Comments on: When Strikes Move Deep In-The-Money: A Real-Life Trade https://www.thebluecollarinvestor.com/when-strikes-move-deep-in-the-money-a-real-life-trade/ Learn how to invest by selling stock options. Fri, 11 Aug 2017 21:52:16 +0000 hourly 1 By: Roni https://www.thebluecollarinvestor.com/when-strikes-move-deep-in-the-money-a-real-life-trade/#comment-120287 Fri, 11 Aug 2017 21:52:16 +0000 http://www.thebluecollarinvestor.com/?p=15709#comment-120287 Understood Spin,

I know that the CC is a very small protection, and I do stay clear of earnings reports (Alan’s rule #1).

Of course there are other unexpected events always happening, but these are difficult to avoid, and I am watching all my trades several times each day, and implementing the exit strategies by the book (Alan’s book).

On the other hand, a little more risk with some Buy/Waits can make a nice extra income, as Jay correctly suggests, and, as you say above, is apropriate in a bull market.

Thanks for helping me with your very wellcome explanations.

Have a nice weekend – Roni

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By: spindr0 https://www.thebluecollarinvestor.com/when-strikes-move-deep-in-the-money-a-real-life-trade/#comment-120229 Fri, 11 Aug 2017 16:27:46 +0000 http://www.thebluecollarinvestor.com/?p=15709#comment-120229 In reply to Roni.

Roni,

Here’s an example from this week. Dillards (DDS) was a $78 stock two weeks ago. Two days ago, it was over $73. Today it’s under $59 after a bad earnings report. Someone who sold an OTM covered call has lost $15 to $20 in less than two weeks in return for a few dollars of call premium .

In a binary choice world of who does better, the outright share owner or the covered call writer, clearly the covered call writer is better off by the amount of the premium. But that’s a bit of a Pyrrhic Victory, eh? Granted, this was a bad earnings report but this is what happens to a much larger degree in a bear market.

And yes, unless one is hedging differently, it is a good plan to get out of the way of earnings announcements. A possible alternative for owning through earnings is collared long stock. Then you have that approx 50/50 chance but with no possibility of a debacle like DDS:

http://www.thebluecollarinvestor.com/protective-puts-the-collar-strategy/

Spin

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By: Roni https://www.thebluecollarinvestor.com/when-strikes-move-deep-in-the-money-a-real-life-trade/#comment-120216 Fri, 11 Aug 2017 15:33:45 +0000 http://www.thebluecollarinvestor.com/?p=15709#comment-120216 In reply to spindr0.

OK Spin,

I understand, and will revise my mental stance regarding Buy/Wait trades.

My risk tollerance is very limited, and is obviously making me miss some great opportunities.

Thanks – Roni

Justin and Jay,

I hope you approve.

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By: spindr0 https://www.thebluecollarinvestor.com/when-strikes-move-deep-in-the-money-a-real-life-trade/#comment-120047 Thu, 10 Aug 2017 19:51:17 +0000 http://www.thebluecollarinvestor.com/?p=15709#comment-120047 In reply to Roni Schott.

In and of itself, B/W does not give you an edge. It’s has a poor risk/reward ratio (limited reward with large potential loss). You will markedly under perform in bull markets as you collect small premiums compared to the upside growth you give away. Although you will outperform in bear markets (by the amount of the premium), that is exactly when you don’t want to be B/W-ing (long) since you can lose significant amounts in a full bore bear. In addition, taxes (for non sheltered accounts) and more frequent commissions and slippage will add performance drag.

What makes B/W succeed is quality selection, good timing and disciplined risk management. That’s the edge. If you don’t manage your losses, collapses like GWW, TGT, and CAH this year can take away the gains from 5-10 or more successful writes.

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By: Roni Schott https://www.thebluecollarinvestor.com/when-strikes-move-deep-in-the-money-a-real-life-trade/#comment-120036 Thu, 10 Aug 2017 18:56:28 +0000 http://www.thebluecollarinvestor.com/?p=15709#comment-120036 In reply to Justin P..

Justin,

Buy/Wait is a gamble. 50/50
Buy/Write is a bet with a small edge.

Buy/Write sets a limit on projected yield, but gives you some protection.
Buy/Wait may reward you handsomely. Nobody can tell.

Pick your choice, stay consistent, and sleep well.

Roni

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By: Jay https://www.thebluecollarinvestor.com/when-strikes-move-deep-in-the-money-a-real-life-trade/#comment-120028 Thu, 10 Aug 2017 16:35:25 +0000 http://www.thebluecollarinvestor.com/?p=15709#comment-120028 In reply to spindr0.

Spin,

My GLD is about the only thing I am liking in the market this week :). – Jay

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By: spindr0 https://www.thebluecollarinvestor.com/when-strikes-move-deep-in-the-money-a-real-life-trade/#comment-120019 Thu, 10 Aug 2017 14:29:02 +0000 http://www.thebluecollarinvestor.com/?p=15709#comment-120019 In reply to spindr0.

Jay,

It’s easier said than done but no matter what we do in the market, most of the time there was either a better way or a better time to have done it. Woulda, coulda, shoulda. It’s non productive. You take your best shot, hope for the best and manage it when it’s the worst. Then move on.

Good stuff by MJ but since I don’t know any songs that celebrate covered calls, I’m still smitten by the music of my ‘yute’ from the British invasion through the Vietnam era classics up until disco came in. Woodstock has to be the greatest collection of assembled artists before the modern era of disaster charity benefits.

Liking than GLD this week? :->)

Spin

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