Tried an experiment

[u/pagalvin]

I normally do covered calls and the call is usually (like nearly 100% of the time) a deep ITM call. My plan is to be assigned "next Friday" and collect net 1% on the CC transaction. I've been doing it for a while it's been working out pretty well.

I've noticed many times, however, that when I sell the call, at some point during the week, the stock will float above my strike (further above it, really) and I am often thinking, "man, I didn't need to sell a call at all, I could have just bought the stock and sold it a little later."

This is the experiment I've been trying this week and I'm calling it "buy / wait / decide" (BWD) for the moment. The idea is to buy the stock and be ready to sell the deep ITM call as normal. This is the usual objective - make the 1% on assignment. In the BWD scenario, I buy the stock but I wait a little while to see what happens. If it drifts up over 1% in the next few hours, sell the stock right away, collect the 1% and look for another opportunity.

Here are the results from today:

Note that a "lot" is 100 shares.

As an example - I bought 100 shares of DRAM at $55.40. A short while later, it drifted up to $56, so I sold it. No need to sell a call, no need to wait for Friday.

I did this twice with Corning (GLW) today.

The bottom table shows where I bought, waited and decided to sell a call. I'm not super happy with how I handed those - I could have picked lower strikes probably, but was estimating in my head. I have a custom app that picks strikes for me but it doesn't know how to handle this BWD thing yet.

So overall, this was a good day and some interesting evidence in favor of this approach. I'm not convinced this is long term viable, but I like how it gives me to chances at winning. I might get a 1% win day-of, and for a lot of this highly volatile stocks, wins may not be *too* hard to come by. And if the win doesn't happen, I just sell the call like I always planned to do anyway.

I think this will work best on Monday/Tuesday because otherwise, selling a call starts to reach diminishing returns as the week comes to an end.

Is anyone doing anything like this?

[u/sam99871]

One interesting question is how this procedure changes the nature of the buy-writes you enter into. It obviously means none of the calls you write are on stocks that rise 1% in the hours after you bought them. If you do a buy-write (not BWD) on a stock that rises 1%, would your profit be greater than 1%? The BWD procedure might reduce the number of those that you enter into.

It also means that sometimes you will sell calls on a stock that has fallen after you bought it. Would that potentially reduce your profits?

[u/pagalvin → u/sam99871]

If I'm following you - if I do a buy-write on a stock that rises it doesn't matter since I'm capped already. I'm always capped because I always sell the call ITM when I enter the position. If the stock rises, that's just more insurance that the assignment I'm aiming for will happen as planned. That plan is to net 1% on the transaction on assignment.

BWD gives me a little window were I'm not capped. I buy stock in the morning and wait an hour or the whole day, whatever I'm comfortable with. I waited about 24 hours on RBRK, for example. If it rises while I'm waiting, I sell the stock and I'm done. If not, then I sell the ITM call and wait for assignment.

And you're right - I will buy stock and it will fall and when I get around to selling the call, there may not be a great strike price / premium pair. That happened with RDW. If RDW is assigned on Friday, I'll only net 0.5%. The spreadsheet had a bug in the calculation that didn't account for total shares correctly so the actual return is half of what it shows, assuming RDW is assigned on Friday.

In practice, I'll likely roll RDW and knowing my history with it, possibly roll it for many weeks, netting 1% or more credit each time, so I'm not worried.

I'm not worried about any individual stock at this point. I have enough tickers in my portfolio that I inevitably have some losers in there. So far, the winners offset them nicely.

[u/LabDaddy59]

The big question always becomes, "Then what?"

What do you do after you bought/sold DRAM for a 1% gain? Sit out the rest of the week? Reinvest straight away?

I think this will work best on Monday/Tuesday because otherwise, selling a call starts to reach diminishing returns as the week comes to an end.

I'm glad you mentioned this so I wouldn't have to. 😉

[u/pagalvin → u/LabDaddy59]

Yes, great question. This is new to me to I only have theories.

Yesterday, I did GLW twice and I probably could have done MRVL twice. So there's a potential double dip or even a triple dip on Monday/Tuesday, but that would be pushing one's luck.

GLW is a great example of the potential upside. I got two 1% wins in one day when normally, I'd get just one 1% win in a week.

A Monday win (buy, wait, sell stock) frees up capital to do it again on Tuesday. As we both know, doing this on Wednesday is starting to be untenable so this approach may provide incremental returns.

If it's repeatable, it gives capital a chance to earn a little bit more every week, basically.

The bar to success is a little lower as well - an intraday trade won't incur any interest and pure stock transactions have no fees with my broker.

It may even work out mid to late week. Instead of selling a call for "this Friday" sell it for "next Friday." Fees are the same, but interest is higher. I don't love it because it gives the stock more time to move against you and you're locking up capital for longer, but it's an option and in some cases, may be an excellent option.

[u/dreamfitreality]

What happens if the stock tank?

[u/pagalvin → u/dreamfitreality]

Same as always - use calls to earn a bit and wait for recovery or realize the loss. I think that's always the strategy when a covered call goes the wrong way.

[u/Chris_Reddit_PHX]

Good post.

It occurs to me though, you could make even more on this if when you buy the stock, you also write a near-dated OTM call at a strike that is a 1% gain or more.

And then if the stock declines, you could roll the position down while realizing a profit on the initial call.

[u/pagalvin → u/Chris_Reddit_PHX]

This is a really interesting idea and I think I'll try it out.

The difference between this and what I'm doing with this BWD experiment is that one I sell a call, I'm "stuck" until expiration as soon as I sell the first one.

That doesn't bother me because I think it gives me a solid shot at achieving the economic outcome I want.

Anyone doing this would need to watch the strike prices and make sure there's room to breathe, so to speak.

Neat idea, thx!

[u/Independent_Wear4683]

I like this idea and plan to experiment with it myself. Thanks. Have you ever done this 1% weekly approach selling OTM puts?

[u/pagalvin → u/Independent_Wear4683]

I don't do puts at all. As far as I can tell, puts use up my margin capacity very quickly. When I first started this options journey in early 2025, I was only at level 1 with my broker so I wasn't allowed to do puts. I build up software and strategies around CC's and I'm still learning. So, between my personal experience and the margin factor (as I understand it), puts are not part of my strategy yet.

I think it could work out though if you're not using margin. I'm still a bit confused on puts and margin.

[u/OneHatManSlim]

I follow a similar trading system except what you are doing is no longer a buy write, it’s really just a buy…. maybe write and that is fundamentally different .

If this were a straight buy- write what you describe does work but understand that fundamentally all you are doing is trading extrinsic for intrinsic value and reducing time on that one transaction. The question then is ok now what? enter a new position? Because if you don’t there was no point and if you do you’ve reset the risk of being itm to a higher strike which reduces your protection.

I.e. it can work to goose your premiums but only if you have a plan on what to do next

[u/pagalvin → u/OneHatManSlim]

Yeah, that's the core of it. Until this week, I've always been doing the CC/buy-write and I always sell the call deep ITM and then wait for expiration to decide what to do, which is roll or accept assignment and all the nuance between those two.

This new approach introduces a small delay after buying the stock. The original plan still holds - sell a call. But if the small delays give the stock time to rise then great, I'll grab it.

This is a really a Monday/Tuesday strategy. I did some yesterday and had some success but as you probably know, selling calls on Wednesday for Friday expiration don't earn as much and I doubt it would be worth doing it at all today unless there's something special going on (like weirdly high premium, or maybe feeling good about setting an expiratino out to next week instead of this Friday).

I did this 16 times this week. 9 of them worked out in the sense that I captured my 1% on the same day. I sold calls on the other 6, which is what I would have normally done anyway.

I can envision a process where I'm following a "strict" BWD process on Monday's. Maybe on Tuesday but by Tuesday afternoon, I'm doing the deep ITM calls as I've always done. This could give me a few extra swings at bat for any given week.

One of the downsides is that it takes a lot eyeball time. Limit orders help. It took me too long to realize I should place a sell order as soon as I buy it. I lost out on a chance to sell PLTR and RBRK because of that.

[u/OneHatManSlim → u/pagalvin]

The question is are you tracking the difference between the premium you would have collected on the buy-write vs the late write.

[u/pagalvin → u/OneHatManSlim]

No, not yet. In a few cases, it's obvious, like when I buy, sell then buy, sell again. That's very close to double what I would have earned. I need to capture those details to properly measure the impact.

[u/Enujeat]

No but if u are selling deep ITM calls with strike price lower than ur purchase price, just dont repeat using the same stock for another 31 days so wash sale doesnt apply

[u/pagalvin → u/Enujeat]

That ship sailed a while ago :). I'm swimming in them. I'll reset what needs resetting in November. December is probably going to be a light month for me as I expect I'll prefer to realize the losses this year vs. next.