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Great discussion, I personally like selling covered calls on a portions of a significant holding of a business I am bullish on based on fundamentals and is undervalued. If I have a full allocation but the stock takes a hit (but the thesis does not) I will buy another 100 shares and a slightly OTM call option on an up day. I'll be happy to sit it out, collect divs and if it takes longer to recover I can repeat the process. The trade offs here (to Kim's point there's always a trade off): 1. My thesis is wrong (ouch) and I end up incurring permanent (or at least long term) loss on a full allocation, plus 100 shares 2. The stock rallies and I lose a lot of upside but this is precisely why I use extra allocation, I am still sitting on the rest. It's increasingly amazing to me how many different ways there are to skin a cat (or get skinned) with options😉

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@Marco  thanks  that makes sense

'50 delta' usually means an 'at the money' option. So strike = share price. (technically 'at the money forward' but thats further down option theory...) further to the downsides already discussed you have a possibility that your short call gets exercised just before dividend (will typically happen if the stock has rallied a lot and the option doesn't have much time to expiry) so you don't earn the dividend in that case. Having said that I had a portfolio with stocks that I liked and sold calls against that. Was lower vol stocks (energy, pharma, consumer staples, telcos, utilities etc) So idea was income generation from dividends and option premiums. You give a lot of your returns back if you hit a high vol period  something like the fast drop and recovery that we've seen between Mar and now is not great for that sort of strategy even if the spike in implied vol will increase your option premiums.

Also depends if you are selling shorts right at the money of course. If you sell the delta 30 calls instead I wonder if the performance would be better over a long bullish cycle. Also if you are really bullish one could go with 1/2 ratio on the shortsI wonder what the performance would be with 1/2 ratio at the delta 30 shorts, but then again I am drifting away from the discussion on "pure" covered calls.

Thanks. What does the '50 delta' mean though  sorry  that lost me.

Just 1 Put option per 100 shares. Then roll the Put option every 30 days. I ran AAPL through CML's Trade Machine backtest and the Married Put produced 3x the return that a Covered Call did for the past 2 years. I only think Covered Calls are good in retirement for producing a dividend like income on shares you've held for a long time.

Thanks @Kim @vitalsign0 @vitalsign0 "Married Put = buy 100 shares of stock + buy 50 delta Put 90 DTE" Do you mean buy 50 units of put option (i.e 5000 stock total control) ........ at 90 days expiration out ?

@fakka I think you need to look at the total performance, not just income. A gain is a gain, no matter if it comes from selling covered call, dividend or stock appreciation. So overall, you are correct. As I said, I believe it's a good strategy overall  but we need to be aware that it's not a holy grail, and in some cases, just holding the stock might produce better results. So we don't really disagree  I'm just trying to show that there are no free lunches in trading, and each strategy has its advantages and disadvantages.

I've run a few backtests and a Married Put will usually perform a lot better than a Covered Call. Married Put = buy 100 shares of stock + buy 50 delta Put 90 DTE. This gives unlimited upside potential and limited downside risk. Worked much better with AAPL than a Covered Call over the past 2 years.

@Kim Thanks !! How is the CC P/L calculated ....... eg at line May 18  that looks like what we are saying is stock went from $572.98>$530.38 So a loss of $42.60. But we received $28.77. So a paper loss of $13.83. So I think I get that from a monthly trade perspective ....... looks like holding the stock was better. But I *think* in my scenario Im looking more for income stream on a longer term basis. meaning. Normally I'd just buy a stock like PSX for income (dividend) at a certain entry point and accept the up/down volatility ..... and calculating that at sometime in future I'll sell for breakeven or higher on stock price ..... plus my 7% dividend. So lets just go with break even and a yearly 7% return. but if I sell a longer dated covered call I have a few options. 1) If stock goes down ....... I'll receive the option strike gain as the option will expire worthless. Now making my cost basis even lower. Rinse and repeat. Still collect my 7%. 2) If stock goes up. The option gets called. I collected (in my example) an 20%30% return over the period of the year (annualized). Sorry  think I am just rehashing what your saying  which is your limiting your upside and your downside has no limit. That's what the premium is for. But if Im comfortable owning the stock anyway ...... then locking in a worst case 20% return on upside seems good. Downside risk to me is basically the same in either scenario (options or just stock) => 0. Not looking to trade options apart from a hedge/defined income. Sometimes I will sell the covered call on a stock I want to own anyway based on technicals ..... stock looks overbought etc ....

Sorry.. here is the table that illustrates the AAPL scenario: As we can see, the stock would produce a respectful 25% gain in the last 10 months. Selling covered calls would turn this gain into a 3% loss.

@Kim Thankyou Sir !! I dont have a SA Premium account  just regular  so its blocked.

You are right, my example was not the best scenario to illustrate the risks. The main risk is this: when a stock goes up sharply, the covered call significantly reduces the gain. When it goes down, the gain from the sold call is not enough to offset the lost gain from the period when the stock went up. Here is a better example from one of my old SA articles: Why Writing Covered Calls On Apple Might Be A Bad Idea

@Kim Thanks kim Sounds like I understand it correctly. I guess it depends on how you define "loss". In your scenario ....... I have lost out on the potential gain of $50 ($5000 on 1 option). But from my viewpoint ..... I bought the stock at $56 ...... I sold two options at $5.60 ($560x2) or $1120 ..... and I still own the stock and collected the dividend. Thats over a 20% return ...... and not much risk except the loss of bigger gains. I can live with only 20% return ........

A great free resource detailing the risks involved in different asset allocation strategies (based on backtesting) is this site: https://portfoliocharts.com/portfolios/ The "ulcer index" concept is particularly useful. https://portfoliocharts.com/2017/11/01/theulcerindexisahelpfulwaytoquantifyportfoliopain/

@fakka Covered call is similar to naked put and it's a very good strategy that in many cases allows you to get similar returns to owning the stock with less volatility. However, there are no free lunches. The most obvious downside is as you mentioned limiting your upside. So consider the following scenario: 1) Stock goes up by $50. Since you sold a covered call at $5.60, this was your gain (plus the difference between the stock trading 56 and the strike, so total around $7). 2) Now you sell another call at similar price. The stock goes down $50 back to $56. The call protected you only by $5.60 (or whatever price was), so you lost around $44. Your total loss is around $37 while the stock is unchanged. The bottom line: this strategy is not performing well during periods of high volatility. You get only limited upside, but much higher downside if the stock starts to jump around.

So a relatively newbie  not looking to get into complex option trades  just using mostly for hedging/income. Wanted to understand what the downside of this approach is ? i.e Am I missing anything. ================== What is the downside to this option trade ? I cant really think of any except... 1) Stock goes to 0  same as a normal stock ownership so no difference. 2) Stock doubles  you limited your upside. PSX  trading at ~$56, yields 6.5%. The Feburary 19 2021 (150 days) 57.50 call option is selling for around $5.60. (well two days back when I first looked at it) So that to me means ..... If you bought 100 shares ... and sold 1 option at that price you would; 1) Collect 10% or $560 on your $5600 investment for 161 days. 2) Collect 161/365 days worth of dividend @6.5% ~ 2.87% 3) Collect if option is excised $1.50 ($57.50 call $56 stock price) also . 2.67% So total for 161 days approximately 10% + 2.87% + 2.67% => 15% for less than half a year. Or over 30% for the year. Whats the downside ? Except what I mentioned above. Any fault in my logic ? Looking to hedge a little bit of risk but stay in market.

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Holding stocks with Buy Put for mainly hedging purpose: Buy Put with trailing stop (10%) starting at 100 resistance and expect price going down at 80 support There is a little correction rising from 85 to 95, and trigger trailing stop to exit with 10% cut loss rule. After that, price still go down to 80 resistance. For hedging position, once exit is triggered for Buy Put, then there is no more hedging, 1) should Buy Put exit and stop with no more hedging? or 2) reenter after exit for maintaining hedging position? 3) Don’t apply cut lose rule for hedging position? 4) other? Does anyone have any suggestions? Thanks in advance

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@QuickNick and everyone else  any experiences or info to share on Tradestation or TradeZero America, particularly around order execution? Thanks.

Our trades will be posted in about 2030 min

This more “scientific” approach is believed to be conservative and reliable. But is it? Option people tend to be mathematical by nature. Most traders use math to pricing, payoff expectation, calculated of net returns, risk identification, and overall probability. Math comes into play when considering offsetting positions, short exposure, hedging, and conversion (of complex relationships between options and underlying securities, into actionable decisions and probabilities. In viewing the many ways that traders view the math involved, it at first appears to be sensible and rational to analyze trades and their risks based on finite mathematical study. Experienced traders, in fact, do not rely on the relatively simple mathematical study of strategies (or their maximum profit and loss and breakeven calculations). These calculations are helpful but limited. They assume what happens to an option if it is held open until last trading day. However, experienced traders know that most options are closed before this day, so the basic calculations provide only a “worst case” or “best case” outcome that rarely occurs. These outer perimeters of outcome do not address the needs of the experienced trader, who will not find the math required online. Experienced traders have moved beyond the calculation of possible outcomes or the deeply flawed BlackScholes pricing model that has captured the imagination of academics and theorists. In fact, even these basic calculations so popularly found in options books often are deeply flawed for numerous reasons: They do not address realworld outcomes. For example, holding options until last trading day is a rarity, so maximum profit or loss is unlikely to ever be realized. Most popular calculations do not include allowances for trading costs, time value of money, collateral requirements for short positions, or dividends. The methods of calculation often are simply wrong as well. For example, when websites offer analysis of implied volatility (itself only an estimate), why don’t they reveal their methods? It is because the variables employed can easily be adjusted to report any desired outcome. The calculation of probability itself is also wrong in most cases. Most calculations are performed using the additive method (the odds of an outcome being realized), and not on the more accurate mutilative method (the odds of an outcome not being realized). It might seem that both methods would produce the same outcome, but they do not. A significant difference, in fact, is derived with each method, and the additive method overstates the estimated positive results of trades. [See Reehl (2005), The Mathematics of Options Trading. New York: McGrawHill, pp. 4445; and Thomsett (2017), The Mathematics of Options, New York: Palgrave Macmillan, pp. 247249] The flaws in commonly applied math should be of great concern to all traders, but they are only rarely addressed or even discussed. The problems of multiple variables makes options math particularly elusive, and as a result it is difficult to pin down a precise method for any of the mathematical applications involved. However, traders may experience more positive outcomes by recognizing the flaws in math that prevent certainty in estimates. Unfortunately, too many traders have become convinced that basic calculations of volatility, probability, and profitability are reliable. This is not true, and therein lies the real flaw: Choosing to believe a set of assumptions that are not only inaccurate, but often entirely untrue. A favorite practice of some portfolio managers and traders is to engage in a deep study of implied volatility. This calculation is based on estimates about future volatility (which is impossible to know) and may rely on calculations and spreadsheet formulas provided by online experts and industry observers. But how have they calculated volatility? Since none of these sites explain their methods, how can anyone rely on the results? The fact is that implied volatility is as flaws as the BlackScholes pricing model. Traders replying on a study of historical volatility in the underlying security, at least have certainty on their side. Historical volatility is a firm value derived from recent price movement, and not from estimates. Critics of historical volatility argue that it is based on past price behavior and cannot be used to estimate future price behavior. However, implied volatility used estimates based on assumptions about something no one can know, which is the future. What is more reliable, the certainty of recent history or the unknown factors of the future? Neither is perfect. However, option value is directly derived from underlying volatility (which explains why they are called derivatives). The desire among traders to match strategies to risk tolerance, should serve as a starting point for deciding which strategies are most suitable, and what level of capital should be placed at risk. This is sensible because it applies to every individual, and it is up to the individual trader to match strategies with acceptable levels of risk. This is more realistic than accepting definitions of implied volatility, probability, or the BlackScholes pricing model to pick strategies and contracts. If these methods are imperfect, that may be acceptable. But if they are based on outright inaccuracies, what value do they provide? Relying on inaccurate assumptions or flawed calculations is more than illadvised; it sets thew trader up for failure. The simple calculation of probability of an outcome usually is based on a flawed set of calculations, something realized by 17th century mathematicians Blaise Pascal and Pierre de Fermat in studying outcomes of dice rolls. However, even today, the deep flaws on probability and other options math is too easily overlooked. For the modern trader, acknowledging common flaws in options math is a smart starting point for improving the profitability of trading. It comes down to the knowledge of the flaws in most mathematical options conclusions and beginning to make a more informed comparison between actual risks and personal risk tolerance. Michael C. Thomsett is a widely published author with over 80 business and investing books, including the bestselling Getting Started in Options, coming out in its 10th edition later this year. He also wrote the recently released The Mathematics of Options. Thomsett is a frequent speaker at trade shows and blogs on his website at Thomsett Publishing as well as on Seeking Alpha, LinkedIn, Twitter and Facebook. Related articles: Do Options Affect Stock Prices? Pricing Models And Volatility Problems Fatal Flaws In BlackScholes Put/Call Parity: Two Definitions
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Chartaffair.com  RV Charts & Backtesting for Steady Options
bandito replied to Christof+'s topic in Promotions and Tools
@Christof+ Website is woorking good now, I'll try IB API soon. 
How to determine ROI for Bullish Put Spread?
oemOptions replied to oemOptions's topic in General Board
Thanks, to everyone very much for suggestions (^v^) 
Chartaffair.com  RV Charts & Backtesting for Steady Options
Christof+ replied to Christof+'s topic in Promotions and Tools
@bandito I've checked the site, all RV charts I checked look ok and are uptodate. I have also not received any other user complaints so far. Can you please send me via personal message the symbols you see missing data so I can take a look? 
Chartaffair.com  RV Charts & Backtesting for Steady Options
bandito replied to Christof+'s topic in Promotions and Tools
@Christof+Other thing, RV charts have not been updated since September 10th