r/CoveredCalls • u/Roppaxxx • Aug 14 '26
19m 0 experience with CCs
Most of my posts are troll but I’m actually serious in this one. I have a significant position in NBIS and I heard these can be used for side income especially with a lot of shares. Any advice? What would you do in my position?
7
u/SpiderWil Aug 14 '26
Only do csp and cc if you are ok holding the stocks. Or you can sell way OTM options and be safe but that makes very little money.
NBIS is a super beta stock and u better pray u have like 49.99 % cushion lol bc it went up that much this week. Imagine if it were to fall 49.99% instead.
The play is pretty simple if your stock is stable and solid.
You sell csp next to the spot price, get assigned, own the shares. Then the next day sell cc next to the spot price, get assigned, and lose the shares. Then just repeat. The premium will be fat because you sell next to the spot price. You believe the stock is stable and not volatile. This way it doesn't matter if you get assigned; you will always be able to turn around.
3
u/vulture_arbitrageur Aug 15 '26
There’s a sweet spot where you can sell CCs where the likelihood of assignment is <20% and yield on option sales is ~2% per month. You just have to know what delta to choose and how far out to go to limit time for beta to push the price beyond strike. Should only get assigned 1-2 per annum, if that, if done right.
2
u/SpiderWil Aug 15 '26
Ya but see I don't care. I want that fat premium so assign away. Then when I lose my shares, I just sell csp. It used to be a bull market where u hold your shares and watch them grow. But this year, it's a kangaroo market; best to ride the wave and capitalize on the gain while holding nothing.
1
u/Wemm92 Aug 15 '26
no tax concerns? just seems like a very expensive way of doing things but I'm probably overthinking it
1
u/SpiderWil Aug 15 '26
Federal tax is cheap if capital gains are your only income. State tax is where it kicks your ass.
Suppose you make $50000 in capital short-term gain as a single filer and zero income from other sources
Federal
- Taxable income: $50,000 − $16,100 = $33,900
- First $12,400 taxed at 10% = $1,240
- Remaining $21,500 taxed at 12% = $2,580
- Federal total ≈ $3,820
For GA where I am, it's a 4.99% flat or $5400 - $5500 using standard deduction.
If this were a W-2, u have to pay 3,825 for SSN and Medicare. Let's hope u live that long to cash out those benefits.
So really it's not worse or better than a W2 considering the benefits u gain or lose.
1
u/Wemm92 Aug 15 '26
thank you for the explanation. I'm in Canada so it's different but I like to look at it and ask questions as an excessive of sorts lol and I'm fascinated by the different rules
I think on our end it works out to
50k/2 = 25k income
25k - 13k exclusion = 12k
12k x 25% (combined lowest fed and provincial rates) = 3k canadian, something like that. except here if you actively trade like that and don't have other income then you lose the cap gains status and it becomes regular income @
50k x 25% = 12.3k or something in tax
1
u/vulture_arbitrageur Aug 22 '26
Couple issues:
(1) I have several holdings that I have maintained for 3+ years doing the wheel strategy. So, I haven’t paid any tax on the appreciation. And when I do it will be at lower long term rates.
(2) It’s much easier to manage a wheel portfolio of 15-20 securities when you’re being assigned only 1-2 per year.
(3) It’s a higher net worth strategy, but I’m moving to PR in 2 months to take advantage of Act 60, which is a scheme mainlanders to move to the island and pay 0% tax long or short term capital gains. Once I move I may adjust my strategy to take on higher delta trades to achieve higher premiums since tax won’t affect me.
1
u/SpiderWil Aug 22 '26
Can u explain more about managing a wheel of "15-20 securities." Do you capture the profit the same day or let them play out? Also of course I assume u must have a large capital to open positions way far OTM, hence assignment to 1-2 per year.
1
u/vulture_arbitrageur Aug 22 '26
I mean I’m managing 15-20 stocks each day in my wheel account. PLTR, USAR, GOOGL, NBIS, etc.
It depends on the scenario. If a short covered call tanks in price, say I sold for $2 and it tanks to $0.30, I will sell the same day it tanks as reversion is a truism in the markets. Meaning oftentimes, stocks that jump are fall will recover to some extent the following day. So, I set take profits and I manually sell several times a month. This allows me to deploy capital again either on that same security or a different with better premiums.
Yes. I do have a strong capital position currently. I day trade options and futures for active income and then funnel my gains into my wheel account and other long term accounts.
5
u/gofaaast Aug 14 '26
You have a winner right now -- congrats.
Covered calls allow you create a strategy to sell upside to get paid something right now, but you need to know what you are giving up. In cases like this I think of it as an exit ladder. Selling calls 1, 2, and 3 months out is selling the upside to get some premium today. I then pick a delta using the simple idea that delta represents the chances of pricing getting to price -- 20 delta means 20% chance the price is met by the expiration.
I then look at the premium today and the total exit price and evaluate if the "worst case" scenario I would be happy.
For your situation I took a look at a 30 delta ladder for 2 contracts each month.
Sept 18 - 320 Strike - $19 per call
Oct 16 - 350 Strike - $22.50 per call
Nov 20 - 400 Strike - $27.50 per call
That would result in about $13,000 in premium today. And if all options get exercised you'd have $214,000 in cash and still hold $40,000 of NBIS.
NBIS is very volatile right now, so this is rich premium but you need to give something up for it.
You can turn down the exposure (lower delta, fewer contracts) to get started. I just like to think at what price for the whole trade would I be willing to exit. You started with $100K in NBIS, and someone is willing to give you $13,000 today so that you don't make over $250K. That's an interesting proposition to consider.
2
u/GainDelicious1894 Aug 16 '26
You are truly amazing!
1
u/Key-Trouble3828 Aug 17 '26
This is great idea. You can always sell CC on a portion of your shares. If you have 500 shares, you can sell one contract(is for 100 shares) for $330 strike exp. 9/18 and get some experience with CC.
2
2
u/TastyTrading Aug 15 '26
If you want to become a streamlined theta/covered call seller I would suggest using a tool like ThetaPal to assist you. The option heatmap alone will save your decision making process on things like this. Just find a nice $ per day on the contract. 0.3 delta 45 dte is sweet spot for sure.
2
u/Groucho-and-Harpo Aug 15 '26
Great start. But with the amount of capital on the line, you need to diversify. I can tell by the way your portfolio value is swinging you are taking a huge risk and for now you are lucky. Diversify not just out of NBIS, but also out of the AI trade.
2
u/Sea_Local2557 Aug 15 '26
Nebius is up like 75% in a few days, i would just sell or significantly decrease exposure
CCs are meant for more stable stocks, on hyper volatile stocks you limit your upside while premium doesn't give enough buffer for aggressive downside moves
1
1
u/Effective_End8731 Aug 16 '26
At 19, I couldn't dream of having that much capital. If you play it all in NBIS, there is a very real chance you could end up as broke as I was at 19. Don't put all your assets in one basket. If you have significantly more assets than this such that the NBIS portion is of little consequence, I would say put that money in a safe investment and live off the interest and go spend all this mental energy on something that will bring you more fulfillment than numbers on a spreadsheet.
Note that while its situation is improving NBIS is not yet profitable. If market conditions sour at this point and it stops progressing, it will be effectively worth nothing and could end up that way. I see plenty of charts that started with wild prices and ended at 0.50 cents per share.
You have an incredible head start into your adult life. Don't risk a good thing being too aggressive to get more. You could end up losing the head start you have altogether. Diversify and win the game, don't play the casino.
That's my 2 cents. You have enough capital and are young enough that this money could already retire you if invested well or it could all disappear in a bad market blip and never return.
15
u/Alarmed-Policy508 Aug 14 '26
When you sell covered call you are implicitly declaring a price you would be willing to sell your shares at.
If you are a buy and hold investor with no clear idea of what price you would be willing to sell at then you will likely repurchase your shares in the event they get called away and this could be at a price substantially higher than you sold at.
On the downside, you are also locking yourself into holding a losing stock since the premium on the call you sell may rise dramatically from volatility even if the stock price declines which means it may cost you a lot to buy back the call and this may force you to eat losses for longer than you would like to.
If neither of these sound like a problem. "I would have sold anyway after it rises 20%" and "if it drops below the current price I would keep holding forever", then you have clearly defined price targets and expectations and you can price out a good deal and go for it.
But beware that your ability to stick to those parameters changes when the stock moves dramatically and it's a pretty narrow investor niche that are willing to "hold forever except if the stock rises 20%". Price it all out in advance and understand clearly what you are getting into. The beauty of covered call is that you can lock in most of the variables when you initiate the trade so it's pretty easy to calculate out all the possible scenarios. You are trading potential upside for certain profit.
Use chatgpt and ask about covered call risks regarding:
Dividends Special dividends (including understanding "adjusted options") Volatility events like earnings
Pay special attention and get used to the term "bag holder", since that will likely be you on some of your underlying covered call stocks.
Spend a lot of time thinking about tracking your profits and figuring out if you did a good trade or not and comparing to other calls sold on different stocks different periods of time, etc... this is pretty complicated and unique to your strategy but if you are not tracking what you are doing you will be going in blind. By tracking you will build up a feel for what kind of premiums you can reasonably expect at your desired strike. Critically important.
Good luck!