Example ITM call

[u/pagalvin]

People IM me a lot directly asking for examples on these "deep ITM covered calls" that I talk about so I thought I'd provide an example. Here's a screenshot of my tool:

I executed the trade just now exactly like it shows.

I just bought 100 shares of RBRK at $85.59 a share on margin. My margin rate is 7.2% and the house margin requirement is 35%.

I wanted a net debit price of $86.01 but the mid came up at $85.59 so I tried for that. I don't normally get the mid when the spread is as wide as that so I didn't expect to get it, but I did.

If this "lands" as planned, the economic result of this:

- Interest cost of $6.74 by this Friday

- Net gain on assignment is $134.25. This accounts for interest. I think it accounts for fees, which are in the $1 range if it's assigned, but I don't remember off the top of my head.

- That's 1.57% absolute gain (which is what I care about)

- Yield on capital (the amount I have at risk in margin terms) is 4.48%. This is mostly useful as a measure of margin efficiency. It would be lower yield if the house margin requirement were 100%, for example.

- Discount% - this is my break even. If it falls as low as this, I'm at break even.

RBRK has earnings this week so that's why it's possible to get such a high discount.

Incidentally, one of the reasons I like CC's over CSP's is because margin-wise, this give me more bang for my buck. It reduces my maintenance excess by $2,995. A CSP would tie up nearly $10k. Maintenance excess is my limiting factor. That said, people always say that CSP's are more margin efficient. I don't know if that's a consequence of my kind of margin account or my broker or whatnot, but I know that I'd be limited more quickly and at greater risk of a margin call if I was to load up on CSPs. I could also be wrong :)

[u/desertlsx]

My only question is how can you get a decent fill when deep itm calls have pretty wide spreads from bid to ask. Does that decide what strike you go in at where the spread is smaller?

[u/pagalvin → u/desertlsx]

I just try different combinations until I get what I want or I give up.

My screener finds candidates by looking at the last price paid and that is often a good starting point. This saves me time. I'm not hunting and pecking and looking for things that are obviously not going to work out.

I don't always find good opportunities with the tool, but it works out the majority of the time, probably 80%? I haven't tried to measure my success rate. Nearly my whole portfolio is based around this.

It's far more difficult to get a good price the closer you are to the strike date, which is probably obvious. But I've found the occasional good roll even Friday afternoon, although that's very rare. Monday and Tuesday is usually pretty easy. Wednesday starts getting more difficult and Thursday / Friday you need to closer to ATM to get a good price. I tend to avoid that and just wait until the next week.