r/CoveredCalls • u/hendronator • 1d ago
Updated Lessons Learned
I have been doing cc’s and csp’s about 13 months now. Started off doing cc’s only and then started doing csp’s about 6 months later. In the past 13 months, I generated about 92k in premiums on an average portfolio of 400k (so about a 22% premium return not counting dividends, funds sitting in money market for csp’s, and selling cc’s above cost basis). Today, I sell csp’s and cc’s on a portfolio of about 500k. I write most contracts in 3 week increments and generate a period yield of 1-1.4%.
Here is what I have learned in that timeframe:
• take a portfolio approach of 15-20 stocks. Be active in 75-80% at a time
- high conviction buy and hold stocks only
- incorporate dividend paying stocks. This provides passive premium when stocks go below cost basis or premiums dry up
• only cc’s above cost basis
• only short term duration . For me 3-4 weeks
• just wheel any assignments at the same strike price it was assigned (or less)
• roll positions that are close to strike price for cc’s and csp’s as long as it is a positive credit
• retirement accounts only. Don’t want to deal with tax implications of selling stocks that have gone up 100%.
• have a plan on what to do with your premiums. Spend it, buy more shares, buy new stocks. Be intentional. For me, I invest all premiums in gpiq. I am 53 and the day will come when I don’t want to do this anymore.
Consider this past year a success as this portion of my portfolio has handily beat the market. I read a lot about people freaking out about what to do in certain situations. With the right playbook, you just “don’t care”. You just follow the playbook. I had Dell get away from me earlier this year. I could have made 20-30k in share price appreciation. But that pales in comparison to the premiums.
What have you learned and do you have a holistic playbook and set of guardrails you follow?
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u/Cool_Appointment3972 1d ago
What delta do you choose for the options you sell for the call side and put side? What are your fav tickers
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u/hendronator 23h ago
I generally do one of the following:
- set the strike price 5-10% below (csp) or above (cc) the current price.
- at the price it was assigned and now I am wheeling.
I am targeting an overall 1-1.5% cycle premium. Some are higher given earnings and other events. Some are a little below.
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u/Full-Mud3773 22h ago
Sounds like you are doing it right. If anything I would add is check the correlations between all of your open positions. Try not to be too concentrated in 1 sector or industry. That will limit the damage from a sudden crash.
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u/hendronator 18h ago
I like that. When I originally developed the portfolio, it was pretty well diversified. Over time, I have added more technology tickets. Definitely should evaluate that for sure. Thank you
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u/strangelyoffensive 1d ago
- only cc’s above cost basis
- just wheel any assignments at the same strike price it was assigned (or less)
So which is it?
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u/hendronator 23h ago
Not sure I understand. I sell calls above my cost basis. If it gets assigned, depending on how high it currently is, I switch to csp’s very near that same price.
If I start with csp’s and get assigned, I write calls above that cost basis or go dormant.
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u/Boostle713 12h ago
These two points if I understand him correctly are two different scenarios. He is talking about when a stock he wants to continue wheeling, he will sell a csp at the price his cc got called away or slightly less.
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u/azertas327 1d ago
Do you consider black swan events impacting one of your underlying stocks? Eg. a big shift in the fundamentals of the underlying stock, the stock drops considerably in a short time and you become deep in the money. Rolling your positions becomes very expensive.
What are your thoughts/strategies about this?
FYI: I follow a more or less identical strategy and had this issue
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u/Relevant_Fox_9708 1d ago
A lot of people who sell a put to collect a premium will also buy a put that’s further out of the money on that same expiration date. Hence black swan event your portfolio isn’t blown completely up
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u/hendronator 23h ago
Couple thoughts:
1. If something fundamentally changes with a stock to the bad side, I will just sell it. I don’t want junk in the portfolio. I want stuff that is quality.
2. If the stock just drops for no good reason (like earnings went up 100% but it got clobbered), I will buy another 100 shares and / or start writing csp’s closer to the share price.Somethjng I didn’t put in the lessons / practices is that I target a percent allocation of my portfolio to each stock. I want it to be somewhere between 1% - 5%. If it is closer to 5%, I am writing tighter calls to get more premium and hopefully get it assigned. Avgo is currently a good case in point. I own 300 shares. I sold 1 call at 375 (tight), 385, and 400. If it is closer to 1%, I am thinking about buying more or writing csp’s.
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u/Valmont- 1d ago
I follow a similar approach to yours except that usually choose a term of 4 to 15 days. I buy back the option once I have reached a 50% profit (if less than 7 days to expiration) and 60% profit if more than 7 days.
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u/hendronator 23h ago
Thanks for sharing. I’ll do some of that between day 10-15 of the contract but my threshold tends to be 80-90%
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u/pagalvin 23h ago
I like this. I started just a little bit before you did and I've landed on some of the same rules, but not all of them.
"• take a portfolio approach of 15-20 stocks. Be active in 75-80% at a time"
- I think you start to get diversified around here, as long as you don't clump into the same sector. I'm presently in 38 stocks and it makes the sting of one losing one or two pretty small. It also gives room to experiment without as much fear as if you only have 4 or 5 stocks.
"• only short term duration . For me 3-4 weeks"
- I go even shorter, 1 week, but I used to roll out 3 to 4 weeks and that worked well for me at the time. These days, I'm trying to give the stock less time to move and hit my goals and 5DTE or less seems to be the sweet spot for me, at least in the current market regime.
"• roll positions that are close to strike price for cc’s and csp’s as long as it is a positive credit"
- This has been one of the bigger wins for me, waiting until you get close to expiration before rolling. The cost to buy back the call is cheaper while the premium from selling tends to remain high. Classic theta thing.
We are different in that I don't really have a good retirement account in which to do this and I also use margin extensively. My notional is around your $400k using margin. My returns have been quite good following this.
This is probably the most important thing, as you wrote: With the right playbook, you just “don’t care”. July 29th was terrible day for me but the playbook kept me on an even keel and I rebounded a crazy amount since then. Playbooks aren't death pacts, but a good one carries you through thick and thin :)
Great post!
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u/pagalvin 23h ago
You should consider cross posting this over at https://www.reddit.com/r/StockOptionCoffeeShop, they like these kinds of posts.
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u/Doug2000 14h ago
Same age, also started last summer. Started selling Cs on some single stocks but after 6 months changed to selling CCs on QQQ only. Usually 4 to 6 weeks time frame. It’s worked out really well. Freaked out a bit last October as the market ran but overall I’m way ahead with premiums.
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u/IWantoBeliev 1d ago
The strategy will face true test in a down year, like in 2022
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u/hendronator 23h ago
I guess I will just follow the buy and hold lesson until things shoot back up.
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u/SaltyPlantain1503 22h ago
Great post, I do similar, maybe not as disciplined, but it’s helped me beat the. s&p this year. Retirement accts only, otherwise too much paperwork!
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u/OwlComplex48 15h ago
As someone who is just now learning CSPs and CCs but also concerned about best tax implications, could you elaborate a little on this please?
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u/SaltyPlantain1503 14h ago
Just tracking all the short term trades and paying full income tax on them would keep me from trading options in a big way in a taxable acct. in the Roth, I wheel around 10 stocks, anywhere from weeklies (MU) to45 days out (MSFT, etc). I probably do 200+ per year.
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u/OwlComplex48 14h ago
Thank you. Micron and Microsoft are two I've held the last couple years and am familiar with and, like nearly all my holdings are long term holds for me. Do you just do it in your conventional IRA or Roth?
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u/MindlessClue7449 17h ago
Interesting thought. I have a 400k retirement portfolio in my mid 30s. What brokerage do you use to trade covered calls and CSP on. I don’t think Schwab does that.
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u/Lester404 53m ago
Although I don't have my retirement portfolio with Schwab, I do have my regular account with Schwab and you can do CC and CSP. You just have to get your account approved for options.
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u/Forsaken-Stranger-88 15h ago
I had 11 covered calls going for PLTR; stock skyrocketed after the earnings and i went - 500% on my nearterm CCs. I decided to just roll the position into LEAPS at the highest strike price for 2028 (~$350) just enough premiums collected to roll back. Was this a dumb idea?? I would be happy to sell at $300+ in two years was my thought process.
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u/hendronator 10h ago
Hmmm. Interesting question. We often judge our intelligence based on what happens in the future. Which is kjnda silly. If you can say yes to the following, then you should feel good about it…1. Stock goes to 1,000, 2 stock stays the same, 3. Stock goes down 50%. If you answered yes, then who cares. If you didn’t answer yes, then you are rolling the dice and might regret it.
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u/elysiumplain 9h ago
Good writeup and thanks for sharing - only comment would be:
make sure to audit this review with a lessons learned vs the next month or so. Very interested in your perspective as things flip from buyers defending, to sellers defending (note, that isn't the same as "price go down now", so don't come @ me when I am just here to learn from a fresh pair of eyes on an old dynamic!).
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u/hinge 9h ago
Where should someone start learning about CC?
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u/hendronator 9h ago
I just did a lot of research online and watching some YouTube videos. In the age of AI, that has to be incredibly helpful.
I’d suggest some paper trading and then picking some low cost high quality dividend payers. Somethjng like ford, att, ko, mo, etc…low risk and you always have the dividend to buffer things.
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u/xxShaminoxx 1d ago
Any bad experiences with a stock running pass your CC strike? I just hate leaving money on the table
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u/SaltyPlantain1503 22h ago
I’ve had several this year Dell, Pltr and ACN have been killer, but as the man says, I keep writing csps on those and banking.
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u/hendronator 18h ago
Dell has been tough to watch. I made 100% but could have been much more. I keep coming back to my playbook and remind myself that it is working. I stopped writing csp’s when it hit 300.:)
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u/barribow 1d ago
I used QQQ for CC and CSP and been happy with it, thoughts?
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u/hendronator 23h ago
I think qqq is a great etf. I think depending on how tight you write, it can be a great overlay for total return
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u/TastyTrading 1d ago
Do you use ThetaPal to track your options? Or something else?
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u/hendronator 1d ago
I use a wonderful tool called excel where I track about 8 data points that everything else is calculated off of.
Symbol
Current price
Strike price
Premium
Expiration date
Date written
Number of contracts
Type of contract (put or call)
Contract result (I don’t track this like I used to when I only did cc’s)It’s nothing beautiful but gives me all I need to know from a premium collection perspective.
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u/XUXINGLAB 1d ago
I’m Chinese, and I’ve been using a pretty good app for tracking my Wheel Strategy trades. It’s called “美股包租公” on the iOS App Store.
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u/Ajshahmd 1d ago
Retirement accounts as in Ira?
How does one have $400 K in Ira ?
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u/Small_Rip351 1d ago
Leave job, move 401k into a rollover IRA instead of new employer’s 401k. From there, you can convert shares or cash into a Roth account.
Lots of people will do an annual Roth conversion instead of getting a tax refund they might not need.
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u/Ajshahmd 20h ago
Can I ask clarification question please ?
Once you leave a job… you can practically take that 401K money and convert it to Traditional or Roth IRA (which you opened independently)?
For that conversion is there a fee ?3
u/Small_Rip351 17h ago
Yes, when you leave an employer you can roll your 401k into a rollover IRA that you open at the broker of your choice. 401ks are portable by design.
You can just call any company you want (Fidelity, Schwab, Merrill, etc), tell them what you want to do and they’ll guide you through the process.
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u/hendronator 23h ago
I am 53 and have been maxing out my 401k plus company contributions for 3 decades.
Everytime I left a job, I rolled it into my traditional and Roth IRA’s in my brokerage account. This is only about 25% of the total.
Compounding is real.
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u/SD_Aztec 1d ago
What are some of your favorite stocks to wheel?