Selling Covered Calls comments

 

4 Jun

going to take the other side to a couple of comments about covered calls as seen in this clip on Options Action

Options Action Clip

The portion referencing to avoid selling covered calls around catalysts.. because stocks can move alot from earnings. thats not untrue. but if you follow TSLA weve seen 10% daily moves unrelated to earnings. 

using the 20delta for your short call is not bad level.. a 16 delta is about a 1 standard deviation move. but why should that metric be any different during an earnings catalyst. the options market is pricing in a 20 delta move there as well and the premium is likely considerably juicer than a normal opex period. I look forward to those catalyst weeks. Flip side your thesis might be bearish but dont want to sell your stock so that juicier premium might be your downside hedge, especially if you sell closer to the money. all depends on your thesis going forward. 

Back to TSLA, ive been following several long time bulls and naturally during the volatile movements the consideration of just "selling everything" comes up. ok, no problem, but think thru any tax implications first and an alternative strategy might be to sell at the money calls instead of sell the stock. TSLA again for instance.. the Jun at the money 700 call could sell for $43ish ($4300) per 100 shares...for 2 weeks. never know what will happen. stock might be flat, might go down so you pick up $43 of downside hedge, might go up so you essentially sell at 743 vs "selling everything" at 700. Is that worth 2 weeks? maybe maybe not.

Point being, i'd continue the covered call selling thru catalysts, adjust your delta if worried. sell a 10delta instead. you will kick yourself if the stock actually goes down and you didnt capture some easy premium