I was proposed this covered call options strategy and wanted to get some feedback on it. It sounds almost too good to be true.. So you buy an ETF and its inverse (say SOXL and SOSX) then sell covered calls in each. One stock goes up, the other goes down (canceling each other out?) and you pocket the premium. Surely there's something I'm missing as to why this wouldn't work well..
Look at a long term chart of inverse ETFs, and you'll see that they degrade. They don't track their positive twin. So you'll need to keep searching for your Holy Grail.
I've found SOXL and SOXS to be very well correlated. In this image, you have: SOXL from Feb 2022 to present on top, and SOXS in the middle. Below that is plotted the percent change in close price from day to day (red and blue) and the difference between the two in black. The difference between the two is always < 1%
I understand what a short strangle is (naked call and put at different strikes), but would you mind elaborating on why this is similar, please? I see the naked strangle as a strategy where you hope there is minimal price change in the underlying, and you collect premiums. With writing covered calls in both ETFs, I see this as having twice the protection as the strangle? At first glance, this idea seems OK in my mind, but again, I know there's something I'm likely missing.. Thank you for helping with my beginner understanding of options.
Ok you said it in your original post. "One stock goes up, the other goes down (canceling each other out?) All you are left with are the sold calls on the 2 inverse etf's. So synthetically you are short a strangle.