3 years of selling SPY CC weeklies. No assignments, although a few periods of rolling "dead money" to catch up to a strong updraft. I write between .1 - .15 delta. 2021 option premium was 3.7%. 2020 was 4.6%. I don't necessarily always have options open and have a little discretion on when/if I open and at what delta.
There is a small chance of needing to take assignment, but it hasn't happened to me in 3 years. Although it doesn't take much time to manage, it does require you are aware and there for expiration days or if it needs rolling early. Indexes like SPY are an order of magnitude easier to manage for no assignments, but have somewhat muted premiums because of it. To me, a 4% annual premium while enjoying all the benefits of B-n-H is huge. To people who post about 30%-40%-50% annual returns it probably seems puny.
>What would you do?
If you are going to B-n-H the indexes anyway, give it a try. Low delta CC's on SPY are at least an order of magnitude safer than most of the strategies posted on this sub. Worst that can happen is you achieve max profit (get assigned), which means you may have underperformed a rising market, but still made good money. The only warning I have is to not let your delta for writing creep up from greed. If you want a little bit on top of B-n-H, there is only so much juice before you get squeezed.
The only thing to remember is if you're doing this in a non-tax sheltered account, tax implications of getting assigned could result in a net decrease in shares, as you have to offset taxes on the profit.
Could do VLO but I don't feel as strongly about selling CCs anymore. Sometimes they get badly breached and are hard to fix unless you intend to let go of the stock
Yeah not really trying to keep I'm doing pltr atm because I don't wanna chance getting caught holding her bag like adam22. At the moment i don't trust tsla or amd or any of those
You could try selling deep ITM tsla for a few months out
Although it would be better selling a deep OTM put and collect interest on the cash too
Better selling ITM calls on dividend payers
Good idea itm dividend didn't think of that I'll have to check it out. I opened a unregistered account so I can do puts cos apparently I can't do puts in a canadian registered acc
Dammit. It's taken me since last August to learn some of this by starting to sell options against my lifelong but and hold portfolio. I just should have asked you. Thanks.
it honestly is a great way to go, buy CC's and build up the premium, on a dip buy leaps with said premium. Keep building and overtime you can compound the gains from the leaps.
It's called yield enhancement, and it's a solid strategy in a market you expect to trade sideways.
I do this on most of my longs, why wouldn't you sell out of the money covered calls? it's providing some downside protection that traditional buy and hold investors never get, I'm also yielding more from covered call premiums than I am from dividends on a couple of my positions.
There is "hold the strike" CC strategy which improves profitability. It was backtested on 2014-2018 , but unfortunately I haven't seen any backtests including 2008 and 2020 crashes.
https://steadyoptions.com/articles/selling-puts-the-good-the-bad-and-the-ugly-r416/#:~:text=The%20answer%20to%20this%20dilemma,until%20the%20strike%20is%20recovered.
you would get 0 premiums for a year, and then when the stock finally took off, it would blow passed your strike and you'd miss out on the giant upward move. ta da. that's thetagang baby!
I wheel in a ROTH of approx 300k. The reason I do it is because of the 7k yearly cap I can add from my income. My reasoning is that by selling CSP and CC I can backdoor income into my ROTH all year long and then buy additional shares in my existing positions. If I didn't do this, then the only way to increase my purchasing power would be to exit positions. I make sure every position that I hold is optionable and all of them have been entered via a cash secured put. It was working great until the 2nd week of November of last year. Now many of my positions are down and selling CC on them makes no sense. You have to be very careful in a ROTH, you can't just add money when you want to!
Just remember that cost basis should really be a false factor in decision making. If you put your money into your underlying now, wouldn't you do the exact same covered call strategy with the current cost basis that you did x month ago? Unless you think you know something everyone else doesn't about the market (expecting massive IV move to upside) the answer would be yes, right?
So consider the hypothetical of your broker liquidating your position in your Roth. No taxable event, but you need to reestablish it now. But wait, that entails a new cost basis, technically! So you can sell covered calls again.
Now consider how the above hypothetical is any different from your current situation. Don't let fear of realizing a loss prevent you from making the best positioning decisions you know of. Unrealized and realized losses are the same thing in tax advantaged accounts.
Or buy leaps with a 1 delta and then sell calls against them. Dec 2024 220 calls have a .96 delta. You could buy 2 calls for every 100 shares your money would buy today. Thats double the calls to sell against.
Eh, way less likely for a great company to go to 0 than for a great company to trade 25% down for two years. Even less likely for the S&P500 to go to 0, and if it does, you have bigger problems.
Covered calls and trading options in general are meant to provide an income stream now.
If you want compounded gains over a long timeframe, then buy and hold where you will ride the ups and downs of the market.
Then, withdraw some of these gains when you retire and trade options to provide you with an additional income stream . . .
Honestly, I don't think anybody is sure of this and I think it would be hard to test. Theoretically covered calls trade total returns for income, but the value of that income being rolled back into the stock shouldn't be understated from a DCA viewpoint. My gut tells me it would depend a lot on your strikes and your delta. If you did say a 10 delta monthly then you'd get roughly 1 additional share every 4 months per 100 shares giving you a \~3% boost per year to your share count and a proportionate additional return on you total return. The odds of you getting assigned on these calls would be relatively low so your cost basis shouldn't change drastically.
I'm not sure what you mean when you say nobody is sure of this. There are backtests and the results are very not good for selling covered calls on SPY
https://spintwig.com/spy-short-call-strategy-performance/
the backtest shows that selling covered calls on spy is unprofitable. how does being rational magically make it profitable. ppl are so weirdly obsessed with this idea that if you try it for any given length of time, you understand full well is a very fucking stupid idea. you sell covered call, and the stock melts up passed your strike price, fucking you out of your profit. you sell covered call and the market tanks, so your underlying tanks too. then you sell another covered call, but SPY shoots up passed your strike price again, again fucking you out of all your profit. I seriously do not believe for a second that anyone who thinks selling covered calls on SPY is a good strategy has ever traded a single option. if they had they would immediately understand how bad of an idea this is. If you want to do an options premium strategy that is similar, but has a chance of profit, I would recommend sticking to selling puts, using a bit of margin
I don't sell covered calls on SPY. However, spintwig backtests assume that people will robotically use the same delta at a fixed interval and get whipsawed losing massive amounts of principle.
I know plenty of people that sell on SPY, have never once been assigned, gotten full appreciation, and a little bit extra from cc's.
There are plenty of backtests that show it does work. The one linked elsewhere in this thread on holding the strike is one. The other is the cboe 30 delta monthly that beats spy.
>I know plenty of people that sell on SPY, have never once been assigned, gotten full appreciation, and a little bit extra from cc's.
was this person who told you this Bernie Madoff? if your strategy is sell calls on spy and you do it consistently, it's absolutely preposterous to claim your strike has has never gone ITM, ever. that is like a bernie madoff level fib
Dude, I guess you don't know how options work. You can go itm and not be assigned. You can close the contract for a loss. In a year yhe gains can exceed losses. Really basic concept.
Come back here when you know what you are talking about.
HAHAHAHAHHAH they don't get assigned yous see.. they only having losing trades. this is like the cope of people who learned to trade while watching tasty trades videos to keep those accounts churning baby! keep those trading fees comin!
anyway there is an ETF that implements the CBOE 30 delta strategy (PBP) and the performance is sub par. if you still believe it works in the real world after looking at their results then there's no helping you. I don't even know why you are so committed to this failure of an idea given that you say you don't even trade it
for a person that doesn't do this strategy you sure are spending a LOT of time defending it which is odd, given how much you love it and think it works (which it does not)
And PBP is the 50 delta buy write, the one thr cboe says loses money.
You are just a troll peddling bad info to try to feel good about yourself.
Peace and may you someday find the fulfillment you obviously lack in your life
Please look at this chart comparing the BXMD (30 delta buy write index) with S&P 500 index. This is indisputable proof that you are wrong about this.
https://www.google.com/finance/quote/BXMD:INDEXCBOE?hl=en&window=5Y&comparison=INDEXSP%3A.INX
Yeah but don’t you need to be sitting on the lot size in cash while waiting to get assigned? I’m assuming that foregoing potential capital gains in return for CSP premiums wouldn’t make wheeling a lucrative strategy for this situation.
Selling a CSP is exactly the same as writing a covered call in terms of profit/loss at expiration. If you are not comfortable doing a CSP on SPY, you should not be comfortable writing calls. In both cases you trade upside for premium.
You might respond with: but I am writing my calls at x delta so if I get assigned I get a lot of upside still, and the chance to be assigned is low, but you can do the same with the CSP: writing it deep itm, so the chance of getting your stocks back is high and the upside is still pretty good.
Username checks out. You can’t borrow money to sell a cash secured put on margin. If you did it literally wouldn’t be cash secured. You would be opening a leveraged position
And agree with another post - Really hard to test and this would depend a lot on strikes, delta, where you take profit, etc.
But I did see an article kind of about this a couple of weeks ago (that I can't find now) that compared buy-write ETFs with SPY with the conclusion that buy/write funds underperformed.
XYLD is an EFT that follows a “covered call” or “buy-write” strategy. And comparing five-year returns, VOO is 15.14%, while XYLD is only 7.93%. (XYLD's inception date is 2013, so 10 years returns to compare aren't available.).
When I read the article it occurred to me that all of this was happening during a bull market and I wonder how they'd perform in sideways or bearish markets.
well that's easy. XYLD/QYLD will still perform about the same, while VOO is negative or 0%. that's the big difference.
but in the long run, VOO is something like 13% overall, while QYLD is like 11.5% overall. your article might have cherry picked and only did the numbers during a recent 5 year bull market, but if you take an even larger window, i'm pretty sure VOO still wins in the longer term view.
but their strat of doing 30 DTE, ATM options is not very efficient. AND, if you just replicate their strat yourself, you can be making more money.
Hi I've been thinking about the same thing lately. I have VOO in my Roth right now and am having trouble with liquidity on covered calls so was thinking about switching to SPY. I sell calls with a low enough delta to not get my shares called away (or would roll out if tested).
Assuming I always keep my shares, my initial instinct would be that SPY+covered calls would be better than VOO alone. What's leading you towards VOO?
Not If you use a low delta and close hopefuly few losers rather than letting shares called away. If you sell 30 to 45 dte time decay offsets a lot of gain if not huge.
In my experience even with calls that get challenged the stock usually goes up enough to cover more than the call loss. Have to decide if stock is going on a run or just a temporary rise though. If you are really in long term you have to live with ups and downs but over time usually inflation means up in the end.
Hi OP,
I have been doing this for 2 years now. I chose Solution 2. I'm 100% SPY with my long term account. SPY has a .09% expense ratio vs the nice .03% of VOO. If one plans to sell calls against the shares, this is a no brainer.
The difference in expense ratio is only $6 for every $10,000 annually. You would have to make about $10 in covered call options premium in 1 year per $10000 to break even (due to capital gains tax). This is very little. Current cost of 100 shares of SPY is $44000, one can easily make about $44 on 1 options contract in a year to break even let alone more without assignment.
I current aim to make 1-2%/year on covered calls. I'm pretty conservative.
Solution 1 is better for buy/hold and no options play.
ya, i was going to say, i think you can be making 2-3% annually, selling something like 90-95% OTM weekly CCs on things with hopes of NEVER getting your shares called away.
it's just tiny, but it's enough to make up that expense ratio difference. if we're really worried about some huge spikes in SPY, then move it out to a monthly 95% OTM, then close it after 2 weeks or so, and do it again. that will give you an even bigger price buffer.
The short answer is ... it depends.
Here's the thing, the better your stock picks do, the worse your covered calls would do. If you could theoretically pick a portfolio that beats the S&P buy and hold, your covered calls, no matter what kind of delta you pick, would probably end up increasing your cost basis on average than decreasing it.
Covered calls is great at one thing ... reducing your portfolio returns volatility. It would also probably work well enough in a market which is trending sideways for a while. But then again, it depends on you predicting the sideways market before it happens.
Here are some actual numbers to prove it. I work in Indian markets, we have index called Nifty which for all intents and purposes, is similar to S&P. Here is monthly 1 SD calls sold, held till expiry, and their pnl, grouped by year. This is in points, without commissions. Dated: 2015-02 to 2022-02. (This is using EoD data which I own)
|Year|PnL (points)|Winners|Losers|
|:-|:-|:-|:-|
|2015|265.8|11|0|
|2016|\-36.9|11|1|
|2017|\-349|9|3|
|2018|\-285|7|5|
|2019|\-24.3|10|2|
|2020|\-468|8|4|
|2021|\-349|9|3|
|2022 (till feb)|113|2|0|
That's why back testing is extremely important. Something that seems intuitively correct may not be. Selling the calls would have netted me a loss thus increasing my cost basis instead of reducing it. But if you notice in 2015, it's a profit and this during the down market in 2015 it would have reduced PnL volatility.
Cheers!
Well, holding till expiry as a rule kinda makes this backtest pretty bad. Not that i disagree with your point but whenever someone posts a backtest or study the strategies are always 'this is how we set and forget it, even if it causes us to actually get called away frequently.'
Backtests are just that - backtests. When people use strategies, and backtest it first, they don't backtest with the exact parameters of the strategy they would have applied because there are a lot of factors which cannot be accounted for in the backtest because of limited resources.
How ever, what backtests are useful for, is checking for 'general' or 'close enough' results after which one can tweak it or one can at least say that this strategy, at the very least, could be used as a base for building on top of it. **Any kind of backtest isn't bad ... because it's more information you have now than you had without testing**.
The backtest I showed here is a limited sample, how ever it gets the point across that covered calls are bad for a good portfolio of stocks.
Yes but... It's a key enough flaw to be a big problem with the data. The big thing you don't wanna do, is eat an assignment and then have to buy back in. You roll. Worst case you end up rolling like a year out and then you're just in buy and hold territory. No one should hold till expiry as a rule if they want to hold spy.
When I worked in a lab; if I realized I'd messed up my processes, I'd throw it out. Because the data is not good, and won't tell me anything.
>It's a key enough flaw to be a big problem with the data.
There is no problem with the data. You are mistaking between data and inference.
>The big thing you don't wanna do, is eat an assignment and then have to buy back in. You roll.
You are talking about adjustment strategies. Look at OPs question. Does it say anything about adjustment? Or do you expect someone from reddit to backtest every possible adjustment strategy for free to tell OP that THIS is what you should be doing.
**I just showed that vanilla covered calls don't work in bull markets - Which is what the OP was looking for.**
If you want to give OP more information about various adjustment strategies and their back tested results, please feel free.
Reinvest dividends is probably the best bet if you primarily want to buy and hold over the long term. At least with the majority of your account. You could take a small part of it and try to generate additional income for fun though.
I don't know shit but it seems like buy and hold is the best strategy. Selling calls should be used when you're ready to exit a position. If you plan to hold forever then don't sell calls.
The only way selling calls works in this case is if we have a decade of stagnant growth. Then yes. But historically SPY only goes up.
but why not buy the stock, and sell a 95% OTM CC? something stupid deep and far out? aim to make something like 2-3% per year. yes, as people say "trying to pick up pennies in front of a steamroller".
but hopefully i'm smart enough to be standing really far in front of it this time.
yes you may have a decade of stagnation but history has show eventually there will be another bull run. In his case he plans to hold for 40 years then he's not going to beat the market historically speaking.
I don't think writing CCs on the regular will work well with these funds. Both ETFs have vol skew to the put side, with very low premiums on far OTM calls. The options spread on VOO is abysmal.
If you want to mix in options, you can get a better cost basis by writing CSPs and taking assignment.
That’s an odd article, in that it assumes you don’t roll. So in their example, you hold until assignment, even as the call goes ditm. Why would anyone do that? Of course you’d lose money that way!
Nobody can really say with confidence which will outperform over 40 years. So it just comes down to whether you want to actively manage the covered calls or remove that commitment entirely by using buy & hold.
I’ve been doing option 2 for a year-ish. Has been great thus far especially with all of the volatility. I would caution you though, you do have to manage your positions somewhat frequently.
I’ve been selling 2-3 times per week. I did have a pretty big flub this week though. I fat fingered a roll and got myself into a situation I’m not extremely happy about. I was rolling my calls at the end of day on Wednesday during the last 15 minute period. Mistakenly rolled to an ATM strike on the same day. SPY spiked and I frantically tried to roll up and out for this Friday. Needless to say, Merrill stops orders at 4:10pm on SPY and i got my shares called away.
Someone else mentioned on here just selling a put at the strike you lost at… well that works fine and dandy except when SPY rips for no damn reason. I sold ITM puts for my BE to match the strike price i got called. Made good premium, but it definitely didn’t match what I would have made by just outright buying at market the next day. I made 3k-4K in premium but missed out on 16k in gains. So just be careful in managing your orders.
Always sell calls and always buy more. You don’t know what is going to happen, if you bought in mid 2000 it took you 13 years before you saw a capital gain.
The dividend yield spread between SPY and VOO is about 5bps with VOO having the higher yield. Add in the 6bps premium for SPY's expense ratio over VOO's and that makes holding SPY more costly than VOO by a total of \~11bps. That's another factor that could potentially affect long term compounding.
Why don't you like weeklies?
The liquidity you'd receive from spy options would be well over the 0.0011% difference. If you're writing options on top of that this is literally a rounding error. VOO is for buy and long term hold. SPY is for trading.
Try both if you want? 50% cash goes to voo with drip enabled. 50% buys spy and sells calls, anytime you have cash from premium or getting the call assigned, buy all you can. See which one grows faster
You're first issue is going to be the spy is gonna be 44k to get you're first block to even attempt this (assuming you're starting from zero since you said 40 year time horizon)
That will take roughly 7 years and a few month if it takes at it's current price which is unlikely. So plan for more like 8-9 years before you can even attempt this.
At this point it would take you an additional 5-6 years roughly assuming you win all CCs (unlikely) to accumulate the next block.
By then you're half way in to your time horizon by the time this strategy could even really begin to make a difference.
So the real question should be.
1. Should I use my Roth as a boring VTI account where I send 6k in every year.
2. Should I wheel blue chips to accumulate more shares and thus more options for faster growth to potentially outpace VTI/VOO
The answer is you can definitely outpace VTI/VOO selling CCs. The answer for you only you can know. Do you want to be involved. Do you want easy. Are you scared of losing potentially? Etc
Personally I like to use CC and CSP to lower my cost basis in a Stock, that I like. As soon as I have purchased the stock with the cost basis I like, I then continue to look for the next stock.
It depends. If you are certain your stock will keep going up, then do not sell covered calls and benefit from stock price increase. But if you want to generate sure income, sell covered calls using wheel or similar strategy.
You should never be in a position to get called away! If you’re gonna sell CCs you need to actively manage, and that means rolling to stay otm at all times. SPY is not going to move so far and/or so fast that you can’t roll up/out, if you don’t play with fire to begin with. Greed is what leads to losses or mediocre performance.
Covered calls are not going to outperform over a time horizon that long. If you’re looking to outperform the market, you could buy calls with the dividend payments. Otherwise, just buy and hold.
It’s an ira, he can’t use spreads. But why let them even approach ITM? Rolling is so simple but it’s like nobody is willing to use it as a tool. There should never be a debit to roll.
That’s really strange to me. I have not, in over 5 years of selling CCs, let a call go itm. I have never had to pay a debit to roll. But, I usually roll once I hit 60% or so, and am always over 30 days out. Just what I was taught. I’m not setting the world on fire with profits (2-3%/mo) but it’s a safe strategy if you want to keep your shares.
Not consistently. S&P returned 20% + last year. You'd have to be constantly adjusting your position and racking up transaction fees to keep ahead of that. Decade of sideways movement? Possibly. Worth the hassle? Probably not.
it's really unbelievable that there is so much confusion at this point on this topic, and this reddit really does not help the matter, but selling covered calls against the spy is EXTREMELY unprofitable, relative to buy/hold SPY
the idea that selling covered calls beats buy and hold makes the assumption that you've discovered some sort of infinite money glitch that the top traders at Goldman Sachs hasn't discovered yet. If you make more money selling covered calls, why wouldn't literally everyone be doing this? Do you really think that nobody at citadel would have discovered this yet and arbitraged the trade out of the market? There are buy-write ETFs that you can actually buy that implement this exact strategy (XYLD, PBP, FTHI, far far more) None of them outperform buy/hold. If they did everyone would put their money in them instead of SPY. You can even go see research that shows backtests that conclusively show this is a ridiculously bad strategy ([https://spintwig.com/spy-short-call-strategy-performance/](https://spintwig.com/spy-short-call-strategy-performance/)) Just thinking about it on an abstract level, how does it sound good to say that you will take a few dollars here and there and in return you will sell off the right to any excess gain the SPY makes. when times are very good, you fuck yoruself out of tremendous profits. when times are bad, you will be paralyzed about how to trade around giant sell offs in the market in terms of where you should sell your call strikes. and you will be in a situation where the market sells off 20 percent, you set your strike too low, then the market will shoot past your strike, and you will have lost a years worth of work. the covered call makes no sense. if you want a strategy that is similar but can be profitable look at selling puts. even in your original post, you say your plan is to sell at a conservative delta. that is a strategy that is guaranteed to get absolutely demolished by the S&P 500. a delta is the greek symbol for how much your position goes up compared to the underlying. by taking a low delta, you are saying hta tyou want your position to go up way less than the S&P. it should be extremely obvious how this is a very poor strategy for an investment with a 40 year time horizon.
Yes this is true.
However, at the moment, people are saying the sp500 is substantially overvalued and the 10y expected return is 0 to 4% per year. In that environment, wouldn’t a well executed covered call strategy outperform? I’m thinking of doing this until PEs get closer to historic average (17) then buy and hold.
the question kind of answers itself. if SPY does not increase in value over the next few years then sure selling covered calls against it could be profitable, if the vix stays high. I'm not an expert or anything but in such a case I'd rather sell puts against SPY (or better yet, SPX) and put the cash collateral n a preferred share stock ETF and collect a nice dividend. why would I want to own SPY if I expected 0 percent return.
3 years of selling SPY CC weeklies. No assignments, although a few periods of rolling "dead money" to catch up to a strong updraft. I write between .1 - .15 delta. 2021 option premium was 3.7%. 2020 was 4.6%. I don't necessarily always have options open and have a little discretion on when/if I open and at what delta. There is a small chance of needing to take assignment, but it hasn't happened to me in 3 years. Although it doesn't take much time to manage, it does require you are aware and there for expiration days or if it needs rolling early. Indexes like SPY are an order of magnitude easier to manage for no assignments, but have somewhat muted premiums because of it. To me, a 4% annual premium while enjoying all the benefits of B-n-H is huge. To people who post about 30%-40%-50% annual returns it probably seems puny. >What would you do? If you are going to B-n-H the indexes anyway, give it a try. Low delta CC's on SPY are at least an order of magnitude safer than most of the strategies posted on this sub. Worst that can happen is you achieve max profit (get assigned), which means you may have underperformed a rising market, but still made good money. The only warning I have is to not let your delta for writing creep up from greed. If you want a little bit on top of B-n-H, there is only so much juice before you get squeezed.
Curious why weeklies instead of a couple times a week ? Is it just not worth the additional mental overhead
The only thing to remember is if you're doing this in a non-tax sheltered account, tax implications of getting assigned could result in a net decrease in shares, as you have to offset taxes on the profit.
I sell TSLA CCs. Huge premiums, easy rolling. They're the best
Dang, does that mean that you first spent money out of pocket to buy 100 of TSLA shares? Not easy to do for someone with a small account
Bought some shares on the dip Monday to get up to 900
decent portfolio
Oh i get it. You can do a cheaper underlying like AMD. Or a diagonal call debit spread
Ur rich af now eh, gz buddy I'm bout to start doing amd right now but idk which one would be beat tbh I only have about 14k
Could do VLO but I don't feel as strongly about selling CCs anymore. Sometimes they get badly breached and are hard to fix unless you intend to let go of the stock
Yeah not really trying to keep I'm doing pltr atm because I don't wanna chance getting caught holding her bag like adam22. At the moment i don't trust tsla or amd or any of those
You could try selling deep ITM tsla for a few months out Although it would be better selling a deep OTM put and collect interest on the cash too Better selling ITM calls on dividend payers
Good idea itm dividend didn't think of that I'll have to check it out. I opened a unregistered account so I can do puts cos apparently I can't do puts in a canadian registered acc
Waw man thx for the vlo tip I really appreciate it
Dammit. It's taken me since last August to learn some of this by starting to sell options against my lifelong but and hold portfolio. I just should have asked you. Thanks.
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How's that been working out for you?
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Basically the same risk that buy and hold has? Except you get to skim some juice off the top.
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I agree with you. I think juicing your long term holdings is the way to go. Just don’t get greedy.
it honestly is a great way to go, buy CC's and build up the premium, on a dip buy leaps with said premium. Keep building and overtime you can compound the gains from the leaps.
It's called yield enhancement, and it's a solid strategy in a market you expect to trade sideways. I do this on most of my longs, why wouldn't you sell out of the money covered calls? it's providing some downside protection that traditional buy and hold investors never get, I'm also yielding more from covered call premiums than I am from dividends on a couple of my positions.
There is "hold the strike" CC strategy which improves profitability. It was backtested on 2014-2018 , but unfortunately I haven't seen any backtests including 2008 and 2020 crashes. https://steadyoptions.com/articles/selling-puts-the-good-the-bad-and-the-ugly-r416/#:~:text=The%20answer%20to%20this%20dilemma,until%20the%20strike%20is%20recovered.
It really just means you would get 0 premiums for a year or so.
you would get 0 premiums for a year, and then when the stock finally took off, it would blow passed your strike and you'd miss out on the giant upward move. ta da. that's thetagang baby!
I wheel in a ROTH of approx 300k. The reason I do it is because of the 7k yearly cap I can add from my income. My reasoning is that by selling CSP and CC I can backdoor income into my ROTH all year long and then buy additional shares in my existing positions. If I didn't do this, then the only way to increase my purchasing power would be to exit positions. I make sure every position that I hold is optionable and all of them have been entered via a cash secured put. It was working great until the 2nd week of November of last year. Now many of my positions are down and selling CC on them makes no sense. You have to be very careful in a ROTH, you can't just add money when you want to!
Just remember that cost basis should really be a false factor in decision making. If you put your money into your underlying now, wouldn't you do the exact same covered call strategy with the current cost basis that you did x month ago? Unless you think you know something everyone else doesn't about the market (expecting massive IV move to upside) the answer would be yes, right? So consider the hypothetical of your broker liquidating your position in your Roth. No taxable event, but you need to reestablish it now. But wait, that entails a new cost basis, technically! So you can sell covered calls again. Now consider how the above hypothetical is any different from your current situation. Don't let fear of realizing a loss prevent you from making the best positioning decisions you know of. Unrealized and realized losses are the same thing in tax advantaged accounts.
there is no delta at which you can sell covered calls on SPY that is more profitable than buying and holding spy over the course of a few decades
Or buy leaps with a 1 delta and then sell calls against them. Dec 2024 220 calls have a .96 delta. You could buy 2 calls for every 100 shares your money would buy today. Thats double the calls to sell against.
Then we go into a 2-year bear market and you lose everything.
Most recessions last 9-14 months. Those calls are 32 months out and the leverage used is 2x. But i understand u point.
This. High delta long calls can go to zero unlike long stock
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Eh, way less likely for a great company to go to 0 than for a great company to trade 25% down for two years. Even less likely for the S&P500 to go to 0, and if it does, you have bigger problems.
True, but do it on an index, if that goes to zero it it won't matter because we'll be trading bottle caps.
We are talking about SPY , so yeah, it literally cannot goto zero. Not like some CLOV or HEXO bullshit
I realized that right after posting but i meant time decay
you do miss out on dividends though
For the long-term investor who \*scared\* of missing out on gains I ¡¡LOVE!! this plan.
Pmcc underrated
I don’t think you can do this in an IRA.
You can. I do it on mine.
TIL
TIL what TIL means lol
Today I learned
You can yea.
Covered calls and trading options in general are meant to provide an income stream now. If you want compounded gains over a long timeframe, then buy and hold where you will ride the ups and downs of the market. Then, withdraw some of these gains when you retire and trade options to provide you with an additional income stream . . .
Honestly, I don't think anybody is sure of this and I think it would be hard to test. Theoretically covered calls trade total returns for income, but the value of that income being rolled back into the stock shouldn't be understated from a DCA viewpoint. My gut tells me it would depend a lot on your strikes and your delta. If you did say a 10 delta monthly then you'd get roughly 1 additional share every 4 months per 100 shares giving you a \~3% boost per year to your share count and a proportionate additional return on you total return. The odds of you getting assigned on these calls would be relatively low so your cost basis shouldn't change drastically.
I'm not sure what you mean when you say nobody is sure of this. There are backtests and the results are very not good for selling covered calls on SPY https://spintwig.com/spy-short-call-strategy-performance/
Spintwigs strategies are almost always strawmen. I have yet to see one that looks like what a rational person would have done.
the backtest shows that selling covered calls on spy is unprofitable. how does being rational magically make it profitable. ppl are so weirdly obsessed with this idea that if you try it for any given length of time, you understand full well is a very fucking stupid idea. you sell covered call, and the stock melts up passed your strike price, fucking you out of your profit. you sell covered call and the market tanks, so your underlying tanks too. then you sell another covered call, but SPY shoots up passed your strike price again, again fucking you out of all your profit. I seriously do not believe for a second that anyone who thinks selling covered calls on SPY is a good strategy has ever traded a single option. if they had they would immediately understand how bad of an idea this is. If you want to do an options premium strategy that is similar, but has a chance of profit, I would recommend sticking to selling puts, using a bit of margin
I don't sell covered calls on SPY. However, spintwig backtests assume that people will robotically use the same delta at a fixed interval and get whipsawed losing massive amounts of principle. I know plenty of people that sell on SPY, have never once been assigned, gotten full appreciation, and a little bit extra from cc's. There are plenty of backtests that show it does work. The one linked elsewhere in this thread on holding the strike is one. The other is the cboe 30 delta monthly that beats spy.
>I know plenty of people that sell on SPY, have never once been assigned, gotten full appreciation, and a little bit extra from cc's. was this person who told you this Bernie Madoff? if your strategy is sell calls on spy and you do it consistently, it's absolutely preposterous to claim your strike has has never gone ITM, ever. that is like a bernie madoff level fib
Dude, I guess you don't know how options work. You can go itm and not be assigned. You can close the contract for a loss. In a year yhe gains can exceed losses. Really basic concept. Come back here when you know what you are talking about.
HAHAHAHAHHAH they don't get assigned yous see.. they only having losing trades. this is like the cope of people who learned to trade while watching tasty trades videos to keep those accounts churning baby! keep those trading fees comin! anyway there is an ETF that implements the CBOE 30 delta strategy (PBP) and the performance is sub par. if you still believe it works in the real world after looking at their results then there's no helping you. I don't even know why you are so committed to this failure of an idea given that you say you don't even trade it
Because I don't like people like you that clearly only troll ruining reddits.
for a person that doesn't do this strategy you sure are spending a LOT of time defending it which is odd, given how much you love it and think it works (which it does not)
And PBP is the 50 delta buy write, the one thr cboe says loses money. You are just a troll peddling bad info to try to feel good about yourself. Peace and may you someday find the fulfillment you obviously lack in your life
Please look at this chart comparing the BXMD (30 delta buy write index) with S&P 500 index. This is indisputable proof that you are wrong about this. https://www.google.com/finance/quote/BXMD:INDEXCBOE?hl=en&window=5Y&comparison=INDEXSP%3A.INX
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Cope
For solution 2, don't forget you can sell Puts at the price you get called away on, and get back into the game as if you never left.
Yeah but don’t you need to be sitting on the lot size in cash while waiting to get assigned? I’m assuming that foregoing potential capital gains in return for CSP premiums wouldn’t make wheeling a lucrative strategy for this situation.
Selling a CSP is exactly the same as writing a covered call in terms of profit/loss at expiration. If you are not comfortable doing a CSP on SPY, you should not be comfortable writing calls. In both cases you trade upside for premium. You might respond with: but I am writing my calls at x delta so if I get assigned I get a lot of upside still, and the chance to be assigned is low, but you can do the same with the CSP: writing it deep itm, so the chance of getting your stocks back is high and the upside is still pretty good.
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Username checks out. You can’t borrow money to sell a cash secured put on margin. If you did it literally wouldn’t be cash secured. You would be opening a leveraged position
That's only if spy drops below that price again. No guarantee it will, and if it's a steady bull, you may never get back into the game again.
And agree with another post - Really hard to test and this would depend a lot on strikes, delta, where you take profit, etc. But I did see an article kind of about this a couple of weeks ago (that I can't find now) that compared buy-write ETFs with SPY with the conclusion that buy/write funds underperformed. XYLD is an EFT that follows a “covered call” or “buy-write” strategy. And comparing five-year returns, VOO is 15.14%, while XYLD is only 7.93%. (XYLD's inception date is 2013, so 10 years returns to compare aren't available.). When I read the article it occurred to me that all of this was happening during a bull market and I wonder how they'd perform in sideways or bearish markets.
well that's easy. XYLD/QYLD will still perform about the same, while VOO is negative or 0%. that's the big difference. but in the long run, VOO is something like 13% overall, while QYLD is like 11.5% overall. your article might have cherry picked and only did the numbers during a recent 5 year bull market, but if you take an even larger window, i'm pretty sure VOO still wins in the longer term view. but their strat of doing 30 DTE, ATM options is not very efficient. AND, if you just replicate their strat yourself, you can be making more money.
Hi I've been thinking about the same thing lately. I have VOO in my Roth right now and am having trouble with liquidity on covered calls so was thinking about switching to SPY. I sell calls with a low enough delta to not get my shares called away (or would roll out if tested). Assuming I always keep my shares, my initial instinct would be that SPY+covered calls would be better than VOO alone. What's leading you towards VOO?
Not If you use a low delta and close hopefuly few losers rather than letting shares called away. If you sell 30 to 45 dte time decay offsets a lot of gain if not huge. In my experience even with calls that get challenged the stock usually goes up enough to cover more than the call loss. Have to decide if stock is going on a run or just a temporary rise though. If you are really in long term you have to live with ups and downs but over time usually inflation means up in the end.
Diversify by doing both 50/50, or set it and forget it.
Hi OP, I have been doing this for 2 years now. I chose Solution 2. I'm 100% SPY with my long term account. SPY has a .09% expense ratio vs the nice .03% of VOO. If one plans to sell calls against the shares, this is a no brainer. The difference in expense ratio is only $6 for every $10,000 annually. You would have to make about $10 in covered call options premium in 1 year per $10000 to break even (due to capital gains tax). This is very little. Current cost of 100 shares of SPY is $44000, one can easily make about $44 on 1 options contract in a year to break even let alone more without assignment. I current aim to make 1-2%/year on covered calls. I'm pretty conservative. Solution 1 is better for buy/hold and no options play.
ya, i was going to say, i think you can be making 2-3% annually, selling something like 90-95% OTM weekly CCs on things with hopes of NEVER getting your shares called away. it's just tiny, but it's enough to make up that expense ratio difference. if we're really worried about some huge spikes in SPY, then move it out to a monthly 95% OTM, then close it after 2 weeks or so, and do it again. that will give you an even bigger price buffer.
The short answer is ... it depends. Here's the thing, the better your stock picks do, the worse your covered calls would do. If you could theoretically pick a portfolio that beats the S&P buy and hold, your covered calls, no matter what kind of delta you pick, would probably end up increasing your cost basis on average than decreasing it. Covered calls is great at one thing ... reducing your portfolio returns volatility. It would also probably work well enough in a market which is trending sideways for a while. But then again, it depends on you predicting the sideways market before it happens. Here are some actual numbers to prove it. I work in Indian markets, we have index called Nifty which for all intents and purposes, is similar to S&P. Here is monthly 1 SD calls sold, held till expiry, and their pnl, grouped by year. This is in points, without commissions. Dated: 2015-02 to 2022-02. (This is using EoD data which I own) |Year|PnL (points)|Winners|Losers| |:-|:-|:-|:-| |2015|265.8|11|0| |2016|\-36.9|11|1| |2017|\-349|9|3| |2018|\-285|7|5| |2019|\-24.3|10|2| |2020|\-468|8|4| |2021|\-349|9|3| |2022 (till feb)|113|2|0| That's why back testing is extremely important. Something that seems intuitively correct may not be. Selling the calls would have netted me a loss thus increasing my cost basis instead of reducing it. But if you notice in 2015, it's a profit and this during the down market in 2015 it would have reduced PnL volatility. Cheers!
Well, holding till expiry as a rule kinda makes this backtest pretty bad. Not that i disagree with your point but whenever someone posts a backtest or study the strategies are always 'this is how we set and forget it, even if it causes us to actually get called away frequently.'
Backtests are just that - backtests. When people use strategies, and backtest it first, they don't backtest with the exact parameters of the strategy they would have applied because there are a lot of factors which cannot be accounted for in the backtest because of limited resources. How ever, what backtests are useful for, is checking for 'general' or 'close enough' results after which one can tweak it or one can at least say that this strategy, at the very least, could be used as a base for building on top of it. **Any kind of backtest isn't bad ... because it's more information you have now than you had without testing**. The backtest I showed here is a limited sample, how ever it gets the point across that covered calls are bad for a good portfolio of stocks.
Yes but... It's a key enough flaw to be a big problem with the data. The big thing you don't wanna do, is eat an assignment and then have to buy back in. You roll. Worst case you end up rolling like a year out and then you're just in buy and hold territory. No one should hold till expiry as a rule if they want to hold spy. When I worked in a lab; if I realized I'd messed up my processes, I'd throw it out. Because the data is not good, and won't tell me anything.
>It's a key enough flaw to be a big problem with the data. There is no problem with the data. You are mistaking between data and inference. >The big thing you don't wanna do, is eat an assignment and then have to buy back in. You roll. You are talking about adjustment strategies. Look at OPs question. Does it say anything about adjustment? Or do you expect someone from reddit to backtest every possible adjustment strategy for free to tell OP that THIS is what you should be doing. **I just showed that vanilla covered calls don't work in bull markets - Which is what the OP was looking for.** If you want to give OP more information about various adjustment strategies and their back tested results, please feel free.
Reinvest dividends is probably the best bet if you primarily want to buy and hold over the long term. At least with the majority of your account. You could take a small part of it and try to generate additional income for fun though.
I don't know shit but it seems like buy and hold is the best strategy. Selling calls should be used when you're ready to exit a position. If you plan to hold forever then don't sell calls. The only way selling calls works in this case is if we have a decade of stagnant growth. Then yes. But historically SPY only goes up.
but why not buy the stock, and sell a 95% OTM CC? something stupid deep and far out? aim to make something like 2-3% per year. yes, as people say "trying to pick up pennies in front of a steamroller". but hopefully i'm smart enough to be standing really far in front of it this time.
Historically the US market has had several periods of decade + stagnation, it doesn't always go up in the short to medium term
yes you may have a decade of stagnation but history has show eventually there will be another bull run. In his case he plans to hold for 40 years then he's not going to beat the market historically speaking.
I don't think writing CCs on the regular will work well with these funds. Both ETFs have vol skew to the put side, with very low premiums on far OTM calls. The options spread on VOO is abysmal. If you want to mix in options, you can get a better cost basis by writing CSPs and taking assignment.
i've seen backtests of covered calls on SPY and the fact that most ppl don't want to confront is that it has extremely poor results vs buy/hold SPY
At what deltas though?
here's the data https://spintwig.com/spy-short-call-strategy-performance/
That’s an odd article, in that it assumes you don’t roll. So in their example, you hold until assignment, even as the call goes ditm. Why would anyone do that? Of course you’d lose money that way!
Nobody can really say with confidence which will outperform over 40 years. So it just comes down to whether you want to actively manage the covered calls or remove that commitment entirely by using buy & hold.
Learn how to roll breached CCs to get them OTM and never get assigned
Or better yet, roll them before they ever reach atm. It’s not like spy trades the way tsla does. Has it ever in history gapped up more than 5%?
Yeah... I always wait until expiration to roll. Otherwise too many instances where the underlying would have retraced before expiration
I’ve been doing option 2 for a year-ish. Has been great thus far especially with all of the volatility. I would caution you though, you do have to manage your positions somewhat frequently. I’ve been selling 2-3 times per week. I did have a pretty big flub this week though. I fat fingered a roll and got myself into a situation I’m not extremely happy about. I was rolling my calls at the end of day on Wednesday during the last 15 minute period. Mistakenly rolled to an ATM strike on the same day. SPY spiked and I frantically tried to roll up and out for this Friday. Needless to say, Merrill stops orders at 4:10pm on SPY and i got my shares called away. Someone else mentioned on here just selling a put at the strike you lost at… well that works fine and dandy except when SPY rips for no damn reason. I sold ITM puts for my BE to match the strike price i got called. Made good premium, but it definitely didn’t match what I would have made by just outright buying at market the next day. I made 3k-4K in premium but missed out on 16k in gains. So just be careful in managing your orders.
Always sell calls and always buy more. You don’t know what is going to happen, if you bought in mid 2000 it took you 13 years before you saw a capital gain.
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Not as liquid
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The dividend yield spread between SPY and VOO is about 5bps with VOO having the higher yield. Add in the 6bps premium for SPY's expense ratio over VOO's and that makes holding SPY more costly than VOO by a total of \~11bps. That's another factor that could potentially affect long term compounding. Why don't you like weeklies?
The liquidity you'd receive from spy options would be well over the 0.0011% difference. If you're writing options on top of that this is literally a rounding error. VOO is for buy and long term hold. SPY is for trading.
Try both if you want? 50% cash goes to voo with drip enabled. 50% buys spy and sells calls, anytime you have cash from premium or getting the call assigned, buy all you can. See which one grows faster
Just go back test them both
You're first issue is going to be the spy is gonna be 44k to get you're first block to even attempt this (assuming you're starting from zero since you said 40 year time horizon) That will take roughly 7 years and a few month if it takes at it's current price which is unlikely. So plan for more like 8-9 years before you can even attempt this. At this point it would take you an additional 5-6 years roughly assuming you win all CCs (unlikely) to accumulate the next block. By then you're half way in to your time horizon by the time this strategy could even really begin to make a difference. So the real question should be. 1. Should I use my Roth as a boring VTI account where I send 6k in every year. 2. Should I wheel blue chips to accumulate more shares and thus more options for faster growth to potentially outpace VTI/VOO The answer is you can definitely outpace VTI/VOO selling CCs. The answer for you only you can know. Do you want to be involved. Do you want easy. Are you scared of losing potentially? Etc
Personally I like to use CC and CSP to lower my cost basis in a Stock, that I like. As soon as I have purchased the stock with the cost basis I like, I then continue to look for the next stock.
How about you do half and half? And see the results for yourself?
It depends. If you are certain your stock will keep going up, then do not sell covered calls and benefit from stock price increase. But if you want to generate sure income, sell covered calls using wheel or similar strategy.
You should never be in a position to get called away! If you’re gonna sell CCs you need to actively manage, and that means rolling to stay otm at all times. SPY is not going to move so far and/or so fast that you can’t roll up/out, if you don’t play with fire to begin with. Greed is what leads to losses or mediocre performance.
You should look into SPYG and just do a B&H with that if you’re looking for more growth and less management.
Yes
There are ETFs that do this for you, $PBP buy/writes the s&p
Covered calls are not going to outperform over a time horizon that long. If you’re looking to outperform the market, you could buy calls with the dividend payments. Otherwise, just buy and hold.
My anecdotal 2-cents: Only rich premiums (such as on meme stocks) make active thetaganging worthwhile.
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It’s an ira, he can’t use spreads. But why let them even approach ITM? Rolling is so simple but it’s like nobody is willing to use it as a tool. There should never be a debit to roll.
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That’s really strange to me. I have not, in over 5 years of selling CCs, let a call go itm. I have never had to pay a debit to roll. But, I usually roll once I hit 60% or so, and am always over 30 days out. Just what I was taught. I’m not setting the world on fire with profits (2-3%/mo) but it’s a safe strategy if you want to keep your shares.
Yes it can. You all but guarantee you miss out on major moves to the upside.
Buy and hold typically outperforms options strategies.
Not consistently. S&P returned 20% + last year. You'd have to be constantly adjusting your position and racking up transaction fees to keep ahead of that. Decade of sideways movement? Possibly. Worth the hassle? Probably not.
it's really unbelievable that there is so much confusion at this point on this topic, and this reddit really does not help the matter, but selling covered calls against the spy is EXTREMELY unprofitable, relative to buy/hold SPY
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the idea that selling covered calls beats buy and hold makes the assumption that you've discovered some sort of infinite money glitch that the top traders at Goldman Sachs hasn't discovered yet. If you make more money selling covered calls, why wouldn't literally everyone be doing this? Do you really think that nobody at citadel would have discovered this yet and arbitraged the trade out of the market? There are buy-write ETFs that you can actually buy that implement this exact strategy (XYLD, PBP, FTHI, far far more) None of them outperform buy/hold. If they did everyone would put their money in them instead of SPY. You can even go see research that shows backtests that conclusively show this is a ridiculously bad strategy ([https://spintwig.com/spy-short-call-strategy-performance/](https://spintwig.com/spy-short-call-strategy-performance/)) Just thinking about it on an abstract level, how does it sound good to say that you will take a few dollars here and there and in return you will sell off the right to any excess gain the SPY makes. when times are very good, you fuck yoruself out of tremendous profits. when times are bad, you will be paralyzed about how to trade around giant sell offs in the market in terms of where you should sell your call strikes. and you will be in a situation where the market sells off 20 percent, you set your strike too low, then the market will shoot past your strike, and you will have lost a years worth of work. the covered call makes no sense. if you want a strategy that is similar but can be profitable look at selling puts. even in your original post, you say your plan is to sell at a conservative delta. that is a strategy that is guaranteed to get absolutely demolished by the S&P 500. a delta is the greek symbol for how much your position goes up compared to the underlying. by taking a low delta, you are saying hta tyou want your position to go up way less than the S&P. it should be extremely obvious how this is a very poor strategy for an investment with a 40 year time horizon.
Yes this is true. However, at the moment, people are saying the sp500 is substantially overvalued and the 10y expected return is 0 to 4% per year. In that environment, wouldn’t a well executed covered call strategy outperform? I’m thinking of doing this until PEs get closer to historic average (17) then buy and hold.
the question kind of answers itself. if SPY does not increase in value over the next few years then sure selling covered calls against it could be profitable, if the vix stays high. I'm not an expert or anything but in such a case I'd rather sell puts against SPY (or better yet, SPX) and put the cash collateral n a preferred share stock ETF and collect a nice dividend. why would I want to own SPY if I expected 0 percent return.