Long time dividend stock investor here who has recently discovered the strategy of selling covered calls. I really love the portfolio I have of stocks such as Abbv, Msft, V, MA, etc. Essentially I want to hold these stocks and reinvest dividends for a long time.
After doing some research, it seems the best way to maintain my shares is through selling out of the money call covered calls. are there any strategies that y’all can share with me regarding how to best maximize my premiums w/o having the stocks getting called away?
I have also read that Delta is a good factor to consider because it expresses the probability that the contract will be OTM.
Posted by Snoo_60234
4 Comments
If you hit ATM with the call you roll out. This can be a loss if the stock rallys above the next strike and it can be a problem if it loses big, as you dont wanna sell a cc isntantly again when your stock lost 10%.
That said, just try with one of the higher IVs. I do weeklies but get called a lot. I would suggest classic thetagang 4-6 weeks out and look out for earnings dates as you dont want to hold a cc through the earnings (apple last quarter)
Don’t cover short calls with shares you want to keep.
If you sell covered calls and you want to avoid exercise, you would roll your short calls up and out.
There would be two scenarios for rolling:
1) The short call’s has minimal time premium remaining and rolling would generate more premium per day for a later week/month
2) The underlying approaches the strike of the short call. Roll before it gets ITM because the further the short call is ITM, the less productive a roll will be. And AFAIC, don’t book losses by buying back deep ITM short calls (without rolling) in order to maintain a paper gain in the underlying. The market has a perverse way of taking it back. I prefer to book gains and carry paper losses but that’s a different story.
Note that there’s no guarantee that you’ll be able to avoid exercise because stocks can gap up.
20 delta @35 DTE works .. until it does not..