Be advised: this thread is not for serious in-depth discussion of weighty topics (we have a link for that), this thread is not for anything Culture War related. This thread is for Fun. You got jokes? Share 'em. You got silly questions? Ask 'em.
- 145
- 1
Jump in the discussion.
No email address required.
Notes -
So, I have this idea, and I'm curious if I'm on the right track.
I've generally avoided stock options, because the only thing I know about them is that's how you lose all your money. They expire worthless all the damned time. However, selling covered calls seems like a good way to be on the right side of that, and the only risk is you miss out on potential gains. You are literally selling contracts to people you are betting will be worthless by expiration, and pocketing the cash, and even when you are wrong, you still get the full value of the stocks you sold them at the price you agreed on in the contract.
I'm sitting on a shit ton of COIN, and I'm planning on selling half when it doubles. This actually coincides wonderfully with the size of an option contract (100 shares). So I'm thinking, every week I sell an option contract at my price target, pocket some extra cash I wouldn't have otherwise, and it eventually sells at that price just like I had pre-committed to do anyways.
It's win/win/win right?
Selling covered calls is a great way to reduce your position size in a stock you also don’t mind holding for at least the time it takes for the option to expire. So, sounds perfect for your plan to scale down. Just remember if your strike price is high enough to present little risk of having your shares called away, your counterparty is wise to this and will bid accordingly. You’re only compensated for the risk you accept.
Two possibilities you may be discounting:
You sell a call, make your $500 or whatever, and COIN tanks sharply. Sure the option expires worthless and you keep your $500, but you may lose multiples of this in forfeited capital gains by not just exiting, and who knows when it could recover. Also your target price is now even further out of the money and will sell for that much less going forward.
The opposite happens, you lose your shares at your target price, and sure you’re fine with the possibility now, but it’s a different story when you watch your underlying double, triple within a year or two and you gave it all up for a few hundred bucks in premium.
These things will happen to you if you use this strategy enough. If you’re okay with all that I say go for it.
RE 1. I am not an extremely sophisticated investor. I generally buy and hold for 5+ years. Unless I have something I'd rather invest in, or the gains just get too rich (10x or so), I let things ride. I also tend to do this with my losses, since I know I'm not fast enough, or have enough inside information, to dip before things go south. So once I'm at the bottom, I figure I might as well ride it out, or save the losses for tax season to offset gains. Maybe this means I shouldn't have a self directed brokerage account at all, and if I ever dip below my 10% APY threshold I may consider that, but so far so good.
RE 2. You may be right about this one. I sold the first covered call, and my heart dipped when COIN went up enormously Friday evening and Monday morning. Turns out I might not have been as emotionally prepared to part with COIN @ 340 if it happened this early after all. Of course the price came back down, the call I sold is rapidly approaching worthlessness, down 85% from when I sold it, and it looks like I will escape the week a few hundred richer and with all my holdings in tact.
My whole reasoning behind attempting this is to keep it up with some regularity week to week, getting $100-200 here or there with some consistency. Sell calls that are at or above my strike price and only 4-5 days out, and just settle for whatever I can get for them. Paying for private school has been expensive and my monthly contributions to my brokerage account have dwindled precipitously. Selling covered calls seemed like a not terrible way to effectively goose my "contributions". But I may not have the emotional fortitude or sophistication for it after all.
We shall see what this Friday brings, and if I feel like repeating my efforts come Monday.
More options
Context Copy link
More options
Context Copy link
More options
Context Copy link