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Eh there’s an obvious trade off to selling

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stocktrademan   Thursday, 07/19/18 12:07:33 AM
Re: mechee post# 112
Post # of 129 
Quote:
Eh there’s an obvious trade off to selling covered calls and that is the limited upside- so a high buyout price is absolutely relevant. If you’re going for the safe route and “a profit is a profit” then yeah selling calls isn’t a bad idea, especially for NIHD where the IV and premium is so high on options



Well if the stock takes off you could always roll the call forward in price and out in time and do so at no cost or with a net credit to take in more funds and not miss out on the price action.

There's different ways to do covered calls, sometimes I like to go out to 1 standard deviation forward and about 45 days or so, or sell a 30 delta call 45 days out if the stock is actively trending with a move to capture that can be more than the extrinsic value.

The danger is when people think they're too clever for their own good and load up on near term options or spreads and the stock zags when they expected it to zig and get clobbered. At least you can sell another call if you bought the stock that is still worth nearly all its value in the near term. But if you went full near term options, tough luck...

So I don't like to get fancy with these things, it's deceptive how easy it is to get in trouble if you go off script and not just buy a covered call with the stock. Covereds cost a lot and that's a good thing to keep from getting over-leveraged and wipe out if the zag instead of the zig arrives this round. And if you're doing it right with covereds, that doesn't matter zig or zag it's just another round in the process, not the somewhat likely chance at terminal failure otherwise.

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