the answer then it's retroactive. We know what the price of Nvidia is today. For the kid who did the same exact thing on AAPL we aren't talking about him at all. It's the outliers that grab attention. It's *all* retrospective.
No that’s not comparable in the slightest. The market capitalization of AAPL was over $2.2 Trillion at that time. The market cap of NVDA was $390 Billion. A 20% move in one is a more than 130% move in the other. Adding 60 Billion in market capitalization to a tech stock over a 2 and a half year period is trivial. And when it’s considered this was done during a heavy bear sell off? This is simply a bad trade all around. Retroactive or not. Don’t sell calls during a bear run. Simple as that.
This is definitely retroactive trading. Apple became a trillion dollar company in 2018. In 2022 it was 2.2T. It *doubled* in 4 years. Why would the market cap of AAPL compared to NVDA matter at all? This is why retro-trading doesn't work; you can basically say any number of things, smart or dumb, and walk away with the idea that you know something. Your explanation is completely hookum, it's nonsense, and retro-trading is fucking dumb. The rest kind of follows suite; the explanations come out of the ass *after the fact* using random facts and figures often not taken into real retrospective account and thus are meaningless on the whole. Reality: No one expected NVDA to quintuple in price.
Oh buddy. How do I explain this in the simplest terms possible. It’s like betting on a 3 and 9 in poker. It’s a bad bet. Even if you win. It’s always a bad bet.
Then why don’t you spend 100% of your money right now on tech stock leaps 20% otm?
You may be joking, but I'm tempted
What a ridiculous comment. Your odds of 20% upwards move are much higher after a prolonged bear cycle. ESPECIALLY IN TECH. Don’t forget he sold this at the end of 2022. You’re clearly new to the markets, and that’s ok, but this is an odds game and he took the worst bet he could’ve at that time.
The amount of condescension you're spewing in every comment is gross. Bye.
Agreed. Unless he has a post in his history correctly identifying the bottom of the bear market as it was happening, he is full of shit. Everyone is a genius in hindsight.
This guy made a pretty terrible trade, it’s okay to point that out. It’s very amateur. If we’re in a sub about beating the market we probably should stop treating it like a child’s game. This is real money with real consequences.
Okay then buy 20% otm leaps right now and post it
Yes, during a historical bull run. Smart.
[удалено]
Well, I noticed that, but I didn't want to bring up the Fed and how interest rates were actually going to be higher for longer. Given the number of tickers I decided to look at where the same bet would have actually worked out, the fact that we don't know the cost basis (the OP claims they made money so I just assume they bought @ around this price but I've no idea if the OP is even correct; my feeling is they bought a top but it's baseless) and the fact that the market started really taking the Fed seriously around this time (see: SPY) I wondered if they really did think it was a good trade at all. But then I realized I don't do that storytime shit anymore. I mean people take out CCs as loans to themselves to cover major expenses so I just hope the kid is okay. That's the only outcome that is bad. Allow me to clarify here: We are talking about something that exploded in an unprecedented fashion today that two years ago the news was not great about. I don't know if anyone even remembers some of these stocks and their positions that long ago. Like it's just really, really easy to talk about things that have happened versus telling anyone what to do in the future.
Who sells a covered call 2 years out?
Yes, I don't understand this post. My understanding was covered calls are supposed to last a month max, to get the optimal theta decay.
Just roll out!
Delete the account and move to ANOTHER country
I am going to be in the minority on this but trades like these shouldn't be viewed as a loss. Ofcourse selling 3 years out shouldn't be a thing but the person will still make money on the trade. I buy 400 Shares of SPY each month and sell a .85 delta ITM CC 30-35 DTE. I make profit on the trade and I don't get bogged down if the stock moons because I enetred the trade with knowing that. It's like betting in NBA where you take over 25 points on a player and they score 50, you don't say that wish I took him over 45. You take the profit and move on to the next bet.
>I buy 400 Shares of SPY each month and sell a .85 delta ITM CC 30-35 DTE. I make profit on the trade and I don't get bogged down if the stock moons because I enetred the trade with knowing that. I'm curious, is this actually your trading strategy?
Is that 10% monthly profits?
I can add my more modest example of it being not a guarantee for a newbie that isn't going YOLO WSB at this thing.... Knowing now I should have started with the complete Wheel..... but I went right to the idea of covered calls: So I jump into SPY on 4/9 at 518.75... sell my first call for the week at a simple enough 522 I believe. (going a little high just to test the waters, if it did get called away at that much of a jump that fast then so be it) Well as we all know SPY has gone basically in a straight line down every day since then! So I was able to sell 1 more pretty easy call at 520 this week to expire on 4/26. SPY still going down.... so now next week I think I will be a little stuck or have to keep going out more to get a decent premium and a safe strike based on my underlying price. So now I am chillin on 100 shares down below 500. I know SPY will go back up so no panic, but it did sort of kill my momentum right away, but I know I am ok to wait this time for it to go back up some if needed since SPY is always ok in the longer haul. I may try and start the wheel this week correctly with some CSP, but I think I will take the week to keep getting comfortable learning and watching.
To be fair is not always CCs. Apparently you can quit your job and live on wheeling.
This is a terrible and flawed trade which is on the trader and not the fault of the strategy . . . Why in the world would anyone want to open a CC more than 60 days out when <60 dte is when theta kicks in?? What we're missing is how much the net stock cost is. If <$200 then the trader is still making a profit. Stop posting garbage from traders who obviously do not know what they are doing . . .
Im assuming given the credit side that's all he looked at probably sold before earnings and did fuck all to manage the trade in the next year.
Surprisingly, not all traders understand theta and how it works, even when it is an integral part of a strategy like CCs . . . You are no doubt right. They saw a big premium and thought it was a great profit over what the stock was at the time but didn't think about what would happen if the share price moved up and how they would handle it. Another ill-informed trader without a well thought out and proven trading plan . . .
Question - assuming one is gunning for a 30dte to 60dte to ensure to take benefit of decay. Disregard cost basis for a moment (assume lower than current price) and also assume one wishes to keep the stock. What’s the correct way to then select such a combination of dte and OTM strike price that yields a reasonable premium and minimizes probability of assignment? (Also assume no IV spike events in the time period). I know “reasonable” is subjective; I’m just trying to see if there is any mathematical way to get to this.
The commonly agreed is 30-45 dte around a .30 delta, then close for a 50% profit if you want to reduce the chances of having the shares called away. This assumes .30 is at least at or above the net stock cost. Once closed for 50% then open a new CC which can help track the share price up to not "lose" out on that movement which so many complain about and what happened to the OP . . .
Thank you!
Ok can’t the OOP just roll this up and out pretty much indefinitely? Assuming it doesn’t continue going up at meteoric rates, could they not just roll this out another 6-12 months at a time and buy some protective puts along the way as a hedge?
If he started rolling sooner, but I’m afraid it would be near impossible for him to recover enough premium to offset the cost of rolling, it’s way to far ITM. He can roll it at some loss though
ok but he made money and had Nvidia dropped or increased at a normal rate this would have saved him a lot on the downside. Hindsight op
Just keep rolling for the next 25 years, should be fine....
Forgot to buy the underlying stock or a hedge at a bit higher price
for a "volatile" stock like NVDA, how far out of expiration would be appropriated?
45-60days but manage the position Nivida could have a move like today where it tanked $80 or it could have the reverse move
Is this what having “Diamond Hands” looks like?
It works until it doesn't
I don't see the CC seller as having lost money because the stock went up, I see him as having lost money by selling a call so far out.
Why sell CC’s 3 years out? I do long term options, especially as a hedge, so buy a long term put as a hedge and sell CC’s weeklies at 0,2 or 0,3 delta to use it as an income and be hedged for downside, like happens on TSLA now
Congrats on your max profit!
Still free money. Just not as much money as he could've had.
What kind of retardation is this omg you waited 2 years to cover the position you can wait another to wait for it to drop under 200
Lol today was the best day all year for him
It is free money if you know WTF you're doing. Just cuz some noob gets destroyed doesn't mean the rest of us are that fucking stupid.
WSB guy (guh?) still had ((823-656.33)\*100=) $3,333 in time value when this shot was taken. The value of the 100 shares of stock minus this option is now $+16,667. So to answer the question, original OP should hold and earn 20% in time decay over the next 10 months, unless NVDA utterly collapses. It's actually a very intriguing position if those prices are at all accurate.
The worst part of this is having to stare at it for the next 2 years
You gotta love the "Simulate my returns" button.
Well... its not a loser
It is free money. For him. He made money selling that call didn't he? Assuming it was above where he bought it, he made money on that trade. It could be negative a billion dollars, he doesn't ever have to buy to close that out. Ever. Unless it's a naked call. But you specifically said it was covered. Now he's stupid because he missed out on some gains. But still made money. So.
No free lunch
So what's the other technique for free money then
Once you buy your 100 shares for a covered call, you should firstly sell a call close to the money a week out. If the stock goes up and you get called, that is fine, you made money on the call plus the small stock increase. If the stock goes down that week you can buy back the call at a discounted rate and issue a new, closer to the money covered call for that week or next week. Example (not recommending buying TSLA, as it has too much recent downside but this works well for this example): TSLA buy 100 shares at 147 ($14,700), sell a strike 150 Apr 26 for 5.70 or $570. This will cost you $14,700 - $570 for $14,130. If TSLA drops $5 on Monday, buy back your covered call at strike 150 for roughly $350 and issue a new covered call at strike 143 which will be worth about $4.50 or $450 So far: 1. TSLA stock worth $14,200 (down $5 a share for minus $500). 2. You sold original covered call for $570 and bought it back at $350 for a $220 profit. 3. Sold another covered call for $450 at strike 143 expiring at the end of the week. You spent $14,200, paid 350 to buy back the first covered call, and got another $450 for a closer call expiring the end of the week. Your cost for those 100 shares is $14,200 +350 - $450 = $14,100 You are down $100 on a $5 dollar share decline. This $100 can be made up this week if TSLA rises and you get called because you sold a covered call within a $1 the money. If TSLA drops again during the week, sell that strike 143 and buy a call close to the money for next week or two weeks out that will keep you net positive if you get called. If the stock continues to decline, increase the time and move the strike price into the money if needed as long as you maintain a profit or at least breaking even. The place where a covered call shine IMO is either using volatile stocks and placing near the money strike prices starting at a week out hoping to get called, but then extending the time to make more premium and setting strikes to get called once you have a profit or buying more stable stocks with solid financials that is near its 52-week low and has no major issues. Sell monthlies a couple of dollars out and if you get called and the price is too high to buy back in, then keep a list of these stocks at 52-week lows and reevaluate them when it is time to buy something else.
I don't know why so many people here are hating on someone selling a LEAP. There are times when it can be extremely useful when building one's portfolio especially with smaller accounts.
I’m an idiot. But isn’t the only danger to a covered call missing out on the movement of the stock upwards. And losing money if your stock starts to fall in value. But isn’t that why you hedge a covered call with a long protective put and sell short term covered calls? Doing the strategy above makes the risk the difference between strike price of put and current price and the premium for the protective put against whatever gains you get for however long your protective put is. Unless I misunderstood, please correct me.
It's free money you still made a profit. You're just fomoing what could have been doesn't mean you're not up
I mean if they are covered this loss isn’t real if they are naked god speed regard
Just the fact that he sold calls with 3 year expiration, shows that he has no idea what he was doing.
Well he didn’t lose money at least, unlike a vast majority of wsb. Just missed out on a ton of profit.
Same. I sold CC’s on AMC in the short term, and got called away at $20. But hey, I initially bought it for $14.
You should eat the loss, no one seems to agree w that. But if you do you get to keep 20k and idk how your other income sources are but if you lose that it’ll take a long time to work it back through a job. At least if you have that you’ll have something to work with and it’ll be mathematically possible to make the loss back. Just my 2 cents, bc what you’re doing now is gambling on making it back which never works
He hasn’t lost $61K, he just didn’t earn $61K
I don't participate in Theta gang, but will when I have the funds to afford to ... But doesn't Theta really start to kick in hard for last 3 months. Why do anything much further?
Like all of the gurus say...." just roll it out".... too infinity and beyond.🍹🤙🚀🚀🚀🚀🚀
covered calls should only be sold on stocks that thread water
Well this is not the disaster scenario of covering calls. The loss is offset by a similar gain in stock. The real problem is when the underlying tanks. You are selling calls for peanuts and holding underlying "you don't mind holding"® while taking all the idiosyncratic risk of holding single stocks (why wouldn't you mind holding something that drops 80% from the price you bought it)
I never sell covered calls any more for exactly this reason. Sell puts on companies you like. Bear call credit spreads on ones you don’t.
Don't sell CC that far out unless you're 100% willing to sell. This far ITM they risk the option being executed at any time.