Comments on: Can I get more out of a deep ITM covered call? http://geographic-independence.com/can-i-get-more-out-of-a-deep-itm-covered-call/ The driver behind our financial goals Mon, 06 Sep 2010 17:54:58 -0500 http://wordpress.org/?v=2.8.3 hourly 1 By: davmp http://geographic-independence.com/can-i-get-more-out-of-a-deep-itm-covered-call/#comment-558 davmp Tue, 11 Aug 2009 07:13:25 +0000 http://geographic-independence.com/?p=627#comment-558 Another data point regarding early assignment: "Fact is, according to the Options Clearing Corporation (OCC) about 17% of options contracts get exercised BEFORE expiration hits." -- from a TradeKing blog by OptionsGuy Another data point regarding early assignment: “Fact is, according to the Options Clearing Corporation (OCC) about 17% of options contracts get exercised BEFORE expiration hits.” — from a TradeKing blog by OptionsGuy

]]> By: davmp http://geographic-independence.com/can-i-get-more-out-of-a-deep-itm-covered-call/#comment-549 davmp Fri, 07 Aug 2009 14:57:38 +0000 http://geographic-independence.com/?p=627#comment-549 Just a quick link to one possible explanation for early option assignment: http://community.tradeking.com/members/optionsguy/blogs/37630-speedy-options-assignment-explained Just a quick link to one possible explanation for early option assignment: http://community.tradeking.com/members/optionsguy/blogs/37630-speedy-options-assignment-explained

]]> By: davmp http://geographic-independence.com/can-i-get-more-out-of-a-deep-itm-covered-call/#comment-544 davmp Fri, 31 Jul 2009 06:02:53 +0000 http://geographic-independence.com/?p=627#comment-544 Hi Rich. You make a good point, but I'm honestly surprised that you get that vibe from what I've written. I re-read what I wrote above, and I wouldn't classify my writings (or my thoughts) as remorse or "I coulda had...". I will readily admit that I *am* trying to figure out how to make the most of the opportunities I have, and writing about what I've "learned" -- which I quote because I'm not sure I've done any such thing yet, though I've definitely come up with some theories and ways to track a couple results using theoretical trades. To be exceedingly explicit, I'm not unhappy at all with my second-ever covered call being a trade that yields a 100%+ annualized gain, which is what I'm looking at if I do nothing and AFL closes above $31 at August expiration. Another reason I'm not feeling the "I coulda had..." regrets is that I am also long AFL in an "investment" account. Hi Rich. You make a good point, but I’m honestly surprised that you get that vibe from what I’ve written. I re-read what I wrote above, and I wouldn’t classify my writings (or my thoughts) as remorse or “I coulda had…”. I will readily admit that I *am* trying to figure out how to make the most of the opportunities I have, and writing about what I’ve “learned” — which I quote because I’m not sure I’ve done any such thing yet, though I’ve definitely come up with some theories and ways to track a couple results using theoretical trades.

To be exceedingly explicit, I’m not unhappy at all with my second-ever covered call being a trade that yields a 100%+ annualized gain, which is what I’m looking at if I do nothing and AFL closes above $31 at August expiration. Another reason I’m not feeling the “I coulda had…” regrets is that I am also long AFL in an “investment” account.

]]> By: Rich http://geographic-independence.com/can-i-get-more-out-of-a-deep-itm-covered-call/#comment-543 Rich Thu, 30 Jul 2009 20:30:10 +0000 http://geographic-independence.com/?p=627#comment-543 It has been my experience that you can't have sellers or buyers remorse when doing covered calls. You need to get the "emotion" out of your trading and have a goal and strategy in mind. The hardest thing for me to teach people is the art of knowing when to quit and being happy with the trade you originally made. Any trade that results in a positive net flow of money is a good thing but when you begin regretting a transaction because of the "I coulda had...." then you immediately begin to doubt yourself and that leads to lack of self discipline. You're trading for a reason right? To buy a house or car or for retirement? Set the goal and build your profits toward that goal and the trading strategy will make a whole lot more sense in my opinion. It has been my experience that you can’t have sellers or buyers remorse when doing covered calls. You need to get the “emotion” out of your trading and have a goal and strategy in mind. The hardest thing for me to teach people is the art of knowing when to quit and being happy with the trade you originally made. Any trade that results in a positive net flow of money is a good thing but when you begin regretting a transaction because of the “I coulda had….” then you immediately begin to doubt yourself and that leads to lack of self discipline.

You’re trading for a reason right? To buy a house or car or for retirement? Set the goal and build your profits toward that goal and the trading strategy will make a whole lot more sense in my opinion.

]]> By: davmp http://geographic-independence.com/can-i-get-more-out-of-a-deep-itm-covered-call/#comment-542 davmp Wed, 29 Jul 2009 18:05:18 +0000 http://geographic-independence.com/?p=627#comment-542 Glad I decided to hold off on rolling to a $36 strike given that AFL is down $1.75, to $34.86, as I write this. Keep in mind that I'm generally looking to be assigned at August expiration so I can find the "best" trade each month. Glad I decided to hold off on rolling to a $36 strike given that AFL is down $1.75, to $34.86, as I write this. Keep in mind that I’m generally looking to be assigned at August expiration so I can find the “best” trade each month.

]]> By: davmp http://geographic-independence.com/can-i-get-more-out-of-a-deep-itm-covered-call/#comment-541 davmp Wed, 29 Jul 2009 16:11:56 +0000 http://geographic-independence.com/?p=627#comment-541 @Brandon: Some clarification might be in order here. When I said there isn't a huge profit to me for looking at Sept expiration, I meant that the absolute dollars returned are almost the same for selling the same strike in Aug and Sept -- at least for the few strikes I looked at. The non-time-based yield is less than 2% different. On my position, that amounts to earning an extra $60-ish for holding the position for an additional 28 days. But perhaps I misunderstood your question. Were you referring to the money that needs to be added to the current position to do the roll, or the money that would be returned on assignment come August expiration? The former is not large enough to establish its own covered call position, either now or after August expiration, and I am considering other uses for it if I don't use it to do this roll trade. The latter would almost definitely be immediately turned around into a new covered call where I'd have the flexibility to look for a better return for the Aug 22-Sep 20 time period. I don't expect it to be too difficult to beat the $60 in profit I'd be locked into now by doing an AFL roll to Sept expiration. @Brandon: Some clarification might be in order here. When I said there isn’t a huge profit to me for looking at Sept expiration, I meant that the absolute dollars returned are almost the same for selling the same strike in Aug and Sept — at least for the few strikes I looked at. The non-time-based yield is less than 2% different. On my position, that amounts to earning an extra $60-ish for holding the position for an additional 28 days.

But perhaps I misunderstood your question. Were you referring to the money that needs to be added to the current position to do the roll, or the money that would be returned on assignment come August expiration? The former is not large enough to establish its own covered call position, either now or after August expiration, and I am considering other uses for it if I don’t use it to do this roll trade. The latter would almost definitely be immediately turned around into a new covered call where I’d have the flexibility to look for a better return for the Aug 22-Sep 20 time period. I don’t expect it to be too difficult to beat the $60 in profit I’d be locked into now by doing an AFL roll to Sept expiration.

]]> By: Brandon http://geographic-independence.com/can-i-get-more-out-of-a-deep-itm-covered-call/#comment-540 Brandon Wed, 29 Jul 2009 13:48:10 +0000 http://geographic-independence.com/?p=627#comment-540 What are you going to do with the money between the August expiration and the September expiration? Rolling forward to a September option reduces the annualized return of the trade, but so does the alternative of getting assigned and holding the funds in cash/money market. Option expirations only come around 12 times per year, so shortening your days held to make the trade look more profitable on an annualized basis is a small delusion, because you won't be able to replicate that trade in the intervening periods. Is rolling to the September option better than holding in money market for 2 weeks and then making another option trade? What are you going to do with the money between the August expiration and the September expiration? Rolling forward to a September option reduces the annualized return of the trade, but so does the alternative of getting assigned and holding the funds in cash/money market. Option expirations only come around 12 times per year, so shortening your days held to make the trade look more profitable on an annualized basis is a small delusion, because you won’t be able to replicate that trade in the intervening periods. Is rolling to the September option better than holding in money market for 2 weeks and then making another option trade?

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