It is true that the shares might get called away.
At the strike.
And, I have, on occasion, allowed that outcome.
I got the $ I spent for the shares, plus any intrinsic value I negotiate by selling a strike slightly above my buy point.
I also pocketed the premium.
The “tools” are the $s I used to buy the original shares. Ie, not the shares.
I still have those tools.
I don’t (rarely) sell ATM strikes.
The strike I choose depends …
On my goal for that trade.
(Remember that comment - from above?
Let me rephrase it: “plan the trade n trade the plan”.)
My chosen strike is usually slightly OTM.
If I buy shares and they decline, I own the loss…
EVERYONE who buys shares of stock accepts this “risk”.
If I sell CC on those shares, my loss declines.
I’ve experienced this.
A couple times, I’ve CCd slightly ITM, the stock declined to OTM, I rolled down to slightly ITM, … Repeat.
The premiums wound up keeping pace with the price decline.
It was really quite remarkable.
More common, I’ve owned shares whose price was deep underwater.
In this case, I wrote CC further OTM, lower probability of being exercisd. Sometimes they got called away. But other times, the price would recover and I CC’d it back up.
These were/are stocks I’m happy to own anyway.
I easily tolerate the risk.
I don’t care.
My primary goal is income, not the putative upside.
I want the premium for use as disposable income.
And I want my original “tools” returned to me, so that I can use em again.
I do NOT care if I miss some upside.
My goal is elsewhere.
The premium is IN MY HAND AS SOON AS THE TRADE OPENS.
I spend it. Cause that’s why I opened the trade.
Then I wait for the expiry to approach.
Caveat. The trade can run away, either up or down.
That’s why when I open the trade, I already have a plan for how I’m gonna manage it.
I don’t fall in love with my stocks. They don’t/won’t love me back.
If the shares get called away, oh well. I’m already ahead… I’ve met my goal.
While I’m selling options, I’m getting income… And I’m NOT selling shares out of my LTBH portfolio.
I’m not selling my LTBH port down.
I’m not selling any LTBH assets.
It’s continuing to grow.
At some point I expect I’ll not be able to do options. Or trade individual stocks.
At that point, I plan to switch to the 4% SWR strategy.
Let me add… The percentage of my total port, that I use for selling options, is small enough that, if it goes completely to zero… My lifestyle will not be severely affected.
This helps my risk tolerance.
ralph
Let me revisit this claim:
I bought HUT at $40 as a wheel strategy, CC options trade.
I CC’d it, weekly expiries, rolling up n out… I was getting the upside.
I rolled til it got to 60ish, when HUT ran away… Gapped Up. I was at risk of having the shares called away.
I switched to monthly expiries n then to 9 month expiry n rolled up to 75. For 18$ premium.
I’m now waiting… And 45 days before expiry, I’m gonna roll up 1 more time. To 80 or perhaps 90.
That’ll be a solid 100% intrinsic gain … NOT including the premiums.
So, you see? I DO have the ability to capture a significant part of the upside.
And… If the shares get called at the next expiry or a later expiry.. it’s long term capital gains tax rate.
It IS possible that HUT might drop…
But so far things are looking good.
IMO.
ralph
Did you see this
Selling options raises me up a level.