I was assigned 100 shares of BA stock at 177.5. I was looking to sell a call 5-6 months from now and collect premium. Are there any downsides to doing this? Or would it be more prudent to just start selling weekly calls?
Thanks.
Are there any downsides to selling calls that are 5-6 months out?
byu/RedditorsAreGoofy inoptions
Posted by RedditorsAreGoofy
5 Comments
Only downside to cc is if it blows past your strikes you don’t get any of it
I generally buy a stock and immediately write a call somewhat out the money where I’d have a profit of say 5% in 30-45 days. If it comes in the money and I’d like to keep it some more, I roll it forward and up. Otherwise I just let it liquidate, rinse and repeat.
The downside to shorting a call on your shares is you still assume majority of the downside risk of the underlying, and also completely capping your upside potential above the strike, for a premium. You’re essentially selling half your shares if you sell an at the money call on your shares.
Yes, that’s too far out. Shorting puts or calls ought to use expirations under 60 DTE. Going further out minimizes the theta decay curve, and since theta is beneficial to a short seller, minimizing theta is the opposite of beneficial.
There are a lot of other expirations between 6 months and weekly, or 60 DTE and weekly, for that matter. Why are those your only two choices? How about sticking with monthly expirations for better liquidity? That’s as good a place to start as any. There should be at least one, if not two, monthly expirations within 60 DTE of today but that are more than 1 week out.
Much slower theta decay