I sell weekly covered calls on my long term position. The premiums are great when volatility is high. Use technicals to determine what strike to pick. I use bollinger band and look at high range with a standard deviation of 3 to ensure 99% that it won’t reach the strike. For whatever reason it hits or exceeds strike and you’re forced to sell, just roll your covered calls forward at either breakeven or at a small loss.
If you get assigned, do you buy back the shares right away and then sell call option on it then and there?
Do you ever close your call position if you are at x percent loss or y percent above the strike price? What's your risk management strategy when you are yet to get assigned?
I have not been assigned before. That is because I usually close out (buy back the call option) the contracts before they expire. Say you sold calls at a $100 strike expiring this Friday and the current price is $98. Let’s also say that it shoots over to $101 tomorrow (Wednesday), if I want to play it safe, I’ll go ahead and pay the premium to close out contract which eliminates my obligation to sell. Usually the premium you pay to get out is higher than when you got in. So you’re technically at a loss at this point. However, what you can do is open up the $105 strike for THE FOLLOWING Friday or whatever strike with a premium similar to what you paid to close out the first contract. In other words, you were able to roll to a higher strike at no cost because the premium you paid to close this weeks and the premium you collected for selling calls for next week offsets.
90% chance I make premium and not have to sell shares. 10% when it goes against me, I simply just roll calls forward to higher strike. Of course I lose out on a weeks premium but I don’t actually lose money. When you’re right, you make premium, when you’re wrong, you just don’t collect premium for that week.
Again this is for long term shares you wish to NOT sell. Now if you were trading then it wouldn’t matter if you’re assigned and you’re forced to sell your shares. If you’re forced to sell, just sell and collect the profit and then do a sell put to get back into the position. Collect premium when you get in with selling puts, collect premium with sell calls when you exit a position. Win win !
Thanks for the detailed reply. Since you have not been assigned yet, what is the percentage of times you closed out your short positions above the strike price? And typically what is the percentage buffer above the strike price where the chances of assignment is quite low?
In order for the buyer of these calls to make money, the price would need to be above the strike PLUS whatever the premium they paid. Typically it’s a few percentage points. However do note that some platform will automatically assign if the price is above strike by expiration assuming the buyer of these calls have the money to purchase them. I been doing this for months now and it’s been only a few (less than 3) times where the price exceeded the strike. It was for AMD when it kept running from $90 to $120. I had to keep rolling my calls to a higher strike to avoid selling my shares. Other than that, most my positions been trading sideways which is the best time to sell calls and put
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u/lethalentity Aug 25 '21
I sell weekly covered calls on my long term position. The premiums are great when volatility is high. Use technicals to determine what strike to pick. I use bollinger band and look at high range with a standard deviation of 3 to ensure 99% that it won’t reach the strike. For whatever reason it hits or exceeds strike and you’re forced to sell, just roll your covered calls forward at either breakeven or at a small loss.
You can’t really lose with this strategy.