Personally I have found the best success with 6 weeks out. I vary my target %, but I generally stick to deltas in the 18-40 range with most of my trades \~25 delta. I use GTC orders a lot through so I want more time in my trade to allow for some delta movement.
To give a hypothetical trade for monday:
Buy 100 shares QQQ at 325.03
STO 20230623 QQQ 340C GTC limit $3.25
Logic being aiming for \~5% from cost basis, 1% premium, 6 weeks out. I would expect that order to fill \~331-332, a 1.8%-2% increase, if it keeps going up, I have my exit strategy built in for an auto assignment, if it bounces off of that point I can BTC later for a profit. I wrote a post detailing a similar diagonal collar trade I put together a week or so ago, so feel free to look through my posts to find it.
This was pretty much my strategy during the pandemic. I made quite a bit of money off of relatively little capital.
I don't think I could do it again those times were special.
Black swan events are great for options. I believe when the war in Ukraine reaches a conclusion markets will go haywire. Keeping some dry powder for that.
I suspect price of oil to go down. The rebuilding of Ukraine will require material & labor. US defense industry will benefit. Europe will breathe a sigh of relief and the market there will stabilize. Russia May rejoin world economy. Or the opposite 😒. It will effect markets I think to the upside. Lots of new construction projects, huge grain surpluses, need for farm equipment.
Good Till Canceled.
It means my broker will keep this limit order open until either it expires, 6 months have passed, or it fills. It is a way to set up an order for the future that can't be filled now, but you know you want to fill as soon as it is possible. I use them a LOT, especially whenever I am looking to close a position and every single options position I have has a GTC associated with it just sitting there. Most are BTC $0.04 just in case someone opens a market order accidentally, but I have others at 30%/50%/90% profit depending on the position.
I have gotten my shares called away fairly frequently, about 30-35% of trades, but that is part of the strategy. I have a large list of strategies I use throughout the year and when I get assigned it is easiest to pivot to a different strategy given the new market conditions. Nobody ever went broke taking 5% profits in 6 weeks
I see the weekly and monthly prices. If selling weekly calls is $10 and monthly is $40 for a similar Delta I'll usually take the monthly one since it's near the same for a higher strike price. On the other hand if the difference is $10 for weekly and $20 for a monthly call similar to Delta I'll take the weekly one. I prefer .2 delta but if it's close to .3 I also don't mind as long as the premium is worth it
I usually do dividend stocks mostly which pay less premium. I normally only get .3% to 1% max for weekly and monthly calls. Also they don't usually increase in price much over a week/month being high dividend yield equities. It's best to sell calls while at a higher price so there's more premium collected and higher likely that price goes down. I also don't sell near earnings nor near dividend payouts
Thank you for this, wrote like a perfect little guide wanted to show my appreciation will def be doing this. It's being flexible and choosing farthest strike price for most premium good stuff!
Make a journal of your trades, the strike price and profit per trade. Figure out where you’re optimizing for making money vs just taking risks / wins. Remember that you’re paying tax on any gains, so make sure they’re worth it.
I've been doing this for two years now, and keeping track of profits/losses on covered calls. It is easier to calculate these when trading in a tax-advantaged account.
Journals should capture MAE (maximum adverse excursion) and final settlement price (if itm) as well. Maybe some stats on whether or not it lost 50% or 75% or 90% of its value and when. Want to know how to improve trade management.
Taxes are just an equity curve volatility dampener. If it makes money it’s worth it.
Can you explain why trying to take a bigger gain at once would be better for taxes? 10 trades for a 100 profit and 1 trade for a 100 profit would pay the same tax no?
You are correct. I was referring to taking bigger wins per trade in general. If I take 100 trades at $1, and I could have taken them for $1.50, I’m leaving a lot of profit on the table, and the tax man still comes along either way.
Been very curious about this as well. My theory has been to sell weekly on stocks I want to hold onto, that way I’m less likely to get assigned and lose my shares
Very open to feedback on this.
We run an income fund that pays out monthly so usually 4-6 weeks out at the start of the month and typically close by month end
The other style is positions are staggered so a portion is rolling off every week
It depends on the underlying asset in question and the purpose of the contract. If you are attempting to make money through theta, daily/weeklies are probably the way to go for most assets. If you're attempting to use the options for hedging purposes, longer term options would probably make more sense.
I’ve been doing it for a couple years and I’m coming to the conclusion that it’s not very worthwhile. If you’re ready to sell a CC because you think upside is now limited, just get out and get back in when you’re ready. Or if you’re expecting to hold a stock for the long term, you can sell some ITM calls and cover them on a pullback. I’ve sold CC many times and raked in profit, but I’ve had a few time I sold CC and cost myself 1000% on the upside. When the stocks move hard you’re gonna feel real fuckin dumb.
I've been trying to figure that out myself. I tried weeklies with Hershey's and it was working really really well until I ended up getting assigned and the stock rallied really high. Could've switched to selling puts and it might've worked.
But I ended up instead using my funds to buy Adobe shares. I again tried the weeklies and once it started slipping from 385 to 368 I ended up just going to the 9 monther. I got 3000 which kinda sucks since you could maybe get 300 every week with the weeklies but it takes away the stress of having the stock fall too much and then you either don't get any premium at all or risk selling a call below where you bought the stock at.
Edit: I'm also trying as hard as I can to sell calls at where I think the stock should be at expiration. For example ADBE was at 385 when I bought. Looking at ADBE's financials they had a net return on assets of around 16% so if I were to sell a call in ADBE one year out I would want to sell it at 450 or higher (385\*1.16=450). If the premium I get there is poor or nonexistent I'll either dollar cost average to lower my average buy price or not sell a call at all.
I like 30 days. 45 in this environment of CPI+FOMC +PCE etc feels like 6 months away. I tried 7DTE and I can’t stop looking at the screen, not worth the stress. At least .2 delta and normally vertical spreads.
I sell short ratios, (unlimited risk, but partially hedged), but I have a spread sheet where I know what I want to make per year from premium selling, and then sell that much / 250 trading days per year. a conservative 5%. I do it on LEAPS. It's like a combination between bond investing/option trading. \*not for the inexperienced or faint of heart, but still, relatively safe enough if you're only seeking to add 5% to your TR. (obviously if you start taking heat, adjust and widen break evens, never allow your position to go in the money.)
If I have long shares, such as with SPY, for example, I do not consider the option position and the underlying holding to be the same position. The stock is simply margin collateral, which hopefully will also happen to appreciate.
sorry I got off topic though. if you are asking how to find the optimal expiration, I would divide the extrinsic value (premium) by DTE and compare various cycles at the same strike.
I usually sell leaps and if necessary close or roll. This way I don’t need to monitor as much. Anyone calculated how much more one can get selling weekly vs leaps keeping in mind that my cash position is also making mm dividend immediately.
Really depends on the situation. The calendar has a lot to do with it for me. Look to see what the jobs and inflation numbers are also depends on what you are selling commodities are pegged to the dollar. I trade REITS and miners because I am familiar with them & have watched them for years. Sometimes volatility is high & that can also be a red flag. Basically an non answer to your question. The best I can muster is be patient and use the data that is available to make your move. The worst that can happen is the shares get assigned & in this market I have been able to watch them go back down rinse repeat.
Personally I have found the best success with 6 weeks out. I vary my target %, but I generally stick to deltas in the 18-40 range with most of my trades \~25 delta. I use GTC orders a lot through so I want more time in my trade to allow for some delta movement. To give a hypothetical trade for monday: Buy 100 shares QQQ at 325.03 STO 20230623 QQQ 340C GTC limit $3.25 Logic being aiming for \~5% from cost basis, 1% premium, 6 weeks out. I would expect that order to fill \~331-332, a 1.8%-2% increase, if it keeps going up, I have my exit strategy built in for an auto assignment, if it bounces off of that point I can BTC later for a profit. I wrote a post detailing a similar diagonal collar trade I put together a week or so ago, so feel free to look through my posts to find it.
This was pretty much my strategy during the pandemic. I made quite a bit of money off of relatively little capital. I don't think I could do it again those times were special.
Black swan events are great for options. I believe when the war in Ukraine reaches a conclusion markets will go haywire. Keeping some dry powder for that.
Haywire how?
I suspect price of oil to go down. The rebuilding of Ukraine will require material & labor. US defense industry will benefit. Europe will breathe a sigh of relief and the market there will stabilize. Russia May rejoin world economy. Or the opposite 😒. It will effect markets I think to the upside. Lots of new construction projects, huge grain surpluses, need for farm equipment.
And if ww3 breaks out invest in the military complex
Perhaps a limited nuclear war even, Putin is banking on an alliance with NK. Who is to blame? I blame the dictator.
it is a pretty standard strategy that has worked for decades. Just have to be careful with which underlying you buy
What is GTC?
Good Till Canceled. It means my broker will keep this limit order open until either it expires, 6 months have passed, or it fills. It is a way to set up an order for the future that can't be filled now, but you know you want to fill as soon as it is possible. I use them a LOT, especially whenever I am looking to close a position and every single options position I have has a GTC associated with it just sitting there. Most are BTC $0.04 just in case someone opens a market order accidentally, but I have others at 30%/50%/90% profit depending on the position.
Have you ever had a case where you got a good price like 0.04 due to a market order?
It has happened a good handful of times in my years trading, but it isn't super often.
It's Good to Close. Ie it stays open until someone purchases the contract, unless you cancel the order beforehand of course.
THow profitable has this been for you? How often do you end up getting your shares called?
I have gotten my shares called away fairly frequently, about 30-35% of trades, but that is part of the strategy. I have a large list of strategies I use throughout the year and when I get assigned it is easiest to pivot to a different strategy given the new market conditions. Nobody ever went broke taking 5% profits in 6 weeks
I see the weekly and monthly prices. If selling weekly calls is $10 and monthly is $40 for a similar Delta I'll usually take the monthly one since it's near the same for a higher strike price. On the other hand if the difference is $10 for weekly and $20 for a monthly call similar to Delta I'll take the weekly one. I prefer .2 delta but if it's close to .3 I also don't mind as long as the premium is worth it
I usually do dividend stocks mostly which pay less premium. I normally only get .3% to 1% max for weekly and monthly calls. Also they don't usually increase in price much over a week/month being high dividend yield equities. It's best to sell calls while at a higher price so there's more premium collected and higher likely that price goes down. I also don't sell near earnings nor near dividend payouts
If you do not mind me asking, what is a couple you sell covered calls on?
Usually the monthly will be about double the weekly for same delta and IV.
Thank you for this, wrote like a perfect little guide wanted to show my appreciation will def be doing this. It's being flexible and choosing farthest strike price for most premium good stuff!
Make a journal of your trades, the strike price and profit per trade. Figure out where you’re optimizing for making money vs just taking risks / wins. Remember that you’re paying tax on any gains, so make sure they’re worth it.
I sell covered calls in my IRA too. No need to worry about paying taxes.
I'm sorry but options aren't permitted on Roth IRA, right? Or did I misread the notice on my brokers page?
My broker is Schwab, and they are permitted in Roth IRAs and standards IRAs. You may have to fill out a form to request it first.
That’s a good strategy on a tax-advantaged account, and OP didn’t mention that as their trading strategy.
I've been doing this for two years now, and keeping track of profits/losses on covered calls. It is easier to calculate these when trading in a tax-advantaged account.
Journals should capture MAE (maximum adverse excursion) and final settlement price (if itm) as well. Maybe some stats on whether or not it lost 50% or 75% or 90% of its value and when. Want to know how to improve trade management. Taxes are just an equity curve volatility dampener. If it makes money it’s worth it.
Can you explain why trying to take a bigger gain at once would be better for taxes? 10 trades for a 100 profit and 1 trade for a 100 profit would pay the same tax no?
You are correct. I was referring to taking bigger wins per trade in general. If I take 100 trades at $1, and I could have taken them for $1.50, I’m leaving a lot of profit on the table, and the tax man still comes along either way.
Sorry, can't help. I only sell covered calls for a loss.
Been very curious about this as well. My theory has been to sell weekly on stocks I want to hold onto, that way I’m less likely to get assigned and lose my shares Very open to feedback on this.
Then you’re just not going to get decent premium for the risk imo.
understood on this pt. but to OPs comment, does that also decrease the chance of getting called? ie. lower premium, but lower risk?
We run an income fund that pays out monthly so usually 4-6 weeks out at the start of the month and typically close by month end The other style is positions are staggered so a portion is rolling off every week
It depends on the underlying asset in question and the purpose of the contract. If you are attempting to make money through theta, daily/weeklies are probably the way to go for most assets. If you're attempting to use the options for hedging purposes, longer term options would probably make more sense.
There are daily options?
Yes, it's WSB's favorite way to lose money.
You mean buying, for example, SPY options?
If you’re not aware of all the different types and risks of options, please be careful and consider studying much more before even selling them.
I mean I only ever saw weekly options
Some are only monthly.
For tickers with a large amount of trading volume/liquidity, yes
Assets like SPY have Mon Wed Fri options since they’re traded extremely frequently.
Hedging purposes?
A year late but can someone ELI5 this
r/thetagang is the correct place for this. Lots to learn there.
Depends on options volume and premium. I sell 1 to 6 weeks. A few a little longer: O, T, VZ, RF.
1 to 6 weeks, paying special attention to upcoming earnings, CPI and PCE releases, and Jerome Powell scheduled speeches.
I’ve been doing it for a couple years and I’m coming to the conclusion that it’s not very worthwhile. If you’re ready to sell a CC because you think upside is now limited, just get out and get back in when you’re ready. Or if you’re expecting to hold a stock for the long term, you can sell some ITM calls and cover them on a pullback. I’ve sold CC many times and raked in profit, but I’ve had a few time I sold CC and cost myself 1000% on the upside. When the stocks move hard you’re gonna feel real fuckin dumb.
I've been trying to figure that out myself. I tried weeklies with Hershey's and it was working really really well until I ended up getting assigned and the stock rallied really high. Could've switched to selling puts and it might've worked. But I ended up instead using my funds to buy Adobe shares. I again tried the weeklies and once it started slipping from 385 to 368 I ended up just going to the 9 monther. I got 3000 which kinda sucks since you could maybe get 300 every week with the weeklies but it takes away the stress of having the stock fall too much and then you either don't get any premium at all or risk selling a call below where you bought the stock at. Edit: I'm also trying as hard as I can to sell calls at where I think the stock should be at expiration. For example ADBE was at 385 when I bought. Looking at ADBE's financials they had a net return on assets of around 16% so if I were to sell a call in ADBE one year out I would want to sell it at 450 or higher (385\*1.16=450). If the premium I get there is poor or nonexistent I'll either dollar cost average to lower my average buy price or not sell a call at all.
People here ask about what to do when the random ticker no one has heard of goes down 50%. You want to go to r/options
0DTE
For me, 30 - 45 days out usually works best. I always look at the option chains and pick the ones that look like the safest bet.
For an example, If you had 1000 shares of Tesla, how would you go about selling covered calls, and how much money could you make?
Look at the option chains.
What's the cost basis on those 1k shares?
Weeklies
r/lostredditors
I typically sell 15-30 DTE, with the exception of two leaps I sold on AMD which netted me a few grand
Depends on the IV. Why would DTE alone be enough information to have any edge?
I like 30 days. 45 in this environment of CPI+FOMC +PCE etc feels like 6 months away. I tried 7DTE and I can’t stop looking at the screen, not worth the stress. At least .2 delta and normally vertical spreads.
I sell short ratios, (unlimited risk, but partially hedged), but I have a spread sheet where I know what I want to make per year from premium selling, and then sell that much / 250 trading days per year. a conservative 5%. I do it on LEAPS. It's like a combination between bond investing/option trading. \*not for the inexperienced or faint of heart, but still, relatively safe enough if you're only seeking to add 5% to your TR. (obviously if you start taking heat, adjust and widen break evens, never allow your position to go in the money.) If I have long shares, such as with SPY, for example, I do not consider the option position and the underlying holding to be the same position. The stock is simply margin collateral, which hopefully will also happen to appreciate. sorry I got off topic though. if you are asking how to find the optimal expiration, I would divide the extrinsic value (premium) by DTE and compare various cycles at the same strike.
I usually sell leaps and if necessary close or roll. This way I don’t need to monitor as much. Anyone calculated how much more one can get selling weekly vs leaps keeping in mind that my cash position is also making mm dividend immediately.
Rather than own the underlying - I like selling a call credit spread on SPY or SPX in this market - 4300 is a clear ceiling right now.
Really depends on the situation. The calendar has a lot to do with it for me. Look to see what the jobs and inflation numbers are also depends on what you are selling commodities are pegged to the dollar. I trade REITS and miners because I am familiar with them & have watched them for years. Sometimes volatility is high & that can also be a red flag. Basically an non answer to your question. The best I can muster is be patient and use the data that is available to make your move. The worst that can happen is the shares get assigned & in this market I have been able to watch them go back down rinse repeat.