Row 53808

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{
  "text": "Dude, covered calls are the easiest thing in the world. No one needs to teach you.\n\n* Buy 100 shares of the stock. Or any increments of 100. Contract is 100 shares. That’s every option of every kind of every company.\n\n* Buy an option. For covered call. Sell To Open. Call.\n\n* number of contracts = shares/100. Or 1 for 100.\n\n* strike price. This is where you get wiggle room. I generally take the stock price at the current level and add 10%. That’s for a month. If you think it’s going to rise more, add more than 10%. If you think it’s going to not quite reached that you can adjust it lower. The point is you don’t want it to be reached in a month. The worst that will happen is the stock goes up to, let’s say, 12%. You get the call exercise, you lose your shares, but you gain the value +10%. That’s the worst that happens. So basically not bad at all. You got 10% + the value of the call.\n\n* expiration date. I go 30 days or close. If you go longer, you’re gonna wanna adjust your strike price. You could put in a year or even two years. But if you put in 10% unless it’s a real dog of stock, it’s going to reach that at some point. Also, you don’t get nearly as much money for really long covered calls. You get more, but it’s not linear. And you’re basically tying up those shares for however long the expiration is. You can’t do anything with them so if you’re putting in two years, you can’t touch those shares for two years. But if you want to write a covered call for something like VOO or QQQ, you’re gonna have to put in an extremely long date if you hope to make any money whatsoever.\n\n* price. Depending on how much action there is, I generally take the midpoint between ask and bid. If it’s sitting there for an hour or so, you might have to adjust as the stock runs up or down.\n\nThat’s really it. You don’t lose money on covered calls. They are the safest thing you can do with options as far as I’m concerned. It’s kind of like adding dividends to a stock.\n\nYou’re giving people the right, the *option*, to buy your shares within a given period of time, at a certain price. They’re paying you immediately for that privilege. So, you think the stock is going to go up 10% or less. They’re buying the option thinking it’s going to go up ~15% or more. \n\nYou gotta remember they’re not gonna generally exercise the option at 10% or even 11% because the option itself cost money and they’re going to potentially lose money on the transaction. They still could, but I’ve had options be in the money for 3-4% or more and they weren’t exercised. It wasn’t simply enough money For the person to care. Either that or they were on vacation or something.\n\nCovered calls are great. The deal is, the stock generally has to be very volatile for it to be very valuable to write covered calls. This is people trying to hedge their bets. You don’t need to hedge stocks that don’t move. There’s no fear there. There’s no anticipation there’s no upside. It’s got to be volatile, it’s got to be popular. Having a shit stock that goes up and down 10% a day doesnt matter if it’s a penny stock no one cares about. It won’t even have any options available.\n\nSo if you take this formula and put in Nvidia, you’re going to get certain values. If you put in Amazon, it’s going to be way, way less. Because Amazon simply doesn’t move that much. There’s no great risk. Even if you went to 5% it still probably isn’t going to be anywhere as much money. If you put in Tesla, it’s going to be about on par with Nvidia. As far as I remember. Because it’s quite volatile.\n\nI like to write covered calls when the stock goes up in a day. And yes, this is totally market timing. So if the stock is up one percent, and you think that’s just a regular up and down, not tied to anything, write the covered call now. Because that’s kind of a free one percent, that might get erased tomorrow. BUT it gets priced in because it means someone feels the option is closer to being exercised. Being in the money. When it’s just a normal daily fluctuation. So you’re still saying 10% strike price, but it’s less likely to be exercised because it’s just going to drop back down later in the day. So if it’s down one percent then you don’t write it. Because the options going to be less money for, again, normal fluctuation, not tied to any long-term value.\n\nBut covered calls are very simple. It’s just that there’s not a whole lot of stocks where it’s very profitable. You either need a LOT of shares, or write them for very extended periods of time, or write them with a strike price that’s not very high, 5% or so.\n\nThat is, if you weren’t dealing with the stock like Nvidia. Any of the AI darlings will work at this time. I just looked up SMCI and it’s double the premium of Nvidia for basically the exact same option! 10%, one month, $5900 profit. That shows you how volatile that stock is. \n\nI put in META. 1 month, 10%. $238. Quite the difference. VOO? You’d get $37.50 for the same option. And you utilizing about half as much money as Nvidia or SMCI. So you really need the right stock to do covered calls.",
  "label": "r/investing",
  "dataType": "comment",
  "communityName": "r/investing",
  "datetime": "2024-05-22",
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}

Entry Information

• Entry ID: 53808
• Repository: Axioma AXP
• Dataset: arrmlet/reddit_dataset_36
• Total Entries: 100,000