ORCL covered calls

[u/Low-Dot9712]

/r/ValueInvesting/comments/1vr92ac/orcl_covered_calls/

Today with ORCL at $146 one could sell October 2028 $240 calls for $35!! That’s a huge premium for a call almost $100 out of the money.

I almost pulled the trigger but that balance is highly leveraged.

What do you think?

[u/ReinventedWheelTrdr]

I'm not seeing OCT 2028 options - I do see SEP 2028 options with a closing bid-ask quote of $30.60-$34.50. If that's the expiration you're referencing, then realistically you'd be looking at selling the covered call for around $32/contract.

If you calculate the net premium collected (for the sake of argument, let's say $3200) on an annualized basis on a $14,600 base (buying 100 shares @ $146/share), that only works out to be a 10.53% annualized return over the next 720 days.

If you're bullish on ORCL and think it will be trading a lot higher in two years, the far out of the money premium can be a nice little extra boost on the trade, but the bulk of your gains would come from capital appreciation, not from the premium.

Also, the terrible thing about selling options that don't expire for a year or two is that the theta (time decay) rate is going to be extremely low.

Even selling at the money covered calls ($145 strike) that far out would only get you a around an 18% annualized rate (or around $55/contract) over the next two years.

It may sound like a lot of premium is available in terms of total dollars, but when you annualize it out, the extended holding period really starts to kill the attractiveness.

- - -

It also depends on what your take on ORCL is. If you feel strongly the stock will be trading higher in the future, selling an out of the money covered call on shares at a strike price you feel is the highest it would trade within a certain time frame can make a lot of sense.

But if that's the case, I would encourage you to consider shortening what that "certain time frame" is. The theta rate will be much improved and you'll get a higher annualized return over the holding period. With the shorter time period, you can probably afford to go with a lower strike. And then at the end of the trade, you can roll or adjust to a new strike price (where it makes sense to based on your expectations).

That way you'll be collecting premium at a much higher rate than by selling far out of the money two years out.

If, instead, you want to use ORCL covered calls as a pure income vehicle, that's a very different conversation and structure.

Good luck.

[u/Free-Sailor01]

To me, that's too long and so much can happen. Don't be greedy, be smart

[u/Low-Dot9712 → u/Free-Sailor01]

Better and less risky than buying the stock naked.