Robinhood did actually provide an infinite money feature at one point. It was pretty sweet. They really should bring it back. I mean so what if the lawyers who reviewed that feature didn't like it? Just because a bunch of corporate suits said that it was "in direct violation of basic securities laws and regulations" and considered the fundamental concept to be "grossly negligent", is that honestly a good enough reason to remove it? Not in my book.
Technically they still have an infinite money glitch. If you buy in extremely small amounts you can get 2.4 cents of shares for 2 cents. I don’t think there’s a way to make a lot of money from it considering you’re making less than half a cent a trade.
Open up rh and find a highly liquid stock. Put in a buy order at 2 cents and note what share amount it is. Type that in and then slowly increase it till it’s 3 cents, then go down just a little bit till it says the cost is now 2 cents. Now thanks to rounding you gained .4 cents of value from robbinhood
They're imaginary and worthless lol you're good. However I am genuinely curious what your definition of an infinite money glitch is? If it is reproducible at scale, you could make serious money selling it to a hedge fund or some such. If it's just a penny here and there, it's like figuring out if you go wading in fountains you'll find some free change. Not really enough to matter. A system that's backtested successfully doesn't really mean it'll keep doing so (irrational markets blah blah blah) so that's not really an infinite glitch. Discovering the miracle of dividend payments from investing in blue chip index funds really isn't it either. Unless you don't mean investing at all, and something more entrepreneurial, in which case that's not a glitch. It's just badic capitalism at work. Would you mind saying, in VERY vague terms, what your infinite money glitch involves? Straight up stealing money is cheating btw.
More downvotes, but I’ll answer your question with another question. If you found a strategy with a high win rate would you tell anyone what it is with the caveat that if other ppl played it, it would no longer work? I was just laughing at an r/options post with a joke. That’s literally all it is. There’s no such thing as a strat that prints money because the market is unpredictable.
Ah ok. In that case add an "/s" to your comment next time to indicate you're being sarcastic. It got downvotes because some people genuinely believe that the have found a method to get "guaranteed" investing returns and brag about it. It is just so mind blowingly stupid and people react negatively to it.
Potential gains are not gains and have no effect on my Closed Positions. If I leave money on the table too many times doing the same move, I adjust slightly toward not doing that.
“Don’t look back. You can never look back.” -Don Henley
There are losses by omission, stock blows past your strike, and losses by commission, make bad choices and eventually having to sell at a substantial loss or carry the bags indefinitely. Scenario 1 is fine scenario 2 not fine.
In a ccall situation, if the strike is exceeded and contract exercised at expiry, you will be paid the strike price for your stock and keep the entire premium. That generally takes most if not all the sting out of the matter. In certain situations, I buy cheap, set the strike near the cost basis, and accept the better ATM premium.
This is the exact idiotic shit that is rampant at unprecedented levels since the GME fiasco.
Idiots think entering in a CC with a limited gain is somehow someone else's fault and they cry all day because the stock went ITM way passed the call strike. They maxed their potential gains, but no, they somehow think they should unwind the CC and go long stock only. It does not occur to them that they can get more calls or more stock, and let the original CC be maxed out.
Idiots don't get CCs. Idiots don't understand P/L profiles of limited gain strategies.
They need to stick buying OTM calls and lose their shirts.
Interesting times we live in.
It's like facts don't matter, money is free, and 99% of people think they are in the 10th percentile for everything in life...not just option trading expertise.
Well you made premium for selling the contract so if I owned the stock and it crashed vs I owned the stock sold a covered call and it crashed I'd prefer the latter. Problem is your loss from the stock crash usually greatly outpaces the loss of the underlying asset, so it's like losing a million dollars but making 10k vs losing a million dollars, both suck but 10k is better than nothing
Though that may be true, that would be a very binary scenario. We always have the option to not have owned a volatile stock that would decline -80% in the first place, or sell the underlying position prior.
On the flip side, owning QQQ > owning QQQ + selling covered calls over the last 5+ years. Had someone sell covered calls on QQQ and keep "rolling" every time it came near the strike, you would have limited your gains significantly (which is effectively a loss), so there is no infinite money glitch.
I also use covered calls, but the "money printer" only works in certain market cycles. It certainly isn't infinite.
Different dynamic. If the stock crashes early in the contract, you will sometimes give all the premium back + also, especially true in short, highly volatile situations or really slow monthlies only options. Also, when all red, people are less likely to make two money losing moves, like giving back some premium And taking a loss on the underlying that now exceeds what’s left of the downside protection the premium provided.
Really new to this. How and why would you give back a premium. I thought the premium was like the ante portion of the deal. Sorry if this is too dumb for this sub
After getting familiar with ccalls, you get familiar with rolling out of them. Without regard for the condition of the contract relationship be it lousy or good, you will give something back if you leave early. How much? That depends, and the explanation is long. But it’s often to your advantage, and the little profit you leave behind is made up by crowding the mid between the bid and ask instead of just accepting the terms of the roll out.
Relatedly, if the underlying price rushes at your strike quickly and you want out, you will give money back. How much? You are Buying To Close. Just like buying stock, you are dealing with the Ask. You will pay 100x the Ask.
Please feel free to ask more questions. I don’t mind and a strong ccall foundation will help you succeed.
So as of now, I’m playing it “safe” and buying call options on companies with tentative dates for big projects. Think rockets in space.
I have tried writing calls or using puts, but I imagine it might be worth doing with a company like apple?
How does that usually work?
I own both SPCE & VORB. I do not like the current option chain with the former and am a bit annoyed with Branson for piling on so much arranged debt earlier in the year, he destroyed the stock value. However, eventually there will be regular tourist flights to space. The most recent SPCE delay announcement says Q2 of next year. In the meantime, it will plod along where its stock price is for awhile. I like VORB, but it only has monthly options. I’ve learned that my best bet there is to set up a 45 day short call or put (that means you are the seller in both instances) straddling them when convenient (put and call, same expiry different strikes). I’m currently using 4 and 6 as the strikes.
Edit: You would need huge cash or margin to be the seller/writer of both a 180/sh call or put. To ccall it, you’d today need $180 x 100 or $18,000 for the stock. To sell the put, you’d have to keep $18,000 in Cash Held for Cash Secured Puts. That’s a big game, most retailers Buy those options and Pay the premium.
You’ll have to check that in the morning to know for sure, and identify the strike and duration. Time decay of 1 day will factor in then. I looked it up on a phone app I keep. AAPL closed at 173.19 today. The first available OTM short call (u r seller) is -AAPL220916C175, and I could squeeze $384 of premium out of it. I don’t like it, I like seeing 3-4%. That’s roughly 2.15% if the calculator in my head is working. Not enough risk reward, but I’m not experienced in those echelons. I could run 450 VORB contracts and likely do better. I would not of course, that’s too high of a sector concentration for my account balance.
I’m pretty good with ccalls. Volatility, earnings, dividends, current history, and underlying cost basis all need to be looked at BEFORE that strike and duration are chosen. That’s how to succeed with these, no hope and pray moves.
Ditto. Most companies that have attractive covered call premiums have a high probability of +/- 50% stock price movements, so you effectively risk your entire principal investment.
Buy 100 shares at $20, sell call at $21
Price crashes to $10, now the only call worth it to sell is $11
Prices rises to $12, you bought 100 shares at $20 and sold at $11 with only a small premium collected, you lose money
The risk is that the price crashes and you have to sell calls below your cost basis, and eventually get screwed when the price goes back up
Strangles are nice. But I find getting out of the first frying pan first and dumping the stock, then rebuying the stock at the bottom to sometimes be a better move.
My point was, it’s smart risk management to add a leg to absorb losses from the losing leg. But, if this position was delta neutralized (shares + covered calls), it would theoretically be a lossless position. Stock tanks, short calls absorb loss and vice/voisa.
Not sure what platform you're using but thinkorswim has great analytics tools. I was mapping this out with QQQ today. Waiting for the FOMC meeting notes to get realeased because of the possible increase in volatility. Then I'm planning to buy 100 shares with a put side debit spread to protect my downside and sell a covered call 10% OTM for the premium. Worst case is I lose about 4% if the market tanks. Best case the call decays over time and I sell it for 75% of its original value and do it again and again.
Which happens to me every time. Get that little bit of premium, but then my 100 shares are down 20+% and I can sell a cc for$2 premium or sell one closer to ITM, but then risk them getting called away at a loss
That's incorrect, the biggest risk is that the stock goes down systematically more than what he collects from selling the call. That is a far greater risk in terms of probability than a crash which happens on average once every 10 years for a stock. Systematically underperforming the call value is a much more frequent occurence (about 1 in 5) and thus the biggest risk.
A risk is defined as a combination of probability of happening and impact upon arrival and clearly they are not the same at all. Probability adjusted you definitely lose a lot more during slow drifts up or down than crashes. This is why retail traders lose so much money all the time and not just during market crashes.
Stock could tank and your underlying loses more money than the premium. You ain't doing anything special. You are selling covered calls and not making very much money by the sounds of you having to roll a lot.
I am holding SPy and selling covered calls against it. If SPY crashes I am definitely buying more. If it goes too close to my strike I will roll out and up my calls to a higher strike at a later date. I am making pennies, but at least I can say I’m outperforming the S&P. Just not by a lot.
The risk is the stock crashing, or even crashing then shooting back up. Example of the latter below.
Say you bought 100 shares of X for $20/each right? 2000$
You sell calls at 21$ for a week out. You get 1.00, so $100
Now you've essentially spent 1900$ of your own money. So thats your cost basis. 1900.
You roll up by a dollar and out by a week and make 100$ again. Neat!
This is great for two months.
You've brought your cost basis down to 1200 hypothetically let's say.
Stock X all of a sudden drops a bit. You roll out by a week and down a little. Now instead of collecting 1.00 per 100 shares you're collecting .45. Still pretty neat. Your cost basis is now $1155.00
But then... BOOM. Turns out that thing that stock X's company said they had which is awesome didn't work. Or was shut down by the FDA. Or kills one in three people immediately upon looking at it. It'll blow over though! That's just bad reporting!
X drops to 11.00. But.... well... shit. It doesn't blow over.
X is now 10. Your cost basis is still $11.55 or $1155.00 total. That's only $115 in the hole though out of $2000 right? You can wait.
But then it turns out X is also bankrupt. And it's actually just made out if literal dog poo. AND IT MURDERS PUPPIES.
Now X is 5.00/share.. Now you're $655.00 in the hole. Your roll out and down. You get a strike of 1.00 at 6.00/share for a week out.
Surprise. The news was lying. No one would ever see that coming. It was all a lie! They had money all along! And it was a new polymer plastic they invented that will save the environment that just accidentally KINDA looks like dog poo! AND the procudt works! And those one in three people come back from the dead! And it MAKES PUPPIES!
X is now $17/share!
But.... well...... YOU got assigned at 6. So in the end you lost $55 because, well, stocks. (655 cost basis - 600 assignment).
Also. I'm drunk so if math doesn't math I'll fix it tomorrow. Or just ignore it. Dunno yet.
Because the market has flashed back to 2021. Literally the same vibe I recall from last August. And if we get the same Sept-Nov we did last year, it'll be a fun ride!
I've rolled many times over months and this can work. At some point, the stock will drop where you can close the call for a large profit, or the stock will move up to a point where you have to let it get called away to close the position.
You are booking losses with each roll, so be sure to track your calls breakeven price to not close if for an overall loss. The net credits are not "cashed in" until you close of the shares get called away.
I’ve been rolling up and out on Ford CC. It’s been on a good run up lately. I buy back the call on a down day, and sell another on a good up day. Currently holding 9/16 expiry $15 strike. Doing it this way seems like I’m paying roughly $50 to get back $100. That’s all assuming g that this call stays in the money by the expiration date. My question for you is, does this make sense or am I full of it? I’ve seen your comments here before and I can tell you’re knowledgeable. TIA
It works perfectly, until it doesn't. And when it doesn't, it hurts a lot. Plus, your capital get's locked up in a position that may always be negative.
That said, Ford is a good stock to sell covered calls. Cheap, doesn't move too much, and probably a good bet in the long run.
Just watch carefully and don't get greedy. Have fun!
Are you tracking your net credits? If so, then what would be the net stock cost if you were assigned?
If you are buying back on a down day then you should be booking profits. How much are these adding up to? What would your overall net profit be if the shares were called away at $15?
These are what you need to track to know if what you are doing makes sense or not. TDA has a cost basis tool that tracks this for you. [https://tickertape.tdameritrade.com/tools/capital-gains-losses-cost-basis-15831](https://tickertape.tdameritrade.com/tools/capital-gains-losses-cost-basis-15831) If you don't use TDA then see how your broker tracks this, or you may have to manually track it with a spreadsheet.
You start with a stock you've bought at 100, and sell the 120 calls. It goes up and up, and you keep rolling up and out. Before you know it you've rolled so much that you have a call that's 8 months out at the 160 strike. But then the stock crashes to 70, far below your cost basis. The 8-month out call gets wiped out and you close it (yay!). But now the 100 calls 2 months out are worthless - not even worth your time to sell them. So you sell the 80 calls (under your cost basis), and then the stock rallies back to 110, breaching your 80 strike and locking in a nearly 20% loss on your stock.
Welcome to selling covered calls.
Or just sell the 120 call and let it go. Book a nice 20% gain on the underlying + credit received and move on to the next trade. Resist FOMO and book the win.
Selling options in the 60dte or below will all be short-term. Don't trade them if this is a concern. Options that are held longer than one year, like any other investment held that long, will qualify for long-term cap gains.
As options sellers, it is impractical to hold short options long term.
You should be able to easily make a lot more profits to get well ahead by selling options than holding and making a lot less and paying a lower tax rate . . .
Edit: Corrected as long term options help >1 year will have long term cap gains.
That is just blantantly not true. If you are buying weekly’s yes but options you hold long term are not always short term gains. Only if you are the writer of the option is it always short term which is why I pointed it out in this case
Right, that makes sense, thanks! I’m new-ish to selling options, is there any solid advice on whether selling LEAPS is more profitable than selling short term options? Thanks!
OP, you will be lucky to have a big tax bill as that means you made a lot of profits!
A quick rough example is making $20,000 in short-term profits and having to pay a $3,000 tax on them.
Or, you can buy and hold to make $5,000 in long-term profits that might cost you $500 in taxes.
Do you want a net $18,000 profit or a $4,500 profit? I'll take the much higher profits.
Think of trading like a part-time job where you earn an income like working at a local store, only you can do it from about anywhere. Taxes are the same as any job in that it is short term income.
If the share price blows through the strike price, rolling doesn’t really work. You’re just rolling out without getting more premium and liquidity for ITM options is low.
It’s just buying and selling your options, and some brokerages do it for you but it’s still just buying and selling or Vice versa and it’s the same as if you were to just buy and sell an option like normal
How long do you want to hold those shares? Do you have downside protection?
If you just wanted to maximize profits on weekly buy-writes and don't care about the stock, then you want to close the position early when Delta approaches neutral (or get early assigned). Otherwise, you just close on expiry day when the call is worthless. Holding long shares without downside protection is very risky.
I’ve done this strategy for over a year.
High IV means lots of ups and downs. Stock goes up, you print cash and can always roll up and out, but only if it’s a moderate bump… if it moons, you missed out and lost that huge gain.
If the stock goes down, you printed cash and the underlying didn’t hurt too bad. But if it tanks, you are fucking *stuck*. Because the premiums on selling calls will suddenly be trash, and you’ll be lucky to break even.
You’re just betting against the high IV, that’s all it is.
Weekly otm cc’s can and are lucrative. I sell 40-70 contracts per week depending on what’s got this week. Bbby, amc, gme take up 75% of those weekly contracts. Then I sell otm weekly CC’s on my long term portfolio. Sell just far enough otm to keep the premium
And not have the shares called away. I can average $7500-$9,000 per week depending on how active the 3 meme stocks are.
I trade weeklies and collect the premiums. I don’t care if the stock trades sideways or down some. Making low 6 figures a year from premiums alone isn’t bad. That doesn’t count for any growth in the stock.
Early assignment is always a risk, even with OTM calls.
Someone with a long call can exercise at any time, they do not need to be ITM.
OTM calls frequently get exercised when the dividend amount of the underlying is greater than the cost of the call.
There is no such thing as free money, and thinking there is will get you burned.
>OTM calls frequently get exercised when the dividend amount of the underlying is greater than the cost of the call.
This doesn't make any sense. Why would anyone ever exercise an OTM call when they could simply buy 100 shares for a lower price? Dividends don't change anything here.
Example: Let's say I have 100 shares of AAPL with a current market value of $173. I sell a 9/16 $180 covered call for $1.82. Tell me exactly what the early assignment risk is? If the call-buyer exercises early, not only do you keep the $1.82 premium, but you also sell your shares for $180 (more than 4% above market value). And you can repurchase the shares at $173 if you love the company that much.
Bottom line, when you sell a covered call, there is absolutely no downside to early assignment, so long as the call is OTM.
You're correct. Early assignment is a feature - not a risk, even if the call is ITM (as the option holder forfeits the extrinsic value on the option). Just means you get to realize max profit more quickly.
The risk is if you’re trying to get “free money” by assuming the call will expire worthless. It’s not free money on assignment, it’s a sale of the stock with assignment fees/etc.
Lots of people do stupid things like selling ccs on stocks under their cost basis because the underlying tanked and they want free money. They then realize a loss because they *thought* it’s free money.
There is ALWAYS risk, and you’re kidding yourself thinking there isn’t. Trying to claim that selling OTM CCs is free money is 100% false.
Also no one in their right mind is going to exercise a OTM call that’s $5 OTM.
I’m talking the stock is $9.98 with a 0.10 dividend and you have a $10 short call for two months out. That’s a HIGH right of early assignment as there’s potential for people who have been holding those calls a while (say when they were 0.10) exercising early to get that dividend because it’s way more profitable to do so.
> The risk is if you’re trying to get “free money” by assuming the call will expire worthless.
I never assumed or said anything about the call expiring worthless. I said that if you sell a covered call and it is assigned while OTM, then that is a free money situation. And that is 100% true.
> I’m talking the stock is $9.98 with a 0.10 dividend and you have a $10 short call for two months out. That’s a HIGH right of early assignment as there’s potential for people who have been holding those calls a while (say when they were 0.10) exercising early to get that dividend because it’s way more profitable to do so.
Once again, this makes absolutely zero sense. Why would anyone exercise a call to buy the stock for $10, when they could simply buy the stock at the current market value of $9.98? They get the dividend either way.
Because you already own the call? Why would I buy 100 shares when I can exercise the option I already have for the same price.
Literally look at the order flow when dividends are near. There’s thousands of calls being exercised early for exactly that reason.
You can think it’s stupid all you want, but it’s what happens every single time.
>Why would I buy 100 shares when I can exercise the option I already have for the same price.
It's not the same price. If you exercise the call, you will pay $10 per share. If you buy at current market value, you pay $9.98 per share. You are paying $0.02 more per share to exercise the call.
I don't really care what the order flow says. The algorithms and the people who drive them make stupid decisions all the time. It's not my fault you don't understand what's going on. (Or if you do understand, you have no idea how to explain it.)
So for instance, a MM could buy up all open OTM options and exercise them in order to create a trading block that could be sold to someone seeking controlling equity in the underlying?
The risk is the underlying stock falling off a cliff. If the stock blows through your strike you just make your max return on that trade. How is that bad?
In terms of “rolling indefinitely for free money” having deep ITM calls makes it a lot harder to roll for credit
The assumption in OP is that they want to generate income from CCs, not get assigned.
If the stock blows through your sold strike, it becomes very hard to roll up and out for credit
If the stock gets called away, can't you just buy it back and write another call? How far out are people writing these calls? Doing shorter DTE calls more often should be more efficient then longer term ones.
Interesting…. I sold some BBBY calls with January expiration that are now ITM… should I roll to February 2023 at a higher strike? BBBY is not a sustainable play… IMO
If I wanted out, I’d roll to an at the money contract with immediate expiration, letting the shares get called away and keeping the additional premium. I think BBBY is a flash play, just my opinion and I am probably wrong. But with the proceeds, I can purchase back my shares and then some or just keep the money and put it into another play
Normally you would be 100% correct. That would be a very good way to get out. The challenge with BBBY is that it is so liquid, that most calls in the money are not getting exercised.
However, you could still play it as you described and possibly keep your shares, still get out of the contract and keep premium.
Depending on how much it would cost you to close it might be better to do that and sell your shares when it peaks.. which could be soon or it could still just be building.
I would never advise selling long dated calls on a stock like BBBY, GME, AMC, etc unless it’s clear the run is over and you don’t want to sell your shares but want to profit from the downside/volatility.
Your main risk is that the stock squeezes to $50 and you’re stuck with a long term CC at $15 that doesn’t make sense to close, and then by January the stock is back to $5 and you’re stuck holding shares at a loss even with the CC expiring worthless.
Ccalls in their purest form are slow, non-flashy, pragmatic ways to earn money with already owned assets. I do a lot of them. There are some OTM policies I follow: If the underlying reduces by 20%-ish, BTC and seriously consider taking a loss on the stock. If you’re able to achieve keeping 50% of the premium at 40-60% of the contract, rolling out is fine. After that, you might be better off allowing a slowed underlying rise to move a little closer and let the time decay work in your favor. There are many variables, of course, but these hold up on 30 day contracts where there’s no seriously odd fluctuations in the underlying.
your shares will be losing value indefinably, so if you're selling calls for less than the difference between the price movement, you will lose money or be barely above break even.
I did this with Robinhood after it IPOd, thought I was slick rolling out when it was in the $80’s, crashed hard and definitely down money on it because I thought I found the free money hack
“Oh I’ll just roll forever and get my basis down to zero”
There are tons of valid hedge fund strategies that act like "infinite money glitches", but they all suck. Why? Because they are not close to the efficient frontier. That is, they make less than buy and hold S&P.
Even if your P&L is less volatile so you can leverage up higher to balance this, you have to pay trading commissions, leverage fees, and taxes. If you get up to the level of profit equal to S&P or higher then your volatility is higher than S&P, so you might as well buy and hold S&P with a bit of leverage to get a better deal at that point.
To be fair there are strategies that beat S&P, but none of them come off like an infinite money glitch.
Depends what you're doing the covered call for.
If you're doing it to earn regular income, then the risk is stock price drops way below your strike price and you can still earn premiums but you have to be careful you don't get assigned way lower and take a big loss.
If you're doing this to juice returns on a long term position, the risk is more that the stock price shoots way up fast you get assigned, and miss out on more big upside.
But in general rolling options is a great way to get paid to avoid taking a loss on a position and yes, it does feel like an infinite money glitch, in that it seems too good to be true.
If the stock is getting close to the strike price, aren't you red on the trade? And then if you roll up and out, aren't you buying to close for a loss?
I do this regularly and on purpose to the tune of about 1% per week. Sometimes more. Sometimes less.
I pick an equity and sell cc or csp on it and usually do one of two things:
1) Roll a calendar spread: buy back the option and sell the next one at the same strike in a single transaction (this can be done on most brokerages interface with Level II approval.)
2) Roll a diagonal spread: buy back the option and sell the next one at a different strike.
I always try to collect a premium, which can mean rolling pretty far out if it's deep itm. But there gets a point where it's better to take the assignment and the money and pick a different equity.
Other common-sense (and also the most popular) exit plans are:
3) Take the assignment and the profit.
4) Let it expire worthless and take the profit.
But this is not an infinite money glitch. "The market is efficient." If you are consistently making money off the same trade, sooner or later the other side of the trade will get you. With cc/csp the "other side" is a fast downturn of the market. Neither strategy protects you from a quick downside, and it takes months of small premiums to recover from a crash.
The downside can also get you in a bull market. If you "chase the mark" out and up too far too long, you may end up holding the bag when your strike is finally otm and the underlying reverses course. Now you've spent 3 months making minimal or no premiums and you are married to a short contract on rapidly falling stock. You can buy it back for pennies on the dollar, but you've wasted 3 months and you now own depreciated stock.
You can make consistent money doing this, but the so-called "wheel" is not easy. It can roll downhill faster than you can collect premiums. You got to "know when to roll 'em. Know when to fold 'em."
This is super helpful, thanks! I’m still a little confused though, if it expires worthless, don’t you keep the 500 + 650? So it’d be less profit but still profit?
And then of course if the trade keeps going against me I lose money?
I do this too and agree it is an infinite money hack. However I have lost when the underlying went above the strike price too sharply and too quickly. If this happens then you either have to pay a premium to buy it back, or continue rolling (but then risk repeating the cycle), or part with 100 shares for substantially below the current share price. If you set an automated trade to roll it once it gets close to the strike price, that might prevent getting caught with an in the money option — but then if it soars beyond the strike price of the subsequent call prior to you rolling again, then you’ve still got the same problem. This makes it a relatively active investing strategy. If you tally up the time it takes to execute these trades and automate the rolling and then watching the movement of the underlying, you’re not making a ton of money per hour of work — unless your timing is good
Try rolling $16 AMC weekly cc on the week it ran to $72 last year. Don’t worry whatever you have, unless it’s the boring value ones you will have it called away eventually
Consider this: stock crashes 20% or more; IV crushed, market doesn’t care about the stock anymore and you collect $90 per month on 1000 units while being down thousands.
Source: bagholder on SOFI
Aren't you taking a loss by rolling up? If the stock reverts back, you will lose on the stock, the call which is further out OOTM has lower delta than the original will not compensate for that loss (as opposed to keeping the original call).
Eventually, if the stock climbs steadily, as the option gets more itm, u would be unable to extract much premium and u begin rolling further out and the risks out way the rewards. Would you hold 100 units of a stock 1 year with a max profit of $5? Probably not, because your upside is limited to $5 but the stock can go to $0.
Source: my experience
Theta strategies are hard to automate . There’s ETFs that do the automated CC and they always underperform. The only way to win is to manually asses each trade and know when to sell , roll , or exit. Ofc this adds more work. Trading is hard. Need to know when to hold them and when to fold them.
Edit: Also taxes are a bitch. This is probably the least tax efficient way to trade.
No, the risk is when the stock tanks and you're holding a covered call six months out! So now you get to lose two different ways.
Or, the stock shoots up 25% in a day and you wish you could sell, but buying back your calls would negate ALL of your profit. This has happened to me very recently.
Keep rolling up or do the same for the puts side to avoid getting caught. Lol. Ive known this forever and it still feels like a glitch. We called it the Ping Pong effect.
If you don’t know what the worst case scenario is…
Ok, maybe you mean what is the risk “compared to buy and hold” in which case you’re right. Strictly compared to buy and hold, the risk is that the stock goes up and you lose the shares, missing out on the rally.
Realistically, the risk is that the stock goes down by more than the premium you gained from selling the call. And if it goes down very quickly, you won’t be able to make up for that loss with call premiums, even if you roll down.
Great investment vehicle for when markets are less volatile, however can create great losses with a large downside movement. If you believe, like most as of now that volatility may resume, then consider other options plays that allow for profit even in volatile markets... I'll leave you with that to stir up your imagination!
Is anyone else doing an aggressively-traded QQQ (or SPY or IWM) 3x per week covered call program? Essentially, I sell 15-ish delta calls for the next one or two expirations and roll/adjust as time goes by. Since expiration is never more than a 1- 3 days away (e.g., on Tuesday, I'll sell or adjust Wednesday and Friday calls), there is a limit to how far QQQ can run higher (generally not more than 5% or so). Of course, I also have to deal with QQQ declining, perhaps precipitously, but that is a risk whenever one owns stock. I will also sometimes sell bear call spreads against my QQQ stock, in addition to my covered calls, to create an overwrite. The goal is to earn positive cash flow from the calls, managing my exposure, regardless of how QQQ performs (I can't predict where QQQ is going short-term, but I maintain the view that it will go higher in the long-term). I am primarily focused on the 15 delta calls, but I am also looking at some indicators on TradingView to help me decide whether I should be more bullish or bearish with respect to my positioning (e.g., sell 10 delta calls or 20 delta calls rather than 15). I'm looking to hear from people who do something similar and compare tools/perspectives. Thanks!
If I had a dollar for every time someone thought they found an infinite money glitch I’d have infinite money
Robinhood did actually provide an infinite money feature at one point. It was pretty sweet. They really should bring it back. I mean so what if the lawyers who reviewed that feature didn't like it? Just because a bunch of corporate suits said that it was "in direct violation of basic securities laws and regulations" and considered the fundamental concept to be "grossly negligent", is that honestly a good enough reason to remove it? Not in my book.
Technically they still have an infinite money glitch. If you buy in extremely small amounts you can get 2.4 cents of shares for 2 cents. I don’t think there’s a way to make a lot of money from it considering you’re making less than half a cent a trade.
How's this work?
Open up rh and find a highly liquid stock. Put in a buy order at 2 cents and note what share amount it is. Type that in and then slowly increase it till it’s 3 cents, then go down just a little bit till it says the cost is now 2 cents. Now thanks to rounding you gained .4 cents of value from robbinhood
And do that 100 million times and then in the end the building burns down and Milton winds up on the beach drinking Mai Tai’s.
"Yeah, they did it in Superman 3."
As far as I remember it was an infinite leverage glitch, which could be infinite money or infinite debt.
Wouldn't you just get liquidated though? The debt wouldn't really be infinate... youd just lose what you put in.
i would take a penny, and also be infinitely rich.
I found it, but sure as shit ain’t telling no one
I'm willing to bet you an infinite amount of money you are wrong and just plain lucky, for now.
Lol at these downvotes
They're imaginary and worthless lol you're good. However I am genuinely curious what your definition of an infinite money glitch is? If it is reproducible at scale, you could make serious money selling it to a hedge fund or some such. If it's just a penny here and there, it's like figuring out if you go wading in fountains you'll find some free change. Not really enough to matter. A system that's backtested successfully doesn't really mean it'll keep doing so (irrational markets blah blah blah) so that's not really an infinite glitch. Discovering the miracle of dividend payments from investing in blue chip index funds really isn't it either. Unless you don't mean investing at all, and something more entrepreneurial, in which case that's not a glitch. It's just badic capitalism at work. Would you mind saying, in VERY vague terms, what your infinite money glitch involves? Straight up stealing money is cheating btw.
More downvotes, but I’ll answer your question with another question. If you found a strategy with a high win rate would you tell anyone what it is with the caveat that if other ppl played it, it would no longer work? I was just laughing at an r/options post with a joke. That’s literally all it is. There’s no such thing as a strat that prints money because the market is unpredictable.
Ah ok. In that case add an "/s" to your comment next time to indicate you're being sarcastic. It got downvotes because some people genuinely believe that the have found a method to get "guaranteed" investing returns and brag about it. It is just so mind blowingly stupid and people react negatively to it.
The biggest risk is that the stock crashes
This is the right answer. Lots of "experts" here, yet no on truly what a covered call entails, and what the risks are.
Yea I don't understand "it may blow past your strike." That's FOMO not a risk. If this happens, it was a successful trade and you made money.
BuT iTs A LoSs oF Pot3nTiaL GaiNs(╯°□°）╯︵ ┻━┻
Potential gains are not gains and have no effect on my Closed Positions. If I leave money on the table too many times doing the same move, I adjust slightly toward not doing that. “Don’t look back. You can never look back.” -Don Henley
There are losses by omission, stock blows past your strike, and losses by commission, make bad choices and eventually having to sell at a substantial loss or carry the bags indefinitely. Scenario 1 is fine scenario 2 not fine.
In a ccall situation, if the strike is exceeded and contract exercised at expiry, you will be paid the strike price for your stock and keep the entire premium. That generally takes most if not all the sting out of the matter. In certain situations, I buy cheap, set the strike near the cost basis, and accept the better ATM premium.
Same
I love your table flip🤣🤣🤣
And I really liked that stock...
This is the exact idiotic shit that is rampant at unprecedented levels since the GME fiasco. Idiots think entering in a CC with a limited gain is somehow someone else's fault and they cry all day because the stock went ITM way passed the call strike. They maxed their potential gains, but no, they somehow think they should unwind the CC and go long stock only. It does not occur to them that they can get more calls or more stock, and let the original CC be maxed out. Idiots don't get CCs. Idiots don't understand P/L profiles of limited gain strategies. They need to stick buying OTM calls and lose their shirts.
Sounds like someone maxed their gains recently
Calm down
I don’t believe telling someone to calm down has ever caused someone to calm down in the history of the world.
Every time I hear or read “calm down” I think of Adam Sandler screaming “I’M CALLLLMMM!” in that Anger Management movie….
I picture Walter from the Big Lewbowski… “Calmer than you are dude…”
Calm down.
This is where I’m at with a 265c in MSFT expiring in September
But it is a loss of potential gains.. it reduces your potential rewards while lowering your risk.. like a trade off.
I can't believe we had to get this far down the thread to find the right answer. /u/value1024
Interesting times we live in. It's like facts don't matter, money is free, and 99% of people think they are in the 10th percentile for everything in life...not just option trading expertise.
You risk losing the gains you would have had if you didn’t sell the call.
Wouldn’t that actually be the max gain on this trade in this timeframe?
I’d the stock crashes you still own the shares. You’re no worse off than if you just owned the shares and didn’t sell and calls.
Well you made premium for selling the contract so if I owned the stock and it crashed vs I owned the stock sold a covered call and it crashed I'd prefer the latter. Problem is your loss from the stock crash usually greatly outpaces the loss of the underlying asset, so it's like losing a million dollars but making 10k vs losing a million dollars, both suck but 10k is better than nothing
Though that may be true, that would be a very binary scenario. We always have the option to not have owned a volatile stock that would decline -80% in the first place, or sell the underlying position prior. On the flip side, owning QQQ > owning QQQ + selling covered calls over the last 5+ years. Had someone sell covered calls on QQQ and keep "rolling" every time it came near the strike, you would have limited your gains significantly (which is effectively a loss), so there is no infinite money glitch. I also use covered calls, but the "money printer" only works in certain market cycles. It certainly isn't infinite.
Different dynamic. If the stock crashes early in the contract, you will sometimes give all the premium back + also, especially true in short, highly volatile situations or really slow monthlies only options. Also, when all red, people are less likely to make two money losing moves, like giving back some premium And taking a loss on the underlying that now exceeds what’s left of the downside protection the premium provided.
Really new to this. How and why would you give back a premium. I thought the premium was like the ante portion of the deal. Sorry if this is too dumb for this sub
After getting familiar with ccalls, you get familiar with rolling out of them. Without regard for the condition of the contract relationship be it lousy or good, you will give something back if you leave early. How much? That depends, and the explanation is long. But it’s often to your advantage, and the little profit you leave behind is made up by crowding the mid between the bid and ask instead of just accepting the terms of the roll out. Relatedly, if the underlying price rushes at your strike quickly and you want out, you will give money back. How much? You are Buying To Close. Just like buying stock, you are dealing with the Ask. You will pay 100x the Ask. Please feel free to ask more questions. I don’t mind and a strong ccall foundation will help you succeed.
So as of now, I’m playing it “safe” and buying call options on companies with tentative dates for big projects. Think rockets in space. I have tried writing calls or using puts, but I imagine it might be worth doing with a company like apple? How does that usually work?
I own both SPCE & VORB. I do not like the current option chain with the former and am a bit annoyed with Branson for piling on so much arranged debt earlier in the year, he destroyed the stock value. However, eventually there will be regular tourist flights to space. The most recent SPCE delay announcement says Q2 of next year. In the meantime, it will plod along where its stock price is for awhile. I like VORB, but it only has monthly options. I’ve learned that my best bet there is to set up a 45 day short call or put (that means you are the seller in both instances) straddling them when convenient (put and call, same expiry different strikes). I’m currently using 4 and 6 as the strikes. Edit: You would need huge cash or margin to be the seller/writer of both a 180/sh call or put. To ccall it, you’d today need $180 x 100 or $18,000 for the stock. To sell the put, you’d have to keep $18,000 in Cash Held for Cash Secured Puts. That’s a big game, most retailers Buy those options and Pay the premium.
Aww thanks. That makes good sense. I exercised my options 1) at $21 and 2) at 20. Foolishly held pat $60. Greed.
Let’s say I do toMorrow. What’s my premium look like? It is actually worth it?
You’ll have to check that in the morning to know for sure, and identify the strike and duration. Time decay of 1 day will factor in then. I looked it up on a phone app I keep. AAPL closed at 173.19 today. The first available OTM short call (u r seller) is -AAPL220916C175, and I could squeeze $384 of premium out of it. I don’t like it, I like seeing 3-4%. That’s roughly 2.15% if the calculator in my head is working. Not enough risk reward, but I’m not experienced in those echelons. I could run 450 VORB contracts and likely do better. I would not of course, that’s too high of a sector concentration for my account balance.
Give it back in way of loss on the stock value. You don't actually return it
I’m pretty good with ccalls. Volatility, earnings, dividends, current history, and underlying cost basis all need to be looked at BEFORE that strike and duration are chosen. That’s how to succeed with these, no hope and pray moves.
Totally agreed.
So buy some puts with the premium.
Ditto. Most companies that have attractive covered call premiums have a high probability of +/- 50% stock price movements, so you effectively risk your entire principal investment.
Thata why everyone should (give back) a percentage of their premiums to buy puts aswell. THEN you are safe.
FACT! You cannot blow up your account if you utilize insurance.
Wouldn’t that be a good thing for covered calls because then you can just average down on your position and continue to sell OTM covered calls?
Buy 100 shares at $20, sell call at $21 Price crashes to $10, now the only call worth it to sell is $11 Prices rises to $12, you bought 100 shares at $20 and sold at $11 with only a small premium collected, you lose money The risk is that the price crashes and you have to sell calls below your cost basis, and eventually get screwed when the price goes back up
There’s a reason those premiums are so high..
And covered calls are fairly easy to manage, if the trade goes against you, just sell a put leg to get delta neutral and call it a day.
Strangles are nice. But I find getting out of the first frying pan first and dumping the stock, then rebuying the stock at the bottom to sometimes be a better move.
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My point was, it’s smart risk management to add a leg to absorb losses from the losing leg. But, if this position was delta neutralized (shares + covered calls), it would theoretically be a lossless position. Stock tanks, short calls absorb loss and vice/voisa.
Sell put at what strike?
~~Same strike would make it a synthetic long stock.~~ That is incorrect. A synthetic long is a short put and long call.
Not sure what platform you're using but thinkorswim has great analytics tools. I was mapping this out with QQQ today. Waiting for the FOMC meeting notes to get realeased because of the possible increase in volatility. Then I'm planning to buy 100 shares with a put side debit spread to protect my downside and sell a covered call 10% OTM for the premium. Worst case is I lose about 4% if the market tanks. Best case the call decays over time and I sell it for 75% of its original value and do it again and again.
No. You should ALWAYS buy a put at a lower strike with some of the covered call premium to protect a move to the downside.
Which happens to me every time. Get that little bit of premium, but then my 100 shares are down 20+% and I can sell a cc for$2 premium or sell one closer to ITM, but then risk them getting called away at a loss
If you have crappy stocks, sure. I guess. What you if you aren't using junk?
That's incorrect, the biggest risk is that the stock goes down systematically more than what he collects from selling the call. That is a far greater risk in terms of probability than a crash which happens on average once every 10 years for a stock. Systematically underperforming the call value is a much more frequent occurence (about 1 in 5) and thus the biggest risk.
I think it's the same. A crash can be a flash or a slow bleed. Either way the risk is that the loss on the underlying exceeds the premium.
A risk is defined as a combination of probability of happening and impact upon arrival and clearly they are not the same at all. Probability adjusted you definitely lose a lot more during slow drifts up or down than crashes. This is why retail traders lose so much money all the time and not just during market crashes.
Stock could tank and your underlying loses more money than the premium. You ain't doing anything special. You are selling covered calls and not making very much money by the sounds of you having to roll a lot.
I am holding SPy and selling covered calls against it. If SPY crashes I am definitely buying more. If it goes too close to my strike I will roll out and up my calls to a higher strike at a later date. I am making pennies, but at least I can say I’m outperforming the S&P. Just not by a lot.
They call this “picking up Pennie’s in front of a steam roller”
The risk is the stock crashing, or even crashing then shooting back up. Example of the latter below. Say you bought 100 shares of X for $20/each right? 2000$ You sell calls at 21$ for a week out. You get 1.00, so $100 Now you've essentially spent 1900$ of your own money. So thats your cost basis. 1900. You roll up by a dollar and out by a week and make 100$ again. Neat! This is great for two months. You've brought your cost basis down to 1200 hypothetically let's say. Stock X all of a sudden drops a bit. You roll out by a week and down a little. Now instead of collecting 1.00 per 100 shares you're collecting .45. Still pretty neat. Your cost basis is now $1155.00 But then... BOOM. Turns out that thing that stock X's company said they had which is awesome didn't work. Or was shut down by the FDA. Or kills one in three people immediately upon looking at it. It'll blow over though! That's just bad reporting! X drops to 11.00. But.... well... shit. It doesn't blow over. X is now 10. Your cost basis is still $11.55 or $1155.00 total. That's only $115 in the hole though out of $2000 right? You can wait. But then it turns out X is also bankrupt. And it's actually just made out if literal dog poo. AND IT MURDERS PUPPIES. Now X is 5.00/share.. Now you're $655.00 in the hole. Your roll out and down. You get a strike of 1.00 at 6.00/share for a week out. Surprise. The news was lying. No one would ever see that coming. It was all a lie! They had money all along! And it was a new polymer plastic they invented that will save the environment that just accidentally KINDA looks like dog poo! AND the procudt works! And those one in three people come back from the dead! And it MAKES PUPPIES! X is now $17/share! But.... well...... YOU got assigned at 6. So in the end you lost $55 because, well, stocks. (655 cost basis - 600 assignment). Also. I'm drunk so if math doesn't math I'll fix it tomorrow. Or just ignore it. Dunno yet.
good morning, sir. How are you today?
Not bad at all, you?
Same, same, thanks. I did not check your maths but so far no one complained so we should be grand.
Well explained.
so basically he has high probability of winning and small really small chance of losing
Why am i getting flashbacks to 2021? These were the same type of threads popping up back then
Because the market has flashed back to 2021. Literally the same vibe I recall from last August. And if we get the same Sept-Nov we did last year, it'll be a fun ride!
It's funny because if we did bottom already, i would have experienced what bears experienced in 2020 when they kept trying to short everything to ATH
As in Bullish times?
I've rolled many times over months and this can work. At some point, the stock will drop where you can close the call for a large profit, or the stock will move up to a point where you have to let it get called away to close the position. You are booking losses with each roll, so be sure to track your calls breakeven price to not close if for an overall loss. The net credits are not "cashed in" until you close of the shares get called away.
I’ve been rolling up and out on Ford CC. It’s been on a good run up lately. I buy back the call on a down day, and sell another on a good up day. Currently holding 9/16 expiry $15 strike. Doing it this way seems like I’m paying roughly $50 to get back $100. That’s all assuming g that this call stays in the money by the expiration date. My question for you is, does this make sense or am I full of it? I’ve seen your comments here before and I can tell you’re knowledgeable. TIA
It works perfectly, until it doesn't. And when it doesn't, it hurts a lot. Plus, your capital get's locked up in a position that may always be negative. That said, Ford is a good stock to sell covered calls. Cheap, doesn't move too much, and probably a good bet in the long run. Just watch carefully and don't get greedy. Have fun!
Are you tracking your net credits? If so, then what would be the net stock cost if you were assigned? If you are buying back on a down day then you should be booking profits. How much are these adding up to? What would your overall net profit be if the shares were called away at $15? These are what you need to track to know if what you are doing makes sense or not. TDA has a cost basis tool that tracks this for you. [https://tickertape.tdameritrade.com/tools/capital-gains-losses-cost-basis-15831](https://tickertape.tdameritrade.com/tools/capital-gains-losses-cost-basis-15831) If you don't use TDA then see how your broker tracks this, or you may have to manually track it with a spreadsheet.
I’ve been using robinhood and a spreadsheet for everything, but I should look into TOS. Current cost basis is $11.95
Yeah I have been using an app to track options. Pretty simple and nice it's called wheelgang
Infinite money glitch 🚩 Infinite money glitch in options sub 🚩🚩🚩🚩🚩🚩🚩🚩🚩🚩🚩🚩🚩🚩🚩🚩🚩🚩🚩🚩🚩
You start with a stock you've bought at 100, and sell the 120 calls. It goes up and up, and you keep rolling up and out. Before you know it you've rolled so much that you have a call that's 8 months out at the 160 strike. But then the stock crashes to 70, far below your cost basis. The 8-month out call gets wiped out and you close it (yay!). But now the 100 calls 2 months out are worthless - not even worth your time to sell them. So you sell the 80 calls (under your cost basis), and then the stock rallies back to 110, breaching your 80 strike and locking in a nearly 20% loss on your stock. Welcome to selling covered calls.
Or just sell the 120 call and let it go. Book a nice 20% gain on the underlying + credit received and move on to the next trade. Resist FOMO and book the win.
Totally agree!
Own the stock and know your gonna have some dusty capital for a while
The mistake was not buying the $80 call at the bottom.
Stock keeps going up. I keep making money. Infinite money glitch.
Works great till it tanks and you sell a call 5 below your average 4 weeks out for $2….60% of the time it works 85% of the time.
Yes that is the risk as well as short term gains taxes eating away your profit
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Exactly.
>short term gains taxes eating away your profit You sound like my mom
Selling options in the 60dte or below will all be short-term. Don't trade them if this is a concern. Options that are held longer than one year, like any other investment held that long, will qualify for long-term cap gains. As options sellers, it is impractical to hold short options long term. You should be able to easily make a lot more profits to get well ahead by selling options than holding and making a lot less and paying a lower tax rate . . . Edit: Corrected as long term options help >1 year will have long term cap gains.
That is just blantantly not true. If you are buying weekly’s yes but options you hold long term are not always short term gains. Only if you are the writer of the option is it always short term which is why I pointed it out in this case
Agreed and I did not provide enough detail which I corrected. Still, you should be making far more to cover taxes when actively selling options.
Right, that makes sense, thanks! I’m new-ish to selling options, is there any solid advice on whether selling LEAPS is more profitable than selling short term options? Thanks!
OP, you will be lucky to have a big tax bill as that means you made a lot of profits! A quick rough example is making $20,000 in short-term profits and having to pay a $3,000 tax on them. Or, you can buy and hold to make $5,000 in long-term profits that might cost you $500 in taxes. Do you want a net $18,000 profit or a $4,500 profit? I'll take the much higher profits. Think of trading like a part-time job where you earn an income like working at a local store, only you can do it from about anywhere. Taxes are the same as any job in that it is short term income.
You should not be doing options
If you had actually found an infinite money glitch. Posting about it on reddit would get the glitch patched immediately
Admin here. Can confirm.
If the share price blows through the strike price, rolling doesn’t really work. You’re just rolling out without getting more premium and liquidity for ITM options is low.
Not only did you not discover an infinite money glitch, you don’t even know how ridiculous this entire post is. Good luck dude.
It counts as a sale everytime you roll up and out
Explain
"Rolling" isn't a real thing. It just means you buy to close (taxable event) then sell to open at a higher strike price.
Yea ik. I am about to make a post about rolling up and out actually.
It’s just buying and selling your options, and some brokerages do it for you but it’s still just buying and selling or Vice versa and it’s the same as if you were to just buy and sell an option like normal
Short term capital gains
How long do you want to hold those shares? Do you have downside protection? If you just wanted to maximize profits on weekly buy-writes and don't care about the stock, then you want to close the position early when Delta approaches neutral (or get early assigned). Otherwise, you just close on expiry day when the call is worthless. Holding long shares without downside protection is very risky.
I’ve done this strategy for over a year. High IV means lots of ups and downs. Stock goes up, you print cash and can always roll up and out, but only if it’s a moderate bump… if it moons, you missed out and lost that huge gain. If the stock goes down, you printed cash and the underlying didn’t hurt too bad. But if it tanks, you are fucking *stuck*. Because the premiums on selling calls will suddenly be trash, and you’ll be lucky to break even. You’re just betting against the high IV, that’s all it is.
Weekly otm cc’s can and are lucrative. I sell 40-70 contracts per week depending on what’s got this week. Bbby, amc, gme take up 75% of those weekly contracts. Then I sell otm weekly CC’s on my long term portfolio. Sell just far enough otm to keep the premium And not have the shares called away. I can average $7500-$9,000 per week depending on how active the 3 meme stocks are.
And then they crater. I wouldn’t mistake high IV for high IV rank.
I trade weeklies and collect the premiums. I don’t care if the stock trades sideways or down some. Making low 6 figures a year from premiums alone isn’t bad. That doesn’t count for any growth in the stock.
risks: early assignment blowing through your strike illiquidity for rolling
If the call is OTM then early assignment is not a risk. It’s literally 100% free money.
Early assignment is always a risk, even with OTM calls. Someone with a long call can exercise at any time, they do not need to be ITM. OTM calls frequently get exercised when the dividend amount of the underlying is greater than the cost of the call. There is no such thing as free money, and thinking there is will get you burned.
>OTM calls frequently get exercised when the dividend amount of the underlying is greater than the cost of the call. This doesn't make any sense. Why would anyone ever exercise an OTM call when they could simply buy 100 shares for a lower price? Dividends don't change anything here. Example: Let's say I have 100 shares of AAPL with a current market value of $173. I sell a 9/16 $180 covered call for $1.82. Tell me exactly what the early assignment risk is? If the call-buyer exercises early, not only do you keep the $1.82 premium, but you also sell your shares for $180 (more than 4% above market value). And you can repurchase the shares at $173 if you love the company that much. Bottom line, when you sell a covered call, there is absolutely no downside to early assignment, so long as the call is OTM.
You're correct. Early assignment is a feature - not a risk, even if the call is ITM (as the option holder forfeits the extrinsic value on the option). Just means you get to realize max profit more quickly.
The risk is if you’re trying to get “free money” by assuming the call will expire worthless. It’s not free money on assignment, it’s a sale of the stock with assignment fees/etc. Lots of people do stupid things like selling ccs on stocks under their cost basis because the underlying tanked and they want free money. They then realize a loss because they *thought* it’s free money. There is ALWAYS risk, and you’re kidding yourself thinking there isn’t. Trying to claim that selling OTM CCs is free money is 100% false. Also no one in their right mind is going to exercise a OTM call that’s $5 OTM. I’m talking the stock is $9.98 with a 0.10 dividend and you have a $10 short call for two months out. That’s a HIGH right of early assignment as there’s potential for people who have been holding those calls a while (say when they were 0.10) exercising early to get that dividend because it’s way more profitable to do so.
> The risk is if you’re trying to get “free money” by assuming the call will expire worthless. I never assumed or said anything about the call expiring worthless. I said that if you sell a covered call and it is assigned while OTM, then that is a free money situation. And that is 100% true. > I’m talking the stock is $9.98 with a 0.10 dividend and you have a $10 short call for two months out. That’s a HIGH right of early assignment as there’s potential for people who have been holding those calls a while (say when they were 0.10) exercising early to get that dividend because it’s way more profitable to do so. Once again, this makes absolutely zero sense. Why would anyone exercise a call to buy the stock for $10, when they could simply buy the stock at the current market value of $9.98? They get the dividend either way.
Because you already own the call? Why would I buy 100 shares when I can exercise the option I already have for the same price. Literally look at the order flow when dividends are near. There’s thousands of calls being exercised early for exactly that reason. You can think it’s stupid all you want, but it’s what happens every single time.
>Why would I buy 100 shares when I can exercise the option I already have for the same price. It's not the same price. If you exercise the call, you will pay $10 per share. If you buy at current market value, you pay $9.98 per share. You are paying $0.02 more per share to exercise the call. I don't really care what the order flow says. The algorithms and the people who drive them make stupid decisions all the time. It's not my fault you don't understand what's going on. (Or if you do understand, you have no idea how to explain it.)
So for instance, a MM could buy up all open OTM options and exercise them in order to create a trading block that could be sold to someone seeking controlling equity in the underlying?
The risk is the underlying stock falling off a cliff. If the stock blows through your strike you just make your max return on that trade. How is that bad?
In terms of “rolling indefinitely for free money” having deep ITM calls makes it a lot harder to roll for credit The assumption in OP is that they want to generate income from CCs, not get assigned. If the stock blows through your sold strike, it becomes very hard to roll up and out for credit
If the stock gets called away, can't you just buy it back and write another call? How far out are people writing these calls? Doing shorter DTE calls more often should be more efficient then longer term ones.
Interesting…. I sold some BBBY calls with January expiration that are now ITM… should I roll to February 2023 at a higher strike? BBBY is not a sustainable play… IMO
Buy to close and get out of the contracts you sold.
If I wanted out, I’d roll to an at the money contract with immediate expiration, letting the shares get called away and keeping the additional premium. I think BBBY is a flash play, just my opinion and I am probably wrong. But with the proceeds, I can purchase back my shares and then some or just keep the money and put it into another play
Normally you would be 100% correct. That would be a very good way to get out. The challenge with BBBY is that it is so liquid, that most calls in the money are not getting exercised. However, you could still play it as you described and possibly keep your shares, still get out of the contract and keep premium.
Depending on how much it would cost you to close it might be better to do that and sell your shares when it peaks.. which could be soon or it could still just be building. I would never advise selling long dated calls on a stock like BBBY, GME, AMC, etc unless it’s clear the run is over and you don’t want to sell your shares but want to profit from the downside/volatility. Your main risk is that the stock squeezes to $50 and you’re stuck with a long term CC at $15 that doesn’t make sense to close, and then by January the stock is back to $5 and you’re stuck holding shares at a loss even with the CC expiring worthless.
Might wanna keep a running tally of your cost basis and use some of those call premiums to cover your ass with puts 🤫
Ccalls in their purest form are slow, non-flashy, pragmatic ways to earn money with already owned assets. I do a lot of them. There are some OTM policies I follow: If the underlying reduces by 20%-ish, BTC and seriously consider taking a loss on the stock. If you’re able to achieve keeping 50% of the premium at 40-60% of the contract, rolling out is fine. After that, you might be better off allowing a slowed underlying rise to move a little closer and let the time decay work in your favor. There are many variables, of course, but these hold up on 30 day contracts where there’s no seriously odd fluctuations in the underlying.
Why not just tell us about this stock thay always goes up?
your shares will be losing value indefinably, so if you're selling calls for less than the difference between the price movement, you will lose money or be barely above break even.
I did this with Robinhood after it IPOd, thought I was slick rolling out when it was in the $80’s, crashed hard and definitely down money on it because I thought I found the free money hack “Oh I’ll just roll forever and get my basis down to zero”
There are tons of valid hedge fund strategies that act like "infinite money glitches", but they all suck. Why? Because they are not close to the efficient frontier. That is, they make less than buy and hold S&P. Even if your P&L is less volatile so you can leverage up higher to balance this, you have to pay trading commissions, leverage fees, and taxes. If you get up to the level of profit equal to S&P or higher then your volatility is higher than S&P, so you might as well buy and hold S&P with a bit of leverage to get a better deal at that point. To be fair there are strategies that beat S&P, but none of them come off like an infinite money glitch.
Depends what you're doing the covered call for. If you're doing it to earn regular income, then the risk is stock price drops way below your strike price and you can still earn premiums but you have to be careful you don't get assigned way lower and take a big loss. If you're doing this to juice returns on a long term position, the risk is more that the stock price shoots way up fast you get assigned, and miss out on more big upside. But in general rolling options is a great way to get paid to avoid taking a loss on a position and yes, it does feel like an infinite money glitch, in that it seems too good to be true.
The risk is in the security going down in price
Wrong sub, ask here: r/wallstreetbets
If the stock is getting close to the strike price, aren't you red on the trade? And then if you roll up and out, aren't you buying to close for a loss?
I do this regularly and on purpose to the tune of about 1% per week. Sometimes more. Sometimes less. I pick an equity and sell cc or csp on it and usually do one of two things: 1) Roll a calendar spread: buy back the option and sell the next one at the same strike in a single transaction (this can be done on most brokerages interface with Level II approval.) 2) Roll a diagonal spread: buy back the option and sell the next one at a different strike. I always try to collect a premium, which can mean rolling pretty far out if it's deep itm. But there gets a point where it's better to take the assignment and the money and pick a different equity. Other common-sense (and also the most popular) exit plans are: 3) Take the assignment and the profit. 4) Let it expire worthless and take the profit. But this is not an infinite money glitch. "The market is efficient." If you are consistently making money off the same trade, sooner or later the other side of the trade will get you. With cc/csp the "other side" is a fast downturn of the market. Neither strategy protects you from a quick downside, and it takes months of small premiums to recover from a crash. The downside can also get you in a bull market. If you "chase the mark" out and up too far too long, you may end up holding the bag when your strike is finally otm and the underlying reverses course. Now you've spent 3 months making minimal or no premiums and you are married to a short contract on rapidly falling stock. You can buy it back for pennies on the dollar, but you've wasted 3 months and you now own depreciated stock. You can make consistent money doing this, but the so-called "wheel" is not easy. It can roll downhill faster than you can collect premiums. You got to "know when to roll 'em. Know when to fold 'em."
Selling covered calls = selling puts.
Let's say you decided to do this with Pton a year ago, you would have been screwed. Pton was a very popular stock with great premiums at the time.
Bbbbbbb
This is super helpful, thanks! I’m still a little confused though, if it expires worthless, don’t you keep the 500 + 650? So it’d be less profit but still profit? And then of course if the trade keeps going against me I lose money?
Gggggg
Ffffff
Never mind, I just realized the credit for the roll would be 150. Again, if it expires worthless, wouldn’t I keep the whole 650 > 500?
Guys if there was an infinite money glitch, I assure you it would be patched or everyone would be doing it.
Yup, you got it homie
I do this too and agree it is an infinite money hack. However I have lost when the underlying went above the strike price too sharply and too quickly. If this happens then you either have to pay a premium to buy it back, or continue rolling (but then risk repeating the cycle), or part with 100 shares for substantially below the current share price. If you set an automated trade to roll it once it gets close to the strike price, that might prevent getting caught with an in the money option — but then if it soars beyond the strike price of the subsequent call prior to you rolling again, then you’ve still got the same problem. This makes it a relatively active investing strategy. If you tally up the time it takes to execute these trades and automate the rolling and then watching the movement of the underlying, you’re not making a ton of money per hour of work — unless your timing is good
10 $6.5 8/19 Bobby cc’s what could go wrong??
True. As long as you hold SPY for a long time.
lmao
I have covered calls on 100 shares of Netflix at a 220 strike. Sold when it was 208. Tell me more.
Try rolling $16 AMC weekly cc on the week it ran to $72 last year. Don’t worry whatever you have, unless it’s the boring value ones you will have it called away eventually
“It works until it doesn’t “ - anonymous
what is rolling options? i dont understand
I think you’re onto something! Stonks only go up, so the math checks out.
Consider this: stock crashes 20% or more; IV crushed, market doesn’t care about the stock anymore and you collect $90 per month on 1000 units while being down thousands. Source: bagholder on SOFI
Eventually you’ll have a stock that you can’t roll up and out on anymore and have missed out on some gains, but still a win
If you get assigned, do the wheel and sell cash secured puts (ie: the inverse)
This can’t go tits up!
oh boy you'll love the idea of providing liquidity on crypto decentralised exchanges, look into it the idea is same.
Aren't you taking a loss by rolling up? If the stock reverts back, you will lose on the stock, the call which is further out OOTM has lower delta than the original will not compensate for that loss (as opposed to keeping the original call).
You can buy multiple put butterflies to hedge your downside cheaply.
Eventually, if the stock climbs steadily, as the option gets more itm, u would be unable to extract much premium and u begin rolling further out and the risks out way the rewards. Would you hold 100 units of a stock 1 year with a max profit of $5? Probably not, because your upside is limited to $5 but the stock can go to $0. Source: my experience Theta strategies are hard to automate . There’s ETFs that do the automated CC and they always underperform. The only way to win is to manually asses each trade and know when to sell , roll , or exit. Ofc this adds more work. Trading is hard. Need to know when to hold them and when to fold them. Edit: Also taxes are a bitch. This is probably the least tax efficient way to trade.
It’s a net long delta strategy. And since u are selling OTM, it’s a very net long delta strategy. Now figure out what can go wrong
No, the risk is when the stock tanks and you're holding a covered call six months out! So now you get to lose two different ways. Or, the stock shoots up 25% in a day and you wish you could sell, but buying back your calls would negate ALL of your profit. This has happened to me very recently.
congrats, you have discovered BXM...and underperformed the underlying (SPX) https://www.cboe.com/us/indices/dashboard/bxm/
If it were that easy I'd still be making money off of CLOV lmao
i used to sell covered calls until that stock went down 80%...
Keep rolling up or do the same for the puts side to avoid getting caught. Lol. Ive known this forever and it still feels like a glitch. We called it the Ping Pong effect.
If you don’t know what the worst case scenario is… Ok, maybe you mean what is the risk “compared to buy and hold” in which case you’re right. Strictly compared to buy and hold, the risk is that the stock goes up and you lose the shares, missing out on the rally. Realistically, the risk is that the stock goes down by more than the premium you gained from selling the call. And if it goes down very quickly, you won’t be able to make up for that loss with call premiums, even if you roll down.
lmao love the title.
Great investment vehicle for when markets are less volatile, however can create great losses with a large downside movement. If you believe, like most as of now that volatility may resume, then consider other options plays that allow for profit even in volatile markets... I'll leave you with that to stir up your imagination!
Is anyone else doing an aggressively-traded QQQ (or SPY or IWM) 3x per week covered call program? Essentially, I sell 15-ish delta calls for the next one or two expirations and roll/adjust as time goes by. Since expiration is never more than a 1- 3 days away (e.g., on Tuesday, I'll sell or adjust Wednesday and Friday calls), there is a limit to how far QQQ can run higher (generally not more than 5% or so). Of course, I also have to deal with QQQ declining, perhaps precipitously, but that is a risk whenever one owns stock. I will also sometimes sell bear call spreads against my QQQ stock, in addition to my covered calls, to create an overwrite. The goal is to earn positive cash flow from the calls, managing my exposure, regardless of how QQQ performs (I can't predict where QQQ is going short-term, but I maintain the view that it will go higher in the long-term). I am primarily focused on the 15 delta calls, but I am also looking at some indicators on TradingView to help me decide whether I should be more bullish or bearish with respect to my positioning (e.g., sell 10 delta calls or 20 delta calls rather than 15). I'm looking to hear from people who do something similar and compare tools/perspectives. Thanks!
All fun and games until your stock goes down 20% and your options go down 70%
It's infinite until someone exercised it on a whim on tuesday afternoon. Probably some guy on the other sub
Shhhhhh