What is your criteria for selling a covered call or a put?

Discussion in 'Options' started by alexandercho, Jul 16, 2010.

  1. If you were to sell a covered call what is your criteria in terms of Options Greeks. Likewise what is your criteria for selling a put in terms of Options Greeks.
  2. ptrjon


    just choose the 'market' indicator and then click send order.
  3. lol I'm talking about an attractive rate of return on premium based on Delta, Theta, Gamma, Vega, Rho, and implied volatility.
  4. spindr0


    Why would you need the Greeks to determine the viability of a covered call sale (or equiv NP)? It's a pretty straightforward trade with clear P&L.
  5. because I'm trying to find out a reasonable rate of decay to take advantage of. Am I selling an over priced option for a big profit, or am I selling an under priced option contract? What will give me the biggest premium, and put the counter party at a much bigger disadvantage?
  6. spindr0


    Selling an over priced option for a big profit? (scratching head)

    ...put the counter party at a much bigger disadvantage?

    You're the one at a disadvantage since you own the stock in a CC whose risk/reward ratio is lousy

    You know what the focus of a CC position is? It's the timing and selection of the stock not whether you sell an "overvalued" premium. Timing and selection. And in reality, you have no way of knowing if the option is overvalued or if a higher IV is now the new volatility level.

    This all reminds me of the guy who asks what time it is and is told how to build a watch :)
  7. That's pretty interesting in fact at some point I thought that if I got timing right things would be okay. But, at the same token can't option greeks be used in a specific timing formula? I don't know maybe I'm thinking ahead of myself.
  8. Do not let people talk you out of further education. Learning and understanding the Greeks will make you a better options trader than someone who is ignorant of the facts.

    No one loses by learning more,ignorance is a recipe for failure.

    But do remember no one pays a big premium for no reason, Big premiums means big risk. Chasing high premiums to go and buy stocks and sell calls is a risky proposition.

    Options in general are priced at fair value for the moment.
  9. netmgr7


    Larry McMillan's website, optionstrategist.com, has a free database of implied volatility history. He has some method for calculating a composite daily implied volatility for an options chain. I believe at most he stores a total of 600 days worth of data.

    On a weekly basis, he ranks the most recent composite value against the history and comes up with a percentile rank. Values in the 10th percentile or below are considered very cheap, while those in the 90th percentile or higher are considered very expensive.

    If I'm looking to do a write, I use the history to determine what percentile the implied volatility of the contract I'm interested in falls.

    For myself, I'm not too strict. Any contract with an implied vol in the top half of the range (50% or higher) I consider a potential write.

    Anyway, check it out and decide for yourself if the data is useful to you.
  10. spindr0


    The Greeks are derivative calculations which tell you how much an option's price will change as the pricing components change (passage of time, change in volatility, change in UL price, etc.). That's all fine and dandy if you want to monitor your position but it's not going to help you a whit with the timing in a plain vanilla covered call position.

    AFAIK, the more imp't issue in a CC is the underlying (support and resistance, news, earnings, sector perfomance, market direction) since it's a directional position. Again, AFAIK, you sell the call against the stock because of your opinion on the stock (bullish/bearish.neutral) not because of your opinion of the option.
    #10     Jul 17, 2010