No. of Recommendations: 9
I'm a little surprised so many would be thinking about joining me in a bit of lightening up.
I am a well-known trading addict, so I have an excuse.
OK, so book per share isn't a perfect yardstick.
But price-to-known-book got up to 1.586 as recently as March last year.
Today's closing level of 1.458 isn't exactly exuberant, despite the rally and pop.
That being said, I did do a pinch of covering-calling today. Writing high-strike calls backed by my long positions.
My usual approach goes roughly like this:
Sell a covered call at, or only VERY slightly out of the money when the stock price seems rich and maybe toppy.
The reason for staying near the money is because that's where the time premium peaks. It's not really worth the bother at much higher strikes.
Pick an expiry maybe 3-4 months out.
If the market goes against you and you're losing money, you can "improve" your position by closing it at a loss and replacing it with a new position which is longer dated with a higher strike. Maybe another 3 months later.
Since your new higher strike is now roughly at the money, the time premium of your new position is high and peaking and the time premium in your old one has dropped...
it is generally possible to raise your breakeven notional exit price and also gather enough additional time premium to more than wipe out your loss-to-date.
A position can then be rolled a second time, if needed.
I have done this only occasionally over the years, as the price has not been very rich very often. Today barely counts.
But I have never actually had any stock called away...nobody sensible ever exercises an option that still has time value left, it's better to sell it.
If you pick your original time to start the position badly, you probably won't make meaningful money, but it's likely to be positive.
If you pick it well, it's nice gravy.
Today, I went a bit further out in date than I "should" have because I like January options (no good reason), and the Jan 2025 ones were only a little further out than I usually go.
I got a premium of $16.27 on strike of $370, for a notional exit price of $386.27/B = $579405 per share. That's 1.554 times current known book. (and book itself might be a pinch higher than trend)
Or, I end up just keeping the $16.27 as extra money for beer and pizza.
If the position moves against me and that annoys me, the idea is I could close them and write new ones a little longer date.
(this is the disadvantage of having picked an expiry 5 months out...the roll-out-to-improve-things strategy needs a good percentage increase in days to work)
Jim
