Does anyone have experience doing this in their PA?
Yes. and admittedly, I learned about it in the CFA program. So if I got anything out of it - was how to write covered calls. (and it’s helped me understand things SO MUCH BETTER)
Care to explain further? As a summer project, I’m looking at doing this in my personal PA.
in a PA, due to commissions, go LT (6-9 months) and go way OTM. free money.
I have been doing it for a while now. First thing to remember is that the strike price you write MUST be a price that you are comfortable to sell the stock if/when your stocks get call away. Depend on the purchase price of your stock, sometimes, if I bought the stock at $20, then the stock price rose to $25 (let’s assume that is the price I want to sell the stock), I would just write a near-term, this month $25 call, premium is very high. You can even write in-the-money call, at that point, premium moves alomst in lock steps with stock price, dollar for dollar. Plus, writing cover call is a good way to reduce your cost basis if you are experiencing paper loss.
ws is right - you have to be comfortable selling the stock at that price. that is key to selling covered calls.
Sure all the time. I like writing ITM ones when the stock has had a big run up too.
It’s awesome and has no tax consequences. Seriously though, it’s not that hard, but wait till you do it on a stock which moves 20-40% on you but your 7% OTM calls cut your b@lls off.
Option premiums are pretty inflated right now thanks to the heightened volatility in the market, although the VIX is down 15% today. It looks like we might be trading sideways for a little while. It still could be a good opportunity to write those CCs.
How exactly does one go about writing CC’s, you just need a trading software/platform and that’s it? And you just set your premium basically at what the market premium is for a desired strike price? And you guys usually do it for 100% of the shares you own?
Depends on how much booze money I need for the quarter… any discount broker allows you to write CCs. You have to sign an options agreement, for Level I access, which allows you to sell covered calls only. I’ve sold CCs on 100% of my after-tax holdings before. You can set limit order for the We have a client that owns ~40,000 shares of XOM and we write CCs on the entire position, normally 20% OTM 4-6 months out. The stock was inherited so if the position were to be called the tax impact would be minimal. Right now we could get around $60,000 if we sold 400 Jan 70s. If we did that twice per year and did not get exercised our client would receive around 7.6% yield in CC premiums and dividends. Not too bad. The only difference between ordinary stock and CCs is that your profit is capped at the strike price plus the premium received. You’re loss (opportunity cost) is just the price appreciation beyond that point. CCs are a great way to get your feet wet in the options world without doing any damage.
Options are so simple but so complex. I love them. I fully grasp the concept but using more complex strategies (butterflies, condors, straddles) scared the shit out of me. Oh to be young.
Not sure what Level you’re sitting for, but the Don Chance CFA book on derivitives is really good explaining the option strategies. Where I think the book lacks (and granted it was written for the international student) is execution of the strategy. The first time I inquired about writing calls, I had not a foggy clue in the world that calls were “sold” in 100 share lots. Everything in my CFA book made me believe (granted, I’m an idiot) I could buy it in single share increments.
Thanks Chuckrox8 and CPierece. I’m sitting for level II and actually have my options license. I know all about different strategies and their payoffs. I just have absolutely no experience yet.
Look at Think or Swim Reggie. They are probably the best broker for options. You can create a paper account through their website and download their trading platform app. They let you trade options through the paper trading in real time; I don’t know if anyone else allows you to do that. Good experience.
Awesome, thanks again.
Very informative thread…
Viceroy Wrote: ------------------------------------------------------- > Very informative thread… Hey Viceroy, I’m going to a club in the Viceroy tonight, Club 50. Thought you should know.
Ah, yes, one more thing I didn’t learn in the CFA program, but rather at the school of hard knocks. All US traded options expire on the 3rd Friday of each month.
CPierce Wrote: ------------------------------------------------------- > Ah, yes, one more thing I didn’t learn in the CFA > program, but rather at the school of hard knocks. > > > All US traded options expire on the 3rd Friday of > each month. AKA Witching Day.