For the first time since I started seriously rolling calls, about 15 months ago, yesterday’s trades produced enough cash to add 3.5% to my stock holdings. This is a game changer!
A stock only portfolio, even if it grows, does not generate cash to buy additional shares. Buying shares with the cash generated by covered calls snowballs the portfolio! Cash has a quality of its own!
The Captain
Have you figured out a way to make those types of returns consistent and sustainable? I’ve found that my options investing tends to be “feast or famine”, with the good results being spectacular and the not so good results being downright awful.
In covered call terms, imagine selling a covered call only to subsequently see the underlying stock plummet to well below a price you’d be willing to sell the stock at. When your existing calls expire, your choice becomes forgoing the income from the next round of calls or accepting the very real risk of being forced to sell your stock at a low price to get the next round of call premiums.
If you’ve got an approach that provides those substantial high returns consistently, I’d love to hear it. Otherwise, the best approach I’ve been able to come up with involves “banking” the excess returns during the good times in order to “ride out” the not-so-good times.
Regards,
-Chuck
Not every market is a trading market, or a market for your strategy. So there are times, one needs to sit on the sidelines and wait for the right market conditions. Consistent results cannot be attained with limited tool sets (like few trading strategy) or by trading in every market environment.
Learning to protect your gains are more important for long-term performance. Willingness to pay for hedges or foregoing trading in some environment is very important.
Thanks for the feedback. The answer is “Time will tell.” 
While I’ve been trading options for over a decade, learning all the while, the breakthrough came a little over a year ago. Early on I realized I could not trade options without the help of spreadsheets which became a web app, the Covered Call Selector about seven years ago. The Selector’s job was to compare all the available options of the candidate stocks, more about stock selection below. I had to find a metric that could do the job with such a wide range of metrics,
CAGR would do but it is ethereal, not connected to everyday events. Since my aim was income, I settled on $$$Day Dollars per day. I know what my daily cost of living is so this number relates directly to my life. There are other metrics but $$$Day is core.
I was still trading according to option lore but realized I needed a new web app to optimize rolling options. The Covered Call Roll Selector was born which became the core of the new strategy.
What to do with falling stocks?
Stock picking
To be able to roll stocks up and down as the market warrants you need stocks that you are willing to hold for a very long time. At this time TSLA is one such stock for me. This goes against accepted option lore which says to sell covered calls only on stocks you are willing to sell. In practical terms it means focusing on survivability, not on technological hype. AI is great but most AI stocks will fail. Pick AI stocks most likely to survive the hype cycle.
Avoid dividends
Avoid stocks likely to be called, after all, you want long term holds that bounce back.
Fine tune your risk level
The highest premiums are generated by risky volatile stocks. Rock solid stocks like VISA yield much lower premiums.
What to do with raising stocks?
Can one roll options forever?
This is at the core of the strategy, avoiding getting called. The only way to find out was to try it. I had already made a lot of money with Tesla but the stock was not generating income. Crazy me tried it. I cannot guarantee it will work forever but the odds seem to be in our favor.
TSLA 1.5 year chart
Starting on December 18, 2024 I sold calls strike price $510. Rolled out up or down 12 times all the way down to strike price $265 and back up to current strike price $410. I was going to roll further up based on Tesla news but the ongoing Middle East war did not warrant it.
SMCI 1.5 year chart
I bought SMCI at the wrong time, cost basis $49.05 and it fell like a lead brick. By the end of January I had collected enough premiums to break even. It was now low enough to buy some more! Cost basis new shares $33.74. SMCI net result after 14 months? A dismal $889.82 profit.
So far none of my optionable stocks have been called. That’s the only warranty I can offer. Over 50 options traded since December 18, 2024, 18 rolls per stock on average. Of course the risk of getting called is real but the odds are very low and can be lowered even more by rolling the option a week before expiration. The remaining time value is the protection.
Good luck starts with picking the right stocks. Manage your risk level.
The Captain
Time can be quite nasty! My Super Micro just got hit!
Shares in Super Micro Computer (Nasdaq: SMCI) are falling off a cliff this morning after news that the U.S. Department of Justice (DOJ) has charged the company’s cofounder and two other associates with conspiring to deliver restricted AI technology to China.
I bought back my calls. Now I need to watch further market action to see what needs to be done. Don’t panic sell.
The Captain
Sometimes I wonder if that’s the right thing to do. Maybe in some cases it may be worth simply waiting for them to expire worthless? Every time I roll a call that is all time value, I wonder the same thing. For example, I am short some DIS 105 calls right now, if the stock moves very little between now and May expiry, they would expire worthless. Obviously this isn’t a good example because the expiry is in a relatively long time. A better example is some VBK 290 strike calls expiring today that I accidentally sold in the wrong account. I tried mightily to buy these back and sell them again in the correct account, but because the trading in them is so thin, none of my further orders ever got executed (even though I presented pretty attractive bids and reasonably attractive asks). I tried every day, but nobody bit, so here we are on the day of expiry and they will very likely expire worthless tonight. This morning, I put an order to buy them back at a penny, but after 10 minutes my brokerage inexplicably cancelled my order. I would try a nickel, but the heck with it, I’m going to let them expire worthless instead … unless the market suddenly drops 4+ percent by this evening.
It is when they are dirt cheap. Normally I don’t buy back unless I’m rolling the calls. In this case it was 15¢ each and expiration was weeks away. By buying them back I have more options [pun not intended ].
The Captain
Heh, the Russel was down 2.5% today, mostly in the afternoon. Another couple of percent and these options would have come very close to being in the money! But it looks like they will expire worthless tonight, unless someone made an irrational decision and exercised them out of the money and the random assignment hits me.
