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Poor man's covered calls for the Mega Thread. Orange Pill Investor ep 226.
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Poor man's covered calls for the Mega Thread.
This is how I set up my PMCC's.
Unlike a traditional covered call where you own 100 shares, and you can sell any dang strike you please because the shares fully insure the short calls, a PMCC must be structured "safely." I accomplish that by following a formula I found at The Blue Collar Investor - link in the comments below.
You take the strike from the LEAPS and subtract that from the short cc strike. Adding this to the premium collected on the covered call should be greater than the cost of the LEAPS. If this is accomplished then it should be well protected from a massive rally.
While this protects against infinite losses, if the buyer of your short call exercises too early then you still lose all of the extrinsic value left in the option. So it's a defined risk trade, but this is a somewhat hidden risk not often discussed.
NFA, but extreme caution should be taken with PMCC, and position size should be taken very seriously. If it's a large percent of the portfolio then if the stocks decline it will result in devastating losses.
However, in a bull market, PMCC will allow the trader to trade double the contracts compared to owning shares in a cash account. Number go up, twice the returns. Number go down, twice the losses. Trade-offs.
Follow for more content like this.👀
Ask questions and post comments and suggestions below.
Orange Pill Investor ep 226.
Be good yall.
Follow on X @nithusezni
00:00 Intro
02:10 The traditional covered call overview.
04:50 The PMCC set up.
11:00 Danger of early exercise.
17:45 Managing the PMCC.
19:15 How PMCC gets destroyed in a bearish market.
This is how I set up my PMCC's.
Unlike a traditional covered call where you own 100 shares, and you can sell any dang strike you please because the shares fully insure the short calls, a PMCC must be structured "safely." I accomplish that by following a formula I found at The Blue Collar Investor - link in the comments below.
You take the strike from the LEAPS and subtract that from the short cc strike. Adding this to the premium collected on the covered call should be greater than the cost of the LEAPS. If this is accomplished then it should be well protected from a massive rally.
While this protects against infinite losses, if the buyer of your short call exercises too early then you still lose all of the extrinsic value left in the option. So it's a defined risk trade, but this is a somewhat hidden risk not often discussed.
NFA, but extreme caution should be taken with PMCC, and position size should be taken very seriously. If it's a large percent of the portfolio then if the stocks decline it will result in devastating losses.
However, in a bull market, PMCC will allow the trader to trade double the contracts compared to owning shares in a cash account. Number go up, twice the returns. Number go down, twice the losses. Trade-offs.
Follow for more content like this.👀
Ask questions and post comments and suggestions below.
Orange Pill Investor ep 226.
Be good yall.
Follow on X @nithusezni
00:00 Intro
02:10 The traditional covered call overview.
04:50 The PMCC set up.
11:00 Danger of early exercise.
17:45 Managing the PMCC.
19:15 How PMCC gets destroyed in a bearish market.
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