Hello! I have owned 100 shares of COST since last December ($615), which has climbed up nicely to the current price of $917. During this time, I had sold covered calls on three different occasions but rolled them out and up mainly because I didn't want to sell the stock before this December and pay a higher short term capital gains tax.
For a steadily-rising stock like COST, should I just hold on to the stock instead of bothering with covered calls that I might have to roll out and up later, as I have, and use the strategy with stocks that are range-bound or "stuck"?
If there is a technique to choosing a strike price to avoid having to roll frequently, please do share!
Rolling out/up covered call options on Costco?
byu/brka-brkb inoptions
Posted by brka-brkb
2 Comments
If you are approved to sell naked options you can sell puts on an index option like SPY or QQQ.
The naked puts require collateral which is about 20% of the notional value of the option.
For example, you can sell a SPY 500 put and the collateral (or margin) is about $100.
The value of COST can be used as collateral. Seventy percent of its value can be used as collateral. So about $600 is available.
You can sell COST at any time. When it is sold, the cash will be used as collateral.
The puts may need management but not as often as COST.
It’s tough to say what the “magic number” is for a strike price when selling a CC. You could have a catalyst at any point in time that’s just the inherent risk with selling CCs. Personally, I pick a strike price i would be happy to sell my shares if I they exercise.