Kevster

I normally do a lot of covered call options on certain stocks I own. My usual strategy is to sell them for 1-2 months in the future at about a level that probably won't be at by that time (I know these stocks well and have profited from it nicely). For those on here that do the same thing, how far ahead do you sell them at or feel comfortable selling them at? I'm just wondering because I've been looking at October calls lately and the time-value premiums are quite nice right now.

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I think over again
My small adventures, my fears.
The small ones that seemed so big,
For all the vital things I had to get and to reach.

And yet there is only one great thing, the only thing:

To live to see the great day that dawns,
And the light that fills the world.

-old Inuit song

dbax791

Congrats on your gains. I have had horrible luck in the options market, but I only did call buys.

I looked at selling covered calls, but the premiums minus commission minus taxes wasn't compelling enough. But on the other hand, the market has been basically flat for 3 years now so selling covereds is free money for you while you get to keep the stock.

Sorry, no help. I would probably advise you to sell the Oct covers but based on my luck the company of your stock will get a ludicrous takeover buyout premium in September.

Merlin

Tough to answer this one because there are a lot of variables. Presumably you are comfortable holding it that long and the premium over the closer expirations is pretty good - so go for it. Based on the Black Scholes option pricing model the cost of an option will increase almost exponentially as option gets longer.

Main thing to be mindful of here is that with a longer time horizon you are now more exposed to headline risk. That means that company will be coming out with an earnings release during your holding period and obviously there is risk associated with that.

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Chgoman

I haven't used options in my trading for a while, but I used to sell covered calls regularly. I usually went out 1-3 months depending on the volitility of the stock and the premiums of the calls. In my experience, selling calls was almost always profitable. Seeling a call takes more experience and sophistication than buying them and as such, options tend to be priced to favor the seller. This is obviously not always the case, but in my experience is often the case.

As Merlin mentioned, the longer you go out, the prices get more attractive, but that is because there is more risk of fundamental developments in the company. I always figured that if I would be upset if the stock got called, don't do it. If you have the perspective that if it gets called, you made a good profit on the stock, plus the call premium, them you're okay.

ray

I tinker around with Options about 1-2 times a year and typically look outwards of over a year on Call Options.

Kevster

I've been very fortunate so far. I've had 600 shares of this stock and have sold 4 call options on them since March. If I get called at a strike price of 10, I make just over 30% on my investment (not including premiums). So far I've made about 27% in premiums and hopefully this I won't get called in August.

Of course, this is not indicative of how I've done on other investments, but I'm doing ok thanks to research and some good decisions (ok one was kind of lucky).

Chgoman

That's great. So you figure, best case scenario on a stock like that is you don't get called and continue selling the options. Worst case, you get called and made 57% with profits and premiums. Either way, not too shabby!