I just bought this book but it did not arrive yet. So I am asking the opinion of the ET Options masters. I have 200 shares of BABA with covered calls expiring this Friday, it started to run up, should I roll my calls now, or wait a bit more? I am thinking of rolling them into the 290 calls, but maybe I should wait till tomorrow. Let this stock close strong today. The options in the money will still have premiums worth selling. Ideally, I would sell slightly OTM calls now and roll this over for next week, but I am not experienced in this.
On theory atleast, you want to continue selling calls against your 200 shares of BABA over and over again, until, it finally, gets called. That way, you maximize the premiums you collected. You want out of the money calls in that you want it to expire worthless and you to keep the premiums.
I am considering rolling into next Friday, at some point later. September 7th BABA will be part of some Index in the Heng Seng. That will propel it above $300 and maybe $310. Fundamentally,(if that means anything anymore) this is still a cheap stock.
Just to get you thinking, I'm sure you've heard that shorting Puts is very risky? Well, do you realise that your postion of +200 shares and short some calls is EXACTLY the same position as being just short the Puts?
Getting out of bed is risky. In reality, the comparison is ridiculous. I am up about a $1000 (long from $288), I could be up $2000 but I use my short calls as a kind of a stop loss. Today I will cover my calls and use a stop loss instead. BABA can go higher. I agree a short call is only %50 of protection and since I am deep ITM they can exercise my 200 shares of BABA. So I kept rolling the option. Today could be a repeat of yesterday. BABA up 10 points!
Not it's not ridiclous because the potential profit and loss profile of a covered call and a short put are exactly the same. What you make or lose on the trade is irrelevant to the point I was trying to make. I only posted it out of interest because I thought that someone such as yourself, with a very limited understanding of options hence your question of looking to sell an in-the-money call as a covered call strategy, might be interested in such a fact when most people who are new to options understand that a covered call is a so-called safe trade whereas a short put is viewed as one of the riskest option strategies of them all. But the reality is the payoff is the same.
Practically I cannot short puts as I am in an IRA. As for risk level, an unmonitored position is always risky. Selling covered calls on meandering stocks short term is not. Selling covered calls on high flying stocks is not wise. I got out of my position as BABA sold off after pumping up at night-trading to $300.
Sure you can. It's called a "cash secured put" and you can most certainly do it in an IRA. You just can't short a call outright although you can basically get the same thing by doing a vertical spread with the long side far enough away.