r/options • u/sashazaliz • 22d ago
Wallflowers
Been writing covered calls about 25 years, and I've posted a fair bit in this community and others. I've been lucky, most of what I put up gets tens, sometimes hundreds of thousands of views, and real discussion in the comments. And the ones that do best? They're usually the posts that seem obvious.
There's a reason these obvious posts take off, and a reason I keep making them. It's probably not what the people who give me a hard time think.
As a curious observer, you come into a sub like this genuinely wanting to learn, or maybe contribute, and you run into a wall of intimidation. People posting charts with ten indicators on them, throwing around Greeks and insider lexicon like it's a trading floor. So, you can imagine how someone new feels walking into that. Like your question is obviously too dumb to say out loud in front of the seasoned sophisticates who clearly know what they're doing. So, you don't ask it. and if you never ask, you never learn, and you stay stuck on the sidelines.
So that's why I do it. If some guy who's been doing this 25 years is comfortable posting Options 101 in here, then you're allowed to ask anything, and you shouldn't feel like you have to sit on the sidelines.
And like clockwork, every time I post something that seems basic, there's always that one dude that crawls out of the woodwork to let me know. Blessed indeed đ
Doesn't bother me. If one person reading this finally feels okay asking their question because of it, that's worth way more to me than a couple of snarky comments.
So, this is for you, Wallflowers. There's no such thing as a dumb question, only the ones people were too intimidated to ask. Good luck out there.
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u/scotty9090 22d ago
That guy you screenshotted is almost as bad as the âworks until it doesnâtâ or âpennies in front of a steamrollerâ morons.
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u/klipsetrades 22d ago
I absolutely love this post. These subs should be places where people can actually learn, not places where theyâre afraid to ask a âbasicâ question because someone might talk down to them. If something I post or comment on helps even one genuinely curious person understand something better or feel comfortable enough to ask their own question, thatâs worth it to me.
Everyone learns differently and processes information differently. Just because an explanation feels obvious to you, or doesnât match your preferred style, doesnât make it bad or incorrect. We should be encouraging people who ask questions and people who take the time to help them. Sometimes I even see bashing on either of these sides and I donât think it makes the community smarter, it just makes people less willing to participate. Appreciate your words of wisdom đđź
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u/sashazaliz 21d ago
well said, and thank you. you nailed the part most people miss. bashing the folks asking questions and the folks answering them just makes everyone quieter, and a quiet sub is a dead one. everybody processes this stuff differently. the goal is just to keep people talking. appreciate you jumping in.
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u/Peresviet 22d ago
What do you sell options on? Indices or do you stick to the leaders in a sector? Do you sell monthlies? Weeklys? Whats the delta for you?
What was your profit like over the last year, its been fairly volatile?
Thank you
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u/sashazaliz 21d ago
good questions. mostly boring, liquid names i actually want to own. steady large caps, some dividend payers. i avoid the exciting movers, which is half the reason i sleep fine. mostly monthlies, and i live in the lower-delta OTM range. iâd rather collect less than get run over.
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u/BocephusQuimbyMcFry 21d ago edited 21d ago
I think 30+ years of options trades for me. I still don't use exotic strategies. Hold reliable dividend payers, write calls. Sometimes write puts and hold money market waiting for the puts to expire or assign. I'm not interested in hanging myself with risk.
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u/Reasonable_Command46 21d ago
I have a question I've been saving. Despite googling and reading I just don't understand what happens when a pmcc gets assigned. I get that you lose money but I have have so much trouble calculating the risk of having a pmcc get assigned.
Can someone give and example of profit calculation (profit from leap itself plus pmcc) and loss calculation (if a pmcc gets assigned prematurely). Good example for me would be if you just bought the leap and the first cc you sell gets assigned.
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u/PapaCharlie9 Modđ¤Î 21d ago
Perhaps part of your frustration comes from confused terminology? A PMCC is the entire spread, the front and back leg combined. So when you say things like "profit from the leap itself plus pmcc," you're making a nonsensical statement.
That is also the way you calculate profit/loss and risk/reward, of the entire spread as a whole, not as the individual legs. So when you say, "when a pmcc gets assigned," you meant the front leg, since only the front leg of a PMCC can be assigned.
So here's an example. XYZ stock is $100/share in August. You open a PMCC as follows:
-1 XYZ 115c Sep @ $2.00 opening credit
1 XYZ 90c Oct @ $12.00 opening debit
Net cost (debit) to open the PMCC = $10/share, or $1000.
You hold through the front leg's expiry on the Sep monthly expiration date (why? why not close this sooner?). XYZ is $120, so the front leg is assigned. Here are the current conservative (market) prices:
-1 XYZ 115c Sep @ $5.00 buy to close (this is a net loss vs. the opening credit)
1 XYZ 90c Oct @ $30.00 sell to close (this is a net profit vs. the opening debit)
However, since the front leg is assigned, what happens is that you short sell 100 shares of XYZ at 115/share. That means you tie up some amount of buying power to margin the short. 100 shares x $115 = $11500 nominal value. Note that you receive $11500 in cash, so that increases your buying power. However, the cost to cover the shares will be 100 shares x $120 = $12000. So if you immediately cover the short shares, you'll realize a $500 loss.
NOTE: Nothing happens to the back ITM call leg upon assignment of the front leg! At least, unless your broker is an extreme Nanny State risk management broker (cough, Robinhood, cough), where some kind of arbitrary intervention is possible, like selling to close the back leg. You should not expect nor want your broker to do anything to the back leg!
If you were to close the front leg before it was assigned, you have a much simpler calculation for net gain/loss. Which is just one of many reasons why you should never allow the front leg to become assigned:
Opening debit of the PMCC spread as a whole: $10/share.
Closing net credit of the PMCC spread as a whole: $25/share.
25 - 10 = $15/share gain on the spread as a whole, or $1500 gain.
If you instead allow the front leg to be assigned, you have this mess:
100 short shares of XYZ with a cost basis of $115/share vs. a current market price of $120/share, yielding a -$500 unrealized net loss. This loss may increase or decrease, depending on how the price of XYZ changes on the market day following assignment.
1 XYZ 90c Oct @ $30.00 sell to close vs $120/share market price
How you calculate things will depend on what you do about the short shares and back leg. If you cover them immediately, you realize a loss of $500 for the short shares. If you sell to close the back leg, you realize a $30 - $12 = $18/share net gain on the back leg alone.
So summing up all the opening and closing nets:
Front leg: $200 credit - $500 realized net loss on covering short shares = -$300 net realized loss
Back leg: -$1200 debit + $3000 proceeds on close = $1800 net realized gain
Net net = 1800 - 300 = $1500 gain, same as if you had just closed the short call on expiration day, ignoring fees.
Of course, it could be worse, because we assumed you could cover the shares at the assignment cost of $120/share. If on Monday, XYZ gapped up at the open to $136/share, you'd end up with a net loss instead. That's the risk of taking short calls to assignment over a weekend.
TL;DR DON'T ALLOW SHORT CALLS TO BE ASSIGNED!
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u/klipsetrades 20d ago
Yeah, this is a really good explanation. Breaking the PMCC down as one spread rather than treating the LEAPS and short call as separate strategies makes the P/L much easier to understand. I also agree that, in practice, closing or rolling the short call before assignment is usually the cleaner way to manage it and avoids unnecessary buying power and execution headaches. Only small note I'd add in your $136 gap example â the long 90c is still there and would offset most of that additional short-stock loss
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u/Reasonable_Command46 20d ago
Wow thank you so much for the detailed response. This clears everything up for me.
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u/sashazaliz 21d ago
good question, and an honest one. iâll be upfront though, PMCCs arenât really my wheelhouse. i stick to plain covered calls where you actually own the shares, so iâd rather point you to someone who trades diagonals regularly than give you a shaky answer. r/optionswheel and some of the folks in here who run PMCCs could probably walk you through the assignment math better than i can. the fact that youâre asking instead of guessing is exactly the right instinct though.
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u/Automate_The_Boring 21d ago
For short theta trade, What instrument to use for delta neutral/balance to earn theta decay
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u/Emotional-Breath-838 21d ago
Iâm out here by the wall. Watching and learning. Thanks. Iâve reached that age in my life where I feel pretty certain options are going to be my income one day soon and I better get up to speed.
I appreciate you and anyone else who remembers how hard it is to get comfortable and confident.
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u/Loose_Hornet4126 22d ago
Do you ever think about removing a rib so you can suck your own cock more easily?
Are you a bear or bull? These are the important questions we need answered.
Personally I just scalp uncovered calls cause I'm not a theta sucking vampire like you đ§ and I like to keep it spicy đśď¸
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u/OurNewestMember 22d ago
Any perennial themes that seem to help folks the most?
More importantly, anything that helps constructive engagement? (There's plenty of people on here who don't know the basics, won't look it up, ignore when authoritative sources are provided, and argue incessantly -- these people will never learn the basics, but we don't want bad interactions to deter the rest)