No. of Recommendations: 3
Happy to hear opposing views
I've never really understood selling covered calls. The only time I sell covered calls is when I want to sell the stock and I would like a slightly higher price for it. I did that once last year for a portion of one of my holdings. In this case, it really was more than once because it took two tries, two sales of calls, before the stock ended high enough for someone to exercise the option and buy my shares. The first time, the stock ended just shy of the strike price, so I kept that premium as the option expired worthless, but the second time, the stock was just barely high enough for the option to be exercised and the stock purchased from me.
I do however understand selling puts. I do that quite often. Basically, I choose a price at which I would be comfortable buying shares, and then sell the put that results in that price. So let's say you would be comfortable buying BRKB at 450 over the next few months. You could sell a Jun 455 put for about $5.50 (which happens to be about the same price as the Jun 550 call you might sell). If the stock dives sometime between now and June 20th, you can choose to exercise and buy shares at 455 (minus the 5.50 premium for a net price of 449.50 or so). Most of the time it doesn't make economic sense to do so until the last day, but it's your choice (for USA options). Worst comes to worst, if the stock doesn't drop, or doesn't drop enough, you keep the $5.50 premium and you can do it again a month or two or three later.
Now, why is this better than selling calls in my opinion? Well that's because over the long term, stocks almost always tend to go up, not down. So the odds are much more in your favor that the stock will go up, but you still get some benefit (buying cheaper shares) if it happens to go down over that short term period.
