| jimmycooper |
12-18-2011 11:56 PM |
Quote:
Originally Posted by woj
(Post 18638358)
I meant what's the strategy exactly, if it's not really a huge secret?
you write slightly out of the money calls expiring in a few weeks?
so for example which call would you write now for AAPL? something like 400 Dec 11 calls?
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Every month on the Monday after expiry I wake up about an hour before the market opens to refresh myself on Fridays trading activity and watch the underlying during pre-market on Level II so as to get a better sense of what the opening bids/ask will be for the calls. Depending on what I have going on that day, I determine how agressive I want to be and then put in the sell orders. If they don't hit within the first hour or if it immediately appears as if I'm asking too much, I'll pay extremely close attention to the bids/asks on Level II and lower the asking prices accordingly.
For the AAPL example, let's use JAN contracts b/c DEC options expire this Thursday which makes the premiums much different than what they were immediately following NOV expiry. I have 6 deep-in-the-money AAPL LEAPS so can write 6 contracts every month and I usually write them for 2 different strike prices. If I were to write them tomorrow morning, I'd probably put in one aggressive sell order for 3 contracts and one not so aggressive sell order for the other 3 contracts at 385 or 390. Or even try to sell all 6 on the same trade. Depends on how the morning goes. So selling 6 calls if using the average of Friday's last trades (12.51 for the 385 and 10.30 for the 390) nets about $660.
I guess the keys are to own stocks/etfs with a high trading volume (both for options and the underlying) and to do it with the mindset of an investor but to still be familiar with the tactics of a trader. Pick stocks that you would want to have for the long term anyway. Having access to and understanding Level II quotes is really helpful for getting the most for each contract.
Quote:
Originally Posted by ilnjscb
(Post 18638927)
Lots of people have been burned on covered calls. If underlying takes a dive you are still in the shitter and much less liquid, yes you get what you wrote, but that often times doesn't make up for the loss. Better is delta neutral.
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If you pick stocks that you would own anyway, the day to day fluctuations are irrelevant so long as they are not the result of some catalyst that alters your long term view. If that happens, you can buy back the calls for a fraction of what you sold them for and then dump the stocks. The only instance in which that can really hurt you is when the stock is falling so fast that the extra step of buying back the options costs you 30 minutes to an hour tops when the stock is plummeting. Generally speaking, stocks with such fluctuations are more trader oriented, so you won't have that problem with an investor type approach. |
