Writing Covered Calls on SPY

[berkshire101]

As anyone thought about writing weekly covered calls on the SPY?  Say you own 100 shares of SPY at $205.68.  You write a call option at strike price of $206 for $1.08 premium.  That's about 0.5% gain (excluding taxes and fees).  Annualized that, it's around 27%. 

 

Any thoughts to the downsize of this?  You could be stuck holding the SPY, shares are called away, and might not get the premiums you want. 

[boilermaker75]

As anyone thought about writing weekly covered calls on the SPY?  Say you own 100 shares of SPY at $205.68.  You write a call option at strike price of $206 for $1.08 premium.  That's about 0.5% gain (excluding taxes and fees).  Annualized that, it's around 27%. 

 

Any thoughts to the downsize of this?  You could be stuck holding the SPY, shares are called away, and might not get the premiums you want.

 

You have covered the down- and up-sides. But why not do this with a particular stock? With an individual stock you could have a better understanding of price to intrinsic value. For instance, I have been doing this with BAC at prices of $16-17 and currently with BRKB at $130-131. I actually start by writing a naked put. If it expires I try to do it again. If I get put to I write a covered call.

[berkshire101]

As anyone thought about writing weekly covered calls on the SPY?  Say you own 100 shares of SPY at $205.68.  You write a call option at strike price of $206 for $1.08 premium.  That's about 0.5% gain (excluding taxes and fees).  Annualized that, it's around 27%. 

 

Any thoughts to the downsize of this?  You could be stuck holding the SPY, shares are called away, and might not get the premiums you want.

 

You have covered the down- and up-sides. But why not do this with a particular stock? With an individual stock you could have a better understanding of price to intrinsic value. For instance, I have been doing this with BAC at prices of $16-17 and currently with BRKB at $130-131. I actually start by writing a naked put. If it expires I try to do it again. If I get put to I write a covered call.

 

Good point.  It's mainly volatility.  The probability of the SPY swinging +10% in a given week is lower than a single stock.

 

What premiums and returns are you seeing by doing it on single stocks?  Thanks.

[boilermaker75]

As anyone thought about writing weekly covered calls on the SPY?  Say you own 100 shares of SPY at $205.68.  You write a call option at strike price of $206 for $1.08 premium.  That's about 0.5% gain (excluding taxes and fees).  Annualized that, it's around 27%. 

 

Any thoughts to the downsize of this?  You could be stuck holding the SPY, shares are called away, and might not get the premiums you want.

 

You have covered the down- and up-sides. But why not do this with a particular stock? With an individual stock you could have a better understanding of price to intrinsic value. For instance, I have been doing this with BAC at prices of $16-17 and currently with BRKB at $130-131. I actually start by writing a naked put. If it expires I try to do it again. If I get put to I write a covered call.

 

Good point.  It's mainly volatility.  The probability of the SPY swinging +10% in a given week is lower than a single stock.

 

What premiums and returns are you seeing by doing it on single stocks?  Thanks.

 

Here is how the 17-strike options turned out for me on BAC in 2015,

 

Wrote 1/9/15, 17-strike puts on 12/12/14 for $0.24 per share.

Put to on 1/9/15

Wrote 1/17/15, 17-strike covered calls on 1/12/15 for $0.19 per share.

Wrote 3/20/15, 17-strike covered calls on 2/6/15 for $0.36 per share.

Wrote 6/19/15 17-strike covered calls on 5/13/15 for $0.15 per share

Called out on 6/19/17

Wrote 8/21/15 17-strike puts on 7/15/15 for $0.20 per share

Put to on 8/21/15

Wrote 9/18/15 17-strike covered calls on 8/24/15 for $0.16 per share

Wrote 10/30/15 17-strike covered calls on 9/25/15 for $0.15 per share

Wrote 11/6/15 17-strike covered calls on 11/2/15 for $0.16 per share

Called out on 11/6/15

Wrote 12/11/15 17-strike puts on 11/9/15 for $0.20 per share

Put to on 12/11/15

Wrote 12/18/15 17-strike covered calls on 12/14/15 for $0.26 per share

Wrote 12/24/15 17-strike covered calls on 12/21/15 for $0.21 per shared

12/24/15 called out

 

[frommi]

As anyone thought about writing weekly covered calls on the SPY?  Say you own 100 shares of SPY at $205.68.  You write a call option at strike price of $206 for $1.08 premium.  That's about 0.5% gain (excluding taxes and fees).  Annualized that, it's around 27%. 

 

Any thoughts to the downsize of this?  You could be stuck holding the SPY, shares are called away, and might not get the premiums you want.

 

Its exactly the same as selling a put option, so to make it easier think about the up and downside of that. You are an insurance provider, in the long run you will make a small profit taxed at short term rates. Not a good business to be in, and a lot of people overestimate the returns and underestimate the risks, which leads to leverage and a black swan event erasing all your profits and some more.

Read some books of Nassim Taleb.

[TwoCitiesCapital]

As anyone thought about writing weekly covered calls on the SPY?  Say you own 100 shares of SPY at $205.68.  You write a call option at strike price of $206 for $1.08 premium.  That's about 0.5% gain (excluding taxes and fees).  Annualized that, it's around 27%. 

 

Any thoughts to the downsize of this?  You could be stuck holding the SPY, shares are called away, and might not get the premiums you want.

 

Its exactly the same as selling a put option, so to make it easier think about the up and downside of that. You are an insurance provider, in the long run you will make a small profit taxed at short term rates. Not a good business to be in, and a lot of people overestimate the returns and underestimate the risks, which leads to leverage and a black swan event erasing all your profits and some more.

Read some books of Nassim Taleb.

 

I regularly write calls against the more volatile options in my tax-free accounts when there's a large upswing - say after earnings or something. I generally try to shoot for 1-2 month options that pay a minimum of 1-1.5% per month but have regularly found opportunities to sell covered calls making 2-3% a month that have generally turned out pretty well.

 

So, just wait until you're being very well compensated for the elevated volatility and limit it to tax-free/tax-deferred accounts - but it's better with individual names because you can get higher premiums while having a better understanding of the underlying value.

[berkshire101]

As anyone thought about writing weekly covered calls on the SPY?  Say you own 100 shares of SPY at $205.68.  You write a call option at strike price of $206 for $1.08 premium.  That's about 0.5% gain (excluding taxes and fees).  Annualized that, it's around 27%. 

 

Any thoughts to the downsize of this?  You could be stuck holding the SPY, shares are called away, and might not get the premiums you want.

 

You have covered the down- and up-sides. But why not do this with a particular stock? With an individual stock you could have a better understanding of price to intrinsic value. For instance, I have been doing this with BAC at prices of $16-17 and currently with BRKB at $130-131. I actually start by writing a naked put. If it expires I try to do it again. If I get put to I write a covered call.

 

Good point.  It's mainly volatility.  The probability of the SPY swinging +10% in a given week is lower than a single stock.

 

What premiums and returns are you seeing by doing it on single stocks?  Thanks.

 

Here is how the 17-strike options turned out for me on BAC in 2015,

 

Wrote 1/9/15, 17-strike puts on 12/12/14 for $0.24 per share.

Put to on 1/9/15

Wrote 1/17/15, 17-strike covered calls on 1/12/15 for $0.19 per share.

Wrote 3/20/15, 17-strike covered calls on 2/6/15 for $0.36 per share.

Wrote 6/19/15 17-strike covered calls on 5/13/15 for $0.15 per share

Called out on 6/19/17

Wrote 8/21/15 17-strike puts on 7/15/15 for $0.20 per share

Put to on 8/21/15

Wrote 9/18/15 17-strike covered calls on 8/24/15 for $0.16 per share

Wrote 10/30/15 17-strike covered calls on 9/25/15 for $0.15 per share

Wrote 11/6/15 17-strike covered calls on 11/2/15 for $0.16 per share

Called out on 11/6/15

Wrote 12/11/15 17-strike puts on 11/9/15 for $0.20 per share

Put to on 12/11/15

Wrote 12/18/15 17-strike covered calls on 12/14/15 for $0.26 per share

Wrote 12/24/15 17-strike covered calls on 12/21/15 for $0.21 per shared

12/24/15 called out

 

Thanks for the trade info.  Writing puts and calls seem like a good strategy, rather than just doing one or the other.  I guess I'll paper trade with the idea to see how it goes for next year.  I'm in no rush to actually implement this strategy as investing in regular stocks is hard enough haha.