Covered calls

Market is favorable these last weeks. Have they been good for you, Denny? I’m a little further out, covered calls paired with cash-covered puts. Short strangles. It will work until it doesn’t…

KC

Have they been good for you, Denny?

VERY!

The start of the yer was terrible and I slowed the sale of calls through May. June and July were very good and August was exceptional for a very specific reason, ENPH earnings!

ENPH: https://bigcharts.marketwatch.com/advchart/frames/frames.asp…

For me Enphase is not a covered call stock, it’s a long term hold but the chart said it was a great opportunity to make hay. Enphase announced great earnings on July 26 and the stock gapped up and started making new all time highs. More often than not these spikes create a top reducing the risk of the stock getting called.

On August 1 with the stock at around $285 I sold a 32 day call, strike $340 (well OTM) for $5.20 which I bought back on the 18th at under 40%

Same day sold a 29 day call, strike $320 for $9.50 which I bought back the next day 41% lower. The crazy volatility is your friend!

Five days later, Aug 24 I again sold a 29 day call, strike $320 for $9.50 which I bought back at half price on Aug 30

On Aug 31 I sold a 37 day call, strike $320 for $9.00 which I will allow to expire. The reason is that near the end of October is the next earnings day and I don’t want to hold a short call on the stock, one can’t tell what will happen.

This is extraordinary income and one of the benefits of learning to read charts.

My income stocks calls also did well and for the past month or so, while still in the red YTD, I have been beating the three major indexes by quite a bit.

Denny Schlesinger

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VERY!

Unusual, I think, to get such juicy premiums so far OTM. Nice find! I have been operating on 7-day options (as short as 2-days which is a crap shoot). You were 7-days for a long time. I’m not comfortable with 30-days as I am not separating LT holdings and calls stocks. Mostly I’m gun shy of this market, licking wounds, and content to hold a lot of cash and make my required minimum withdrawal money (or a small multiple thereof) with only 20% of the portfolio. Lot of volatile noise without much net movement… for now.

KC

Unusual, I think, to get such juicy premiums so far OTM. Nice find!

Unusual, yes, but not entirely fortuitous. Like I said, ENPH was not an income but a long term hold so I would not sell covered calls on it to prevent getting called. In time the port became 75% long term hold and 25% income from covered calls.

Having observed price charts over the years I discovered that when a stocked spiked for some reason or another (TSLA on the Hertz 100 K order) it would more than likely fall back (gaps close). Based on earnings ENPH not only spiked it gapped up twice. Time to test a new idea, how about selling a far OTM call? $340 seemed so out of the money that it was unlikely to be called and if called likely it could be bought back cheaper.

You were 7-days for a long time. I’m not comfortable with 30-days as I am not separating LT holdings and calls stocks.

That was precisely the reason to split the portfolio into income and growth!

The far OTM call was not paying much on a 7 day basis so I went to 30 days. Volatility gave me the opportunity to buy it back at 38.5% of the sell premium and it didn’t make sense to keep it – a wasting asset. The chart seemed to say that ENPH was at a local high, why not try a lower strike price at 30 days? At a strike price of $320 premium jumped from 5.20 to 9.50! Again the crazy volatility kicked in and the next day I bought back the call at 5.60 – net $3.90 in ONE DAY! Five days later ENPH rebounded enough to sell another call at 9.50 which I bought back at 4.70 after 6 days – 4.80 in six days!

It pays to experiment.

My regular covered calls have also grown a longer expirations to take advantage of volatility to buy them back early. My option trades are now almost all GTC limit orders. It’s a learning process!

Denny Schlesinger

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Having observed price charts over the years I discovered that when a stocked spiked for some reason or another (TSLA on the Hertz 100 K order) it would more than likely fall back (gaps close). Based on earnings ENPH not only spiked it gapped up twice. Time to test a new idea, how about selling a far OTM call? $340 seemed so out of the money that it was unlikely to be called and if called likely it could be bought back cheaper.

Remember The RatMan? Dave, aka Trenchrat(RIP) “Watch the gap, all gaps close”. Similar set up as you, not as profitable perhaps, but sure having fun.

Trenchrat was my ‘Gaps Close’ teacher!

Denny Schlesinger

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