Quote:
Originally Posted by JMarchand1981
If you make 4% selling a call but lose 3% on the stock, you actually got murdered since the equity position has a higher overall cost basis than the option.
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As long as premiums stay high would a 3% fall really hurt?
-Buy “XYZ” for $100.
-Sell weekly $105s for $4.00. Cost basis is now $96.
-XYZ closes the week at $97. Next week I sell $100s for $4.00. Cost based is now $92.
-XYZ closes at $94. Rinse and repeat.
I do realize that this is based on arbitrary numbers, and a bigger pullback can waste away your profits + make it untenable to sell covered calls until the stock bounces back.
Oddly enough, I know the meme stocks have absolutely ridiculous premiums. AMC had the high mark of $0.08 on $95s with 2 DTE yesterday. $60s had a high mark of $0.22 with 2 DTE. Make 0.5% on a 35% run in less than 2 full trading days? That seems like it shouldn’t be legal.
Obviously it’s stock dependent, but with these meme stocks I think they could retrace back to a more reasonable price and most holders would still be green.
I posted it towards Posey, who said he isn’t selling CCs on his 1,000+ AMC shares, but I have a buddy who’s cost basis is now approaching -$100 on his shares and he’s been selling furthest out expirations. The guy sold AMC $70s for $2.50 last Tuesday when the stock was at $45ish. Even penultimate AMC bag holders could be green with the crazy premiums on CCs, and I’m pretty sure that’s why the meme stocks refuse to die. Nobody wants the option merry go round to come to a halt.