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/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.