Re: My Covered Call Strategy - Comprehensive Guide / Tutorial For Writing Covered Cal
Will make a post on 27th of this month (start of May 2012 expiry) - that way, we'll have realistic prices of stock options for different strike prices. It would then be easier for me to explain my strategy.
But quickly - when prices go upwards, I'll book my losses when the stock price reaches the strike price. If this happens early in the series, the losses will be fairly large. But then, the option premium of the next available strike price to would have gone up significantly. So we short/write/sell the call for the next available strike price to bring down our losses. We continue writing at higher strike prices if stock keeps going up. If the stock continues to rise all the way till the end of the expiry (very unlikely - because we pick boring dull stocks), we calculate our net losses from writing calls and recover the money from the shares that we own by selling a part of our holdings. Second scenario - If stock price reaches the strike price towards the end of the series, the losses will be small. So we just book the small loss and live to fight another day. It is not recommended to write a higher strike call at the end of the series because premium income will be low - not worth the trouble. Anyway, if your covered call portfolio size is large, you can write calls against multiple stocks (diversification). So losses in one stock will be more than made up by gains in others.
I will explain the above part in more detail later - because lots of tweaks can be done to enhance returns or reduce option losses as stock prices move up and down within a month.
Smart cat
Thanks lot for such valuable thread , want to know the procedure when price goes upwards , how to save myself in that situation, what is the correct strike price to be shorted etc. , waiting for your next move.
Thanks lot for such valuable thread , want to know the procedure when price goes upwards , how to save myself in that situation, what is the correct strike price to be shorted etc. , waiting for your next move.
But quickly - when prices go upwards, I'll book my losses when the stock price reaches the strike price. If this happens early in the series, the losses will be fairly large. But then, the option premium of the next available strike price to would have gone up significantly. So we short/write/sell the call for the next available strike price to bring down our losses. We continue writing at higher strike prices if stock keeps going up. If the stock continues to rise all the way till the end of the expiry (very unlikely - because we pick boring dull stocks), we calculate our net losses from writing calls and recover the money from the shares that we own by selling a part of our holdings. Second scenario - If stock price reaches the strike price towards the end of the series, the losses will be small. So we just book the small loss and live to fight another day. It is not recommended to write a higher strike call at the end of the series because premium income will be low - not worth the trouble. Anyway, if your covered call portfolio size is large, you can write calls against multiple stocks (diversification). So losses in one stock will be more than made up by gains in others.
I will explain the above part in more detail later - because lots of tweaks can be done to enhance returns or reduce option losses as stock prices move up and down within a month.
Last edited: