This post is split into two parts: the first section provides the weekly trading results, and the second addresses comments from last week’s post.
Happy Labor Day!
Week 2 Report:
Summary:
This week, I executed a total of 4 trades, all focused on managing and rolling my covered calls (CCs) for $SLV. Initially, I rolled my 8/30 $27.50 Call down and out to 9/6 $26.50. However, due to price movements in the underlying, I rolled this position further down to the $26.00 strike just two days later.
As no additional shares were acquired, my unadjusted cost basis for $SLV remains unchanged at $26.97. However, thanks to the additional premium collected, my net adjusted cost basis has decreased to $25.79, which is approximately 3% lower than last week. This means that if I were to sell all 213 shares at $25.79, I would break even on both the covered calls and the underlying shares.
Due to the price of SLV declining by over 3%, all of my new premium income from last week is being overshadowed. This has caused my total ROIC to stay the same. While unrealized losses grew on the underlying, unrealized gains also increased due to the depreciation of the CC premiums after I sold them.
Week-over-Week (WoW) Results:
• $SLV Price: $26.35 (down 3.1% from $27.20)
• Premium Income: $167.76 (up 2x from ~$80)
• Net Adjusted Cost Basis: $25.79 (down 3% from $26.58)
• Total ROIC: 3.10% (down from 3.46% to 3.10%) — near B/E week over week due to SLV decline but an increase in CC premium
Week 1 Comments/Questions:
I received a few comments regarding strike prices on my previous post, so I took the time to explore different call options for $SLV and came to the following conclusions.
For my strategy, which focuses on generating income through selling covered calls, I’ve found that the most efficient approach is to sell at-the-money (ATM) or slightly in-the-money (ITM) call options. The picture showing the options chain for SLV that I attached is a bit outdated, so please don’t pay too much attention to the specific strike prices shown. At the time, the price of SLV was $27.40.
You’ll notice that the $27.50 strike offered the highest return if SLV trades flat in each of the three exp. dates. This is because any call above the current market price is composed entirely of extrinsic value. Again, my strategy isn’t about predicting whether SLV will move up or down; it’s about consistently extracting premiums by selling calls and continuously rolling them to strike prices around the current market price since they depreciate the fastest.
Yes, if you sell deeper ITM calls, your account gets credited for the cash, but it will be impossible to realize that as a profit unless the underlying falls in price. So technically, you are not making more income by selling deep ITM calls. The income comes from theta decay and the depreciation of the extrinsic value, and all of those rates are highest on ATM calls.
Posted by RickyT27