Can I ask a noob question . I have 112 shares of rivian at an average of 15 . I want to hodl it for 20 years . People say if price goes down sell a covered call . If I sell a covered call for 10.50 and for some shitty reason it goes to 11 . Do my shares get sold for 11 and I’m still inciting a loss as I got it for 15? Or am I getting that wrong?
Posted by stockbetss
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IMHO I would get out of all EV stocks. Did you see what happened this winter when people were stranded bc their cars were frozen shut? EVs are not the future. Many of the traditional automakers have chosen to reduce or stop EV production. I had a Tesla … I was one of the first in 2013. It was cool and fun and people were impressed but guess what??? When the warranty ran out the repairs were a fortune. I could go on and on … I paid $120k for the car and got all the options that were available at the time…. New radiator $2,500, new tires $5k, replaced cracked screen $3k …. Never again. I don’t even want a hybrid 42 mpg in my Lexus is great until you factor in the replacement battery at $4k … no thanks! I want a regular car with a regular engine.
Yes, if you sell a CC with a strike price of 11 then if the price goes to 11.01 or more, you’ll be selling for a loss of 4 per share.
Do not sell a covered call for less than what you paid for it, which is 15 in this case. So feel free to sell CCs at 15 or above but no less.
Covered calls are simple. You bought RIVN at 15. You sell a call for strike higher than your purchase price, say 18 for $1.5.
5 things can happen to the stock price and we’ll see how covered calls behave in each –
1. Stock goes up slightly to 17 – you earn $2 per share and get to keep the full credit received from selling the call. Net profit = $3.5
2. Stock goes up crazy to 20 – your sold call gets exercised and you have to sell RIVN at 18 to the buyer of the call. Net profit = $3 + $1.5 = $4.5
3. Stock goes nowhere – you pocket the full credit from sold call. Net profit = $1.5
4. Stock drops slightly to 13 – You lose $2 on stock but keep full credit from sold call. Net loss = $0.5
5. Stock nosedives to 10 – You lose $5 per share. Net loss = $5 – $1.5 = $3.5
Drawback with covered calls is that your upside profit gets limited,
Advantage is that your downside is slightly ‘covered’.
The short answer is, yes, the contract holder or market maker will likely exercise the option and buy your shares at the strike price. Unless the price goes to the moon, you could likely just buy them back (or buy the option back before it expires for a small loss).
They usually say, only sell covered calls at a strike you’d be willing to sell your shares at. The more stable a stock is, the lower premium and risk. If you plan on holding the shares for a long time, you might only make $5 a month off a low risk covered call, but you also have to weigh that against accidentally selling the shares at an undesirable price.
Also, watch out for opening contracts that expire close to earnings.
> People say if price goes down sell a covered call
Do they? Interesting. The ultimate ideas, perhaps, being to lower one’s cost basis and collect premium income while awaiting the recovery of the underlying.
If you sell a $10.50 strike covered call, your shares risk being called away for $10.50, while you retain 100% of the premium collected. Yes, you would in all likelihood be looking at an overall loss on RIVN, with a current cost basis of $15. Rolling would technically be an option to stave off losing the shares, but it won’t necessarily be a compelling one.
With RIVN closing at ~$10 on Friday, you would have to go moderately far out in time/expiration in order to collect any meaningful premium on covered call strike prices that are closer to your current cost basis, which stands at 33% lower than the current price of the underlying. With your shares so far underwater, you are not approaching covered calls on RIVN from a position of strength.
If your upside down and want to lessen your hurt but also keep owning and acquiring more stock you can sell puts on It to knock your basis down a little faster
Worse. They get sold for $10.50
The biggest problem with this strategy is that rivian is going to be bankrupt before your 20 year Timeline.
If you plan to keep the stock for a long time, you could roll the option up every time you’re ITM at expiry time
All correct. The shares leave at 11.
But you have a long term strategy, Hold for 20 years. Great. Take the assignment $$ and that big ATM premium and buy more shares. Wash, rinse, repeat.
Rivian isn’t going to do anything extraordinary for a long time to come. You are likely safe. There’s an EV war on now globally with no clear leaders. I’d do RIVN ccalls ATM if the premiums were 3% of the strike/assignment value in the 30dte frame. That’s not too hot, too cold, or too boring to keep me amused. And I like their products. Is that enough to vote with our wallets? Maybe. 3% is my line.
Edit: Shares would likely leave at 11.01 or greater upon expiration, anywhere at early expiration.
I would maybe add that calls will have more value as the stock goes up. Usually if the stock is on a tear, you can get more premium from the calls, rather than selling a covered call when stock is down and capping your stock’s recovery. Sell CC’s when the stock is up is my philosophy, just a thought.