Trading covered calls in the U.S. market

Adam · 9 March 2005

Hi all,

i just joined up and i have read all the commentary on covered calls. Does anyone know what kind of returns you can get on covered calls on stocks in the U.S market.

The reason i ask is that a certain financial seminar group is offering to educate people on how to implement the strategy in the U.S as it is apparently more productive and it states the returns are vastly higher than writing in Australia.

Some of the figures used, are like earning anywhere between 2% to a whopping 15% on stocks per month in the u.s instead of the approximate range you can get here in australia which is usaually between 2% to 5% if your lucky.

Anyone use the srategy in th u.s? can anyone shed any light on the vailidity of these statements? Is the u.s market possiblilty a lot more volatile and hence the larger premiums?

Thanks

adam

money tree · 9 March 2005

Re: trading covered calls in the U.S market

first mistake - covered calls is a bear market strategy

second mistake - 15% per month is B.S and gives an I.V of about 80, likelyhood of capital loss = EXTREME.

third mistake - NOBODY in Aust EVER gets 2-5% a month. 5% a year is a likely result. In The U.S you might get 8%.

wayneL · 9 March 2005

Re: trading covered calls in the U.S market

money tree said:
first mistake - covered calls is a bear market strategy

second mistake - 15% per month is B.S and gives an I.V of about 80, likelyhood of capital loss = EXTREME.

third mistake - NOBODY in Aust EVER gets 2-5% a month. 5% a year is a likely result. In The U.S you might get 8%.

Yep,

totally concur with that

DTM · 9 March 2005

Re: trading covered calls in the U.S market

Adam said:
i just joined up and i have read all the commentary on covered calls. Does anyone know what kind of returns you can get on covered calls on stocks in the U.S market.

The reason i ask is that a certain financial seminar group is offering to educate people on how to implement the strategy in the U.S as it is apparently more productive and it states the returns are vastly higher than writing in Australia.

The US market offers you more liquidity and more optionable stocks to choose from.

Adam said:
Some of the figures used, are like earning anywhere between 2% to a whopping 15% on stocks per month in the u.s instead of the approximate range you can get here in australia which is usaually between 2% to 5% if your lucky.

Anyone use the srategy in th u.s? can anyone shed any light on the vailidity of these statements? Is the u.s market possiblilty a lot more volatile and hence the larger premiums?

Personally I find the Australian market more financially rewarding as the price movement gives you more reward. I know that in theory risk/reward ratios in both markets should be the same but have found that it's easier making money in Australia. A $1 move in price in Oz equates to 10 contracts picking up in value by $10,000 whereas a $1 move in the US equates to $1,000. I'm not sure why this difference exists but maybe its because the strike prices here are closer together. I think Moneytree and Wayne may disagree but that's just my opinion.

PS as for the covered calls, I don't do them because it ties up too much capital.

Adam · 9 March 2005

Re: trading covered calls in the U.S market

Hi again,

thanks for your responses,

just in regards to my first mistake as you put it, you say covered calls are a bear market strategy.

Why is this, i thought that if you get excercised on your shares then that is good as you get a capital gain and the premium and then you can move your money elsewhere and do it agian. If your writing naked then yes the strategy should be used in a bear market. Is this right?

So far from the research i have done, it seems covered calls are good in the fact that they are safer than just owning normal stocks, i know they take up your capital etc but for a trader who isn't active all day they seem good, as trading naked requires constant monitoring of your position in real time.

What yous think? Does anyone here trade covered calls in the u.s at all, i was in another forum and some of the guys in there were saying they have consistently made in excess of 60% on their money for the last few years...sometimes 100%, who knows????!!!!

adam

positivecashflow · 9 March 2005

Re: trading covered calls in the U.S market

Adam said:
Why is this, i thought that if you get excercised on your shares then that is good as you get a capital gain and the premium and then you can move your money elsewhere and do it agian. If your writing naked then yes the strategy should be used in a bear market. Is this right?

So far from the research i have done, it seems covered calls are good in the fact that they are safer than just owning normal stocks, i know they take up your capital etc but for a trader who isn't active all day they seem good, as trading naked requires constant monitoring of your position in real time.

#1. You should NEVER write naked calls as this entails UNLIMITED RISK
#2. Owning Stocks holds RISK to zero. Using the Covered Call strategy does not remove this risk. It will simply lower your breakeven. What if the stock you were holding gaps down? e.g. EBAY dropped from 110-120 to 80 overnight.
#3. There are plenty of limited risk options strategies out there. If you are really interested in covered calls concept, learn the calendar spread/diagonal spread.

Qlds007 · 9 March 2005

Re: trading covered calls in the U.S market

Are you refering to writing covered calls over the underlying stock or using LEAPS.

I agree with other Posts covered calls in this market - nah.
LEAPS maybe a different proposition

positivecashflow · 9 March 2005

Re: trading covered calls in the U.S market

Yes you can write short-term calls (eg expiring in a month) and be covered if you held a long LEAP position which has a strike price below the short call strike price. At each expiry of the short call you would attempt to roll forward.

I look at calendar spreads with a significant IV skew between the front month and the back month.

E.g. ONXX

wayneL · 10 March 2005

Re: trading covered calls in the U.S market

Covered LEAPS....hmmm

You might as well write an OTM vertical. It looks a better payoff diagram to me. The credit is more appealling also... easier to defend etc

IMO anyway

Cheers

positivecashflow · 10 March 2005

Re: trading covered calls in the U.S market

Here is example of risk graph for ONXX put calendar spread using a shorter term option and a LEAP: (ONXX 25 Aug 05/Jan 06 Put Calendar spread). This was done for a debit of 0.70 cents!!

wayneL · 10 March 2005

Re: trading covered calls in the U.S market

I like that x & y axes swapped around like that, next to the price chart. It gives the payoff diagram more visual relevence.

Does that come with optionexpress?

positivecashflow · 10 March 2005

Re: trading covered calls in the U.S market

Hi WayneL,

Its from a subscription service.

tanti · 20 August 2015

Hey Guys,

Just wanted some feed back on this strategy.

Currently ive been going short deep in the money on Santos. Ive just been picking down trends, capturing the premium and the going long on my position and closing out the contract once I get some good time decay or share deprecation. I actually hit a double this month on doing this.

Is this total bull**** or can it work? / Am I just fluking it?

Cheers

wayneL · 21 August 2015

tanti said:
Hey Guys,

Just wanted some feed back on this strategy.

Currently ive been going short deep in the money on Santos. Ive just been picking down trends, capturing the premium and the going long on my position and closing out the contract once I get some good time decay or share deprecation. I actually hit a double this month on doing this.

Is this total bull**** or can it work? / Am I just fluking it?

Cheers

can you clarify the exact position(s) please

Trading covered calls in the U.S. market

Adam

money tree

wayneL

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DTM

Adam

positivecashflow

Qlds007

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