The Secret to Selling Covered Call Options on Your Stock

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I’m going to demonstrate a few things to you from the paper platform just to give you an idea of how we may go about slightly hedging or safeguarding our position. So, what I’m going to demonstrate here is that I hold two positions in stock shares: 300 shares of Spy and 100 shares of QQQ. As you can see, my Q’s have a delta of 85. Okay, you can clearly see that. As a result of the spy’s beta weighting, if I uncheck this boom, we have 100 delta and 300 delta. Let’s imagine the market is peaking and you can already see that prices are rising. In that case, the spy is slightly higher than the market’s upper end. In terms of risk, I’d say they’re equivalent. So, when considering these, we should start considering how to hedge.

The problem is that it simply requires a little bit more capital and money, so if we invest and purchase a put on the qqqs at, say, a 25-day expiration, we will reach 360. I’ll really be profitable at 79 when this loads up, so when we study this transaction, you’ll notice that my loss is no longer a loss. I’ll purchase a single here and wait for the price to sort of increase; I think there is just a slight pause. This is problematic because I paid $621 for it, which is virtually my current profit.

This is one method, then. The issue with this is that it will seem as though you are just buying a call; hence, my delta has dropped to 60. I’m going from having a 100 delta to having a 60 delta as a result.

Since many individuals make selling calls on their stocks, why don’t I go to roughly a 14-day range and start selling calls? But if this goes beyond that, I’ll lose that stock. In this scenario, I could go to roughly a 30 delta and sell a single call. Depending on how far it goes, I might lose the stock if it rises beyond the strike price of 374 at expiration or perhaps a bit sooner. So, that’s one method, but I also have the option of bringing it in closer.

If I wanted to lessen my exposure to the delta even further, I could sell closer to a stronger delta, like a 370. I currently have $435 in premium after collecting an extra premium, bringing my delta to 60. You could actually go on forever since I have 365 current stocks. To further insure or protect myself, I might sell one of the in-the-money contracts at about 60 delta. Consequently, the current scenario is as follows: Even these in-the-money options have a premium built in for the difference, so even if you were being overly cautious, you wouldn’t immediately lose your shares.

If the stock price stays the same, I will forfeit the shares but gain this premium, which is $861. If it remains unaltered for a week or two, I will consequently lose the stock. I still make about $800 a month, though. If the stock price rises, I will continue to receive the premium, but I won’t continue to profit from the shares. leaving you with a delta of just 37. How far can you delve? If you’re already successful, you can go wherever you want. You can now delve a lot further. My delta is falling to 29, thus the reduction is actually fairly significant.

Example

I’ll give you the second example to show you how I’ll immediately defend this one. I’ll begin distributing my risk across my other positions, which are dispersed over this region. As a result, you get 100 shares of stock. If I look at it straight on, buying 100 shares will make me around $150, but if the price drops, I’ll definitely lose more. A delta of 222 would be produced by these three combined. When I add these singles, my stock’s delta drops from 300 to a more manageable 223 delta. Consequently, therefore, there is just one strategy. To devote my entire concentration, though, costs me $465.

Now that I have another at a different strike, I feel a little bit better. My delta stands at 240. So why do I wait 14 days before performing again? Why don’t I make the time period 20 days long, protect once more, and then perform those actions while slightly lowering my delta? In the hopes that it will help me maintain the stock, I’ll think about this one a little bit more. My delta was decreased. I’ve got 300 shares and 220 deltas, I will have a 300 delta if I delete it, which equals 300 shares. It follows that I will only lose $220 if it falls and increases the same price.

We currently have a number of contracts. For the 300 shares we now own, three contracts have been completed. Can I sell more right away? Yes, without a doubt. I have a delta of 220. Why don’t I act swiftly and purchase another one from the 472-store? For another one, I believe I could fetch $472. So now it’s going to round off right here, which means that this delta will keep getting smaller at this point, and you’ll see that my big issue will be when I hit around 477 because that’s when that delta starts turning negative, which means I want the stock price to decline. However, I have a good amount of range on that curve until it reaches that point, so I could go ahead and sell another one. 22 days, to be precise.

Since my delta is almost at 191, I received a 202 without it. If I could ask for it to be dropped to 180 once more. So, my main objective is to reduce that delta. How far will you go with it? You could go as far as you like with it. You can even alter your standing. But before I explain about inversion, I’ll warn you that you could feel a little off-balance. I want the stock to gain if the current trend of it moving in the way I want it to continue. Simply attempting to slow things down, I’m applying the brakes. I have contracts for years 2-6 and my delta has fallen to around 181. I’m currently getting a premium of $872, and my theta has grown into a gorgeous, substantial entity. Even though I possess more shares than contracts, the difference isn’t really large. If you were completing, say, 10 contracts but only obtaining 300 shares, I would assume that you might be earning more shares. But it’s probably not so bad to execute an extra one or two contracts against a few hundred shares. If you are selling two out of your 100 shares, the risk is slightly greater. It’s probably not a smart idea to do six if you have 100, say, 500 shares.

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