four
5,087 posts
msg #135119
- Ignore four |
3/25/2017 12:33:40 AM
http://coveredcallsadvisor.blogspot.com/
|
four
5,087 posts
msg #135121
- Ignore four
modified |
3/25/2017 1:35:00 AM
http://www.surlytrader.com/covered-call-options-as-investment-strategies/
Covered Call Options as Investment Strategies
An investment strategy that is highly underutilized is the selling/writing of call options on individual stocks or ETF’s that are owned within an investment portfolio. I will cover three different S&P 500 option strategies which could all be implemented simply by using the S&P 500 ETF (SPY) and its underlying options.
All three strategies were invented and are tracked by the Chicago Board of Options Exchange (CBOE) and most are now being mimicked by mutual funds for personal investors.
The first strategy involves buying the S&P 500 and selling 1 month call options at the money every month and letting them expire. This means that systematically if you own $1M of the S&P 500 and the index closes the month on the level 1,000 you sell $1M notional of 1-month call options with a strike of 1,000. This would equate to $1,000,000/1,000 = 1,000 written 1-month call options on the S&P 500 at a strike of 1,000. This process would be repeated every month upon expiration of the 1-month options. This strategy is the simple At-The-Money (ATM) Buy-Write index which trades under the symbol BXM.
The second strategy is a simple extension of the BXM called the 2% Out-of-The-Money (OTM) Buy-Write Index under the symbol BXY. As you could guess, the BXY simply sells 1 month call options 2% out of the money instead of at the money. This provides the S&P 500 room to go up 2% per month without capping returns.
The last strategy is the Put-Write Index. This strategy simply sells 1 month put options at the money while holding the equivalent notional amount in cash while earning interest. Without getting into details, due to “Put-Call Parity“, the Put-Write index is theoretically equivalent to a covered call strategy. The return/risk characteristics of this strategy are often more attractive than a simple covered call and I will cover those details at another time.
Exchange Traded Fund:
http://seekingalpha.com/symbol/PBP
Exchange Traded Note:
http://seekingalpha.com/symbol/BWV
|
Kevin_in_GA
4,599 posts
msg #135123
- Ignore Kevin_in_GA |
3/25/2017 6:57:20 AM
Found this, which I think explains what you are talking about:
http://www.optionpit.com/sites/optionpit.com/files/A%20Leveraged%20Approach%20to%20BXY.pdf
It does outperform the ^SPX, but not by a large amount.
|
gmg733
788 posts
msg #135124
- Ignore gmg733
modified |
3/25/2017 9:13:21 AM
To me a more efficient way would be to use the /es as your long deltas. You'd get a higher return on capital as well as more leverage and highly liquid.
Once you get comfortable trading, you should start futures. The tax treatment alone is worth learning how to trade them.
|
pthomas215
1,251 posts
msg #135125
- Ignore pthomas215 |
3/25/2017 11:42:50 AM
gmg, are you doing covered calls on earnings or just straight calls? Hopefully you made some money on MU this week as well.
|
gmg733
788 posts
msg #135128
- Ignore gmg733 |
3/25/2017 1:41:06 PM
I don't do covered calls unless I get put stock. Then I look to get out for a scratch if possible because I have no interest making money on that trade. I just want to repair it and move on.
It has been a great year to trade earnings since most moves have been inside expectations, but I haven't traded them this year. Last year I got stuck in some trades that I ended up scratching but it took several months to do so. I find high IV on ETFs bread and butter and I've been doing swing trades on futures and futures options more.
But, for earnings I usually do straddles or strangles depending on the underlying right outside the market maker move. IV is typically overstated and so most of the time they stay in that move. So $$$$$$. Prefer strangles since they are easier to adjust. Covered calls to me aren't really good for earnings. Too much capital and very directional. If MU would of gapped down it would have hurt.
|
pthomas215
1,251 posts
msg #135130
- Ignore pthomas215 |
3/25/2017 2:36:35 PM
ha me too. would have hurt me a ton if MU gapped down. but it didnt. I was nervous because the whisper number was about 6 cents higher than consensus estimate. Ive concluded that if the whisper number is below consensus, you have a decent chance at the gap up during the call.
|
gmg733
788 posts
msg #135131
- Ignore gmg733 |
3/25/2017 3:21:15 PM
I know some other traders who did strangles and they got paid handsomely. Good trade! I'll probably get engaged in the next round on the liquid names, FB, AMZN, NFLX, TSLA and etc.
|
pthomas215
1,251 posts
msg #135132
- Ignore pthomas215 |
3/25/2017 3:43:38 PM
cool. Im going with LULU this week. last Wednesday there were 1,843 contracts of the $65 call expiring June 16 with an expected 8% move on earnings this upcoming wed.. sorry for quick diversion from discussion on covered calls.
|
gmg733
788 posts
msg #135134
- Ignore gmg733 |
3/25/2017 6:55:05 PM
Lulu has been good to me in the past. If you like lulu and are bullish, sell a put. You'll take advantage of skew and if it dips you pick up another 100 shares per contract. Or a covered strangle which is owning stock inside of a strangle.
Open interest is only good to judge liquidity in my opinion. You rarely have a way to tell if they are bought, sold, part of a ratio spread, a hedge blah blah blah.
An artifact of the market for earnings is if it is strong overall you don't want to fade an earnings trade by being bearish. Just like swing trading. Your set up is only as good as the market most of the time.
Another reason I like futures. No earnings. Lowered tax rate. No dependence on market health. Just a chart that technically you can swing trade very well.
|