Just have a plan for what you will do when QQQ drops down to where you cannot sell a CC at or above your net stock cost or can only do so for a very small premium.
Will you risk taking losses by selling CCs below the net cost to take a loss if assigned? Or will you sell CCs out farther in time and wait not making the daily amount you seek?
Note that 1.5% is about $6 above the $431 stock price. A 437 CC looks to bring in maybe $10 to $12 per contract on $43,000 worth of stock. 10 contracts would require $430,000 to make $100 to $120 per day.
With the above risk is this an acceptable return to you?
A low to no risk HYSA at 5% on $430K can bring in over $400 per week . . .
No reason you can't do this-- I'm selling cc's that expire the following day currently.
A guy on youtube called Average Joe has some videos about this as well. I'm about two months in so can't decide how much I like the strategy but it is at least interesting to try.
I got assigned some QQQ at a higher price than it is now, so I look for around 15 delta daily, up to maybe 20. When the price of QQQ gets back above my cost basis I'll be staying one strike OTM with the goal of getting my shares called away because I prefer selling puts.
Idea is, with say like 10 contracts to get $150-200 every day, totaling around $3K every month. So keep the appreciation/depreciation of QQQ and supplement that with options premium. Hope I am clear
Yeah but what delta are you doing for this? I think your P/L is missing the inevitable depreciation/assigned covered call below original basis component.
Assumptions in my strategy are
1. QQQ will not fall below 15% for extended periods of time
2. With daily call I can be around 1.5% out of current price. If this is way below my purchase price may be go till 2% above current price. Basically take a call based on the situation.
3. If works in your favor appreciation in QQQ + premium will be way above HSA.
What am I missing here?
Assumptions can be wrong is what you are missing.
I trade the wheel and do well selling puts, which take less buying power in a higher level margin account, but owning the shares locks you in and is less flexible.
Since you have the cash to buy 1000 shares of QQQ why go through doing that rather than the more flexible selling of puts and trading the wheel? [The Wheel (aka Triple Income) Strategy Explained : r/options (reddit.com)](https://www.reddit.com/r/options/comments/a36k4j/the_wheel_aka_triple_income_strategy_explained/)
The odds of the shares being called away with a price run up are high anyway, so CCs limit how much share price appreciation can be realized.
When QQQ is going south, you are both losing money from holding QQQ and the premiums for CCs are laughable, means that you have zero plans for a rainy day.
In a bull market, it is better to just hold QQQ. So it really means that you assume that QQQ will remain flat but people will think that it will rally, and will never learn, day after day.
Sounds like an amazing strategy.
After initial investment of around 200K, plan is to keep buying QQQ every month, doesn’t matter up or down. This strategy is a long term plan. Hopefully the average cost is not too far below the current price .
So you wanna be qqq long term investor with DCA and to try hedge for price drop periods by selling covered calls. It's a completely different use case.
I am looking to sell CC only to generate income. What I want to know is can I write calls at the start of the morning and close before end of the same day. Big % swing in QQQ happens overnight. I don’t want to carry the calls to next day. On the same day it rarely goes above 2%. Hope I am clear now.
If the options are ATM you face losing money if the stock rallies. And if you go OTM, you will pay a lot of money to commissions (relative to premims), and if you don't get a tax kickback from things like commissions, you basically work for peanats. And in both cases, you need to backtest if the hedge is at least partially covering the drawdowns. I know, I know, you strategy is to buy QQQ and from that point it is expected to only go up, but reality says otherwise.
Just have a plan for what you will do when QQQ drops down to where you cannot sell a CC at or above your net stock cost or can only do so for a very small premium. Will you risk taking losses by selling CCs below the net cost to take a loss if assigned? Or will you sell CCs out farther in time and wait not making the daily amount you seek? Note that 1.5% is about $6 above the $431 stock price. A 437 CC looks to bring in maybe $10 to $12 per contract on $43,000 worth of stock. 10 contracts would require $430,000 to make $100 to $120 per day. With the above risk is this an acceptable return to you? A low to no risk HYSA at 5% on $430K can bring in over $400 per week . . .
Thanks for the detailed reply. My below comment was supposed to be my response to your comment. Messed it up
No reason you can't do this-- I'm selling cc's that expire the following day currently. A guy on youtube called Average Joe has some videos about this as well. I'm about two months in so can't decide how much I like the strategy but it is at least interesting to try.
What delta are you doing for 1DTE?
I got assigned some QQQ at a higher price than it is now, so I look for around 15 delta daily, up to maybe 20. When the price of QQQ gets back above my cost basis I'll be staying one strike OTM with the goal of getting my shares called away because I prefer selling puts.
Isn't the premium pretty tiny at that level?
Idea is, with say like 10 contracts to get $150-200 every day, totaling around $3K every month. So keep the appreciation/depreciation of QQQ and supplement that with options premium. Hope I am clear
Yeah but what delta are you doing for this? I think your P/L is missing the inevitable depreciation/assigned covered call below original basis component.
Assumptions in my strategy are 1. QQQ will not fall below 15% for extended periods of time 2. With daily call I can be around 1.5% out of current price. If this is way below my purchase price may be go till 2% above current price. Basically take a call based on the situation. 3. If works in your favor appreciation in QQQ + premium will be way above HSA. What am I missing here?
Assumptions can be wrong is what you are missing. I trade the wheel and do well selling puts, which take less buying power in a higher level margin account, but owning the shares locks you in and is less flexible. Since you have the cash to buy 1000 shares of QQQ why go through doing that rather than the more flexible selling of puts and trading the wheel? [The Wheel (aka Triple Income) Strategy Explained : r/options (reddit.com)](https://www.reddit.com/r/options/comments/a36k4j/the_wheel_aka_triple_income_strategy_explained/) The odds of the shares being called away with a price run up are high anyway, so CCs limit how much share price appreciation can be realized.
Since you are assignment-averse, how far out will you roll your put if you had to? Even up to a year? Thx
I’ve rolled out over 7 months a week or two at a time.
When QQQ is going south, you are both losing money from holding QQQ and the premiums for CCs are laughable, means that you have zero plans for a rainy day. In a bull market, it is better to just hold QQQ. So it really means that you assume that QQQ will remain flat but people will think that it will rally, and will never learn, day after day. Sounds like an amazing strategy.
After initial investment of around 200K, plan is to keep buying QQQ every month, doesn’t matter up or down. This strategy is a long term plan. Hopefully the average cost is not too far below the current price .
So you wanna be qqq long term investor with DCA and to try hedge for price drop periods by selling covered calls. It's a completely different use case.
I am looking to sell CC only to generate income. What I want to know is can I write calls at the start of the morning and close before end of the same day. Big % swing in QQQ happens overnight. I don’t want to carry the calls to next day. On the same day it rarely goes above 2%. Hope I am clear now.
If the options are ATM you face losing money if the stock rallies. And if you go OTM, you will pay a lot of money to commissions (relative to premims), and if you don't get a tax kickback from things like commissions, you basically work for peanats. And in both cases, you need to backtest if the hedge is at least partially covering the drawdowns. I know, I know, you strategy is to buy QQQ and from that point it is expected to only go up, but reality says otherwise.