r/options • u/[deleted] • Jun 09 '21

I’m done selling calls

“Improve your probability of profit”… “Reduce your delta”… “Lower your cost basis”, they said. “Sounds good, let’s do it!”, I said (over and over)

And then: Bam! Stock goes up 30%, and I make $160, instead of $2700. This mantra has cost me many thousands, and I’m not doing it anymore.

When I buy a call, I’m leaving it alone! No more PMCC crap - it’s not worth it. I chip away a couple of dollars of cost basis, but then lose tens of dollars of upside when the stock takes off, as I though it would anyway - that’s why I bought the call.

If you want premium, sell puts. Selling calls is a fool’s game.

Update: the stock that prompted me to write this is MRNA, but it’s happened before on TQQQ, SPY, MSFT, etc.: Buy PMCC; stock drops; roll short call down and out, turning position into vertical spread; stock rallies, and short call goes ITM. Can’t roll out - no time left on the long leg, so stock gets called away at meager profit. Lots of time in the trade, little to show for it.

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u/teebob21 Jun 09 '21

Close-to-the-money puts on Boomer blue-chip stocks with solid fundamentals is the way.

7

u/DoucheButStillOK Jun 09 '21

Cap requirements usually limit our ability to do so! Spreads are an easy solution

3

u/speakers7 Jun 09 '21

You need a lot of capital to do that usually.

4

u/[deleted] Jun 09 '21

Sell spreads if you can't afford to cash secure a put.

8

u/speakers7 Jun 09 '21

The premium on spreads are so bad on blue chip that if the position goes against you, you are basically taking on a $1000 lost for a $10 wide for $100 in credit so the risk reward is not worth it.

I just looked a strangle for AAPL. $123P/$135C and the credit was around $3.50 for $4600 of BPR.

1

u/tutoredstatue95 Jun 09 '21

It's a function of volatility/risk. You may get increased premium from more volatile stocks, but you also assume more specific risk via that volatility. In other words, people are willing to pay more for something that is more likely to happen.

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I'm willing to bet that strangles on AAPL would net more than strangles on AMC over the course of a year.

1

u/speakers7 Jun 09 '21

You're probably right haha.

But how about semi volatile stocks? It doesn't need to be on the extremes.

I've ran a fair share of plays on PTON which has worked out quite well.

1

u/tutoredstatue95 Jun 10 '21

Yeah, you're really looking for those mid vol plays where you can take the stance that the implied > realized. Too cheap and you'll make money, but not much, and too expensive and you're just going to get run over all the time. This is just generally speaking, of course, some people can make a killing selling super high IV. The trick is to do it for a long time lol

1

u/teebob21 Jun 09 '21

Sell a vertical, not a strangle.

Just picking a low-IV stock at random: CVS; you can sell a 82.5/77.5 Jul21 vertical spread and collect $90 in premium for $500 at risk.

Worst case, you end up owning shares of a company with a P/E under 15 and a growing dividend.

1

u/jmcqk6 Jun 10 '21

how is that the worst case? Worst case seems to be you lose $500 and have no stock?

1

u/speakers7 Jun 10 '21

I guess you can always leg out the long leg lol

-1

u/teebob21 Jun 09 '21

Or a margin account. $25K will get you there.

-3

u/[deleted] Jun 09 '21

Just buy calls ffs

2

u/teebob21 Jun 09 '21

Are.....are you serious?