It is as difficult to sink a business without debt as it is sink a ship without holes.
- Manlobbi
Halls of Shrewd'm / US Policy❤
No. of Recommendations: 6
Last Friday I dipped my toe into the water, selling 2 covered calls for the first time. Skin in the game focuses the mind a little better. I learned what other questions I might have and the basics of how the options market operates.
I went with a 6/24 and 9/24 expiration and a 400 strike price.
Over the weekend I decided that what I wanted to focus on was the 1/25 420s and planned to close out the 400s on Monday. I closed them on Monday morning with the stock down around 1%. Much to my surprise my profit on the trade was about 16 1/2%. And, I was not even looking for a profit, just to close the position! Pretty good for a weekend.
The sales of the January 420s on Monday was pretty interesting. This is one THIN Market. I sold 15 covered calls - one at a time throughout the day. I know nothing about options pricing - I just placed bids high enough to have them not execute and then lowered my ask by a nickel at a time until I got an immediate hit. For about half of the sales I felt like there was a computer on the other side as my sales were quite a bit above the bid shown - I got the same execution price on 5 sales in a row.
By the end of the day I had finished my job. I sold 15 covered calls and the total number of trades in this contract was 63. I can tell you that my activity is not usually 25% of the market.
Most importantly I was pleased with the result. I pocketed a fair amount of cash for a selling contracts I do not think will be exercised. And if they are, I will have sold 1500 B shares for around $650,000 (execution plus option premium collected). I'm OK with that. Price of the option contract between now and expiration - who cares! I'm going back to sleep now - wake me up next January and let me know what happened.
No. of Recommendations: 13
I'm going back to sleep now - wake me up next January and let me know what happened.
Sounds like you did a fine job overall. It's hard to see a bad outcome.
But that last comment...I suggest you keep an eye on the market rather than entirely ignoring it. Or at least half an eye.
It is extremely common for there to be a price drop before expiry, and they frequently don't last all that long. A price drop frequently offers the opportunity to close the position early, making (say) 75-80% of the maximum possible profit in (say) less than half the maximum elapsed time. The annualized rate of return is of course much better, and you no longer have that short call contract "hanging over your head" as it were. Plus, if the price gets lofty again, you can do it all again.
For example, during the late October price dip I was closing calls I had written last August, realizing a nice (but not complete) profit. And I started writing new ones again this January, effectively getting paid again to commit to selling the same shares again.
Jim
No. of Recommendations: 0
""The sales of the January 420s on Monday was pretty interesting. This is one THIN Market. I sold 15 covered calls - one at a time throughout the day. I know nothing about options pricing - I just placed bids high enough to have them not execute and then lowered my ask by a nickel at a time until I got an immediate hit. For about half of the sales I felt like there was a computer on the other side as my sales were quite a bit above the bid shown - I got the same execution price on 5 sales in a row."" Goog morning, there is a lot to unpack here. Do you pay commissions? How much does it cost to sell one option at a time ? You went high bid for one contract and low offer for one contract to tighten the market, hoping your offer would be taken? Did you play, market maker for a day? Thanks.
No. of Recommendations: 0
"" The sales of the January 420s on Monday was pretty interesting. This is one THIN Market. I sold 15 covered calls"" I have time and sales so I can see your trades. Several were sold at 12.75, one at a time , was your average sales price about 12.50 or so ? Well done.
No. of Recommendations: 1
Your point is a good one, Jim. I am not looking for "additional opportunities" but I was not looking for the one either.
No. of Recommendations: 1
My cost at Schwab was less than $1.00 per trade.
Nothing fancy to tighten the market. I just played with my asking price with the knowledge that the market was very thin.
If I was the market maker for the day it was totally by accident. I just wanted to get my position in place.
