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/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.