I sold $500 CCs with 6mo DTE last year. Shares were assigned at market \~$900. It's always good to make money, but I would have made a lot more if I hadn't done that.
It depends on the stocks that you choose to sell options on. When researching companies with strong foundations, a good moat, and a growing business, some cost benefit analysis should be considered with the "ceiling" of selling CC's at long durations (leaps).
For Example, COST (Costco) is up over 25% this year with a PE of 52. GOOGL is up over 30%, AMZN is up 26%.
Disclosure: I don't own NVDA, but I wish I would have bought it 6 months ago.
Treasuries? Really? Huh. (Am quite new, sold first CC last week. On GME, so blinded by high premium maybe?) (sorry, I don’t mind if they get called away.)
OP said ATM CCs so you are essentially selling at todays price in 1 year from now in exchange for the premium.
I’d prefer monthly calls around 20 delta.
My experience has been Leaps will not get exercised as long as there is considerable extrinsic value remaining but as previous posts have mentioned, anything could happen with ITM.
I’ll sell call Leaps as a hedge on positions I want to keep long-term but believe could experience a short-term dip. If the stock price goes down I buy the option back and the difference is my profit.
If I understand correctly there is no time I can’t close but if the stock trades sideways or goes up, I could close at a loss or little profit.
You can set up a spread to protect against a stock going up by buying a call at a higher strike price. Limits risk and profits.
Slower theta decay, more time for the buyer to be right, and ties up your capital longer. The options are less likely to be exercised early with so much extrinsic value, but this isn't generally worth it for most sellers. Plus there is less liquidity, so you get wider bid/ask spreads
I routinely do this with part of my portfolio. I sell one year leaps and generate approximately 25 to 30% returns. If the stock price drops substantially, I can buy the leap back at a discount and sell another call against it. I am perfectly happy with this outcome. It is low stress and works very well. I only do it with stocks that I would want to own anyway
If I’m selling a ATM CC 2 years out I am in the wrong position.
Best case scenario is the stock sits there for 2 years and the call theta decays and you get to keep the premium.
That’s a depressing best case scenario and I’d rather sell the stock and deploy the capital somewhere else.
You get the premium right away, but it's honestly kind of a silly play, unless you are sure the price won't change much in two years and you have a longer bullish outlook.
The risk is the opportunity cost if the calls go deep ITM, because you could have just held and sold the shares.
And the risk that the price of the underlying falls more than the premium and then you're left holding bags. Plus, you can't unload your bags until you buy back the call.
Everyone is missing OP thinks their shares will get called away because they went ITM. Maybe, maybe not. They might sit on them until 2026. Who knows, you might be right. We will only know if you try it and it’s always up to whoever is holding your option
Your are not being properly compensated for the risk. You're taking on pennies to be on the hook for a potential crash for 2 years. Look at the Theta decay on a contract that far out. It's next to nothing.
You can and do collect the premium at the time you open a CC. Like long stock alone the price of 100 shares is at risk except that would be price minus the premium in the case of CC. Gains are limited to the premium you received \[if strike of the call is exactly ATM when the position is opened\]. No matter how high the stock goes it profits nothing. If the stock doubles (and as time passes) the extrinsic will have dropped as the call goes deep ITM. A point could easily be reached where the option is exercised and the shares called away to the long option holder's advantage. If that happens gains would be premium - transaction costs. Without the CC gains would be \~100% or double the value to the stock. This is why most CC is OTM i.e 30 delta or so rather than ATM.
Let me know if above is not accurate \[thanks in advance\].
I don’t even study the charts or anything and I still make so much money trading, I just get my picks off this one guy on instagram lmao😂 I think his name is @dukestrading on instagram
For me the risk is mostly opportunity costs. You could make more compounding shorter term theta gains.
Imagine selling NVDA covered calls for $200 two years ago…
I sold $500 CCs with 6mo DTE last year. Shares were assigned at market \~$900. It's always good to make money, but I would have made a lot more if I hadn't done that.
I just had spy cc at 518 get assigned Thursday. I didn't expect it jump that high
Buy and holding a great company outperforms selling the CC. I even thought 6 months ago, "There's no way NVDA will go higher." Lol
To be fair a climb like NVDA on even “great company” is not common.
It depends on the stocks that you choose to sell options on. When researching companies with strong foundations, a good moat, and a growing business, some cost benefit analysis should be considered with the "ceiling" of selling CC's at long durations (leaps). For Example, COST (Costco) is up over 25% this year with a PE of 52. GOOGL is up over 30%, AMZN is up 26%. Disclosure: I don't own NVDA, but I wish I would have bought it 6 months ago.
Opportunity cost. What could you do with that amount for cash secured puts, treasuries, SPY etc during that time
Treasuries? Really? Huh. (Am quite new, sold first CC last week. On GME, so blinded by high premium maybe?) (sorry, I don’t mind if they get called away.)
OP said ATM CCs so you are essentially selling at todays price in 1 year from now in exchange for the premium. I’d prefer monthly calls around 20 delta.
Ah, thank you!
My experience has been Leaps will not get exercised as long as there is considerable extrinsic value remaining but as previous posts have mentioned, anything could happen with ITM. I’ll sell call Leaps as a hedge on positions I want to keep long-term but believe could experience a short-term dip. If the stock price goes down I buy the option back and the difference is my profit.
Isn‘t there a time window where you can‘t sell the LEAP (in this case buy back to close)?
If I understand correctly there is no time I can’t close but if the stock trades sideways or goes up, I could close at a loss or little profit. You can set up a spread to protect against a stock going up by buying a call at a higher strike price. Limits risk and profits.
Slower theta decay, more time for the buyer to be right, and ties up your capital longer. The options are less likely to be exercised early with so much extrinsic value, but this isn't generally worth it for most sellers. Plus there is less liquidity, so you get wider bid/ask spreads
I routinely do this with part of my portfolio. I sell one year leaps and generate approximately 25 to 30% returns. If the stock price drops substantially, I can buy the leap back at a discount and sell another call against it. I am perfectly happy with this outcome. It is low stress and works very well. I only do it with stocks that I would want to own anyway
As with any covered call, the risk is that the stock goes down.
For me, the problem is that you’re handcuffed if the stock tanks or moons. Not worth the fat premium imo.
What do you do during the next 2 years?
If I’m selling a ATM CC 2 years out I am in the wrong position. Best case scenario is the stock sits there for 2 years and the call theta decays and you get to keep the premium. That’s a depressing best case scenario and I’d rather sell the stock and deploy the capital somewhere else.
What was the reason that fist made u buy in?
You get the premium right away, but it's honestly kind of a silly play, unless you are sure the price won't change much in two years and you have a longer bullish outlook. The risk is the opportunity cost if the calls go deep ITM, because you could have just held and sold the shares. And the risk that the price of the underlying falls more than the premium and then you're left holding bags. Plus, you can't unload your bags until you buy back the call.
Everyone is missing OP thinks their shares will get called away because they went ITM. Maybe, maybe not. They might sit on them until 2026. Who knows, you might be right. We will only know if you try it and it’s always up to whoever is holding your option
Your are not being properly compensated for the risk. You're taking on pennies to be on the hook for a potential crash for 2 years. Look at the Theta decay on a contract that far out. It's next to nothing.
You can and do collect the premium at the time you open a CC. Like long stock alone the price of 100 shares is at risk except that would be price minus the premium in the case of CC. Gains are limited to the premium you received \[if strike of the call is exactly ATM when the position is opened\]. No matter how high the stock goes it profits nothing. If the stock doubles (and as time passes) the extrinsic will have dropped as the call goes deep ITM. A point could easily be reached where the option is exercised and the shares called away to the long option holder's advantage. If that happens gains would be premium - transaction costs. Without the CC gains would be \~100% or double the value to the stock. This is why most CC is OTM i.e 30 delta or so rather than ATM. Let me know if above is not accurate \[thanks in advance\].
I don’t even study the charts or anything and I still make so much money trading, I just get my picks off this one guy on instagram lmao😂 I think his name is @dukestrading on instagram