How to Fix a Poor Mans Covered Call

[@StockandOptionMyLifeOfLearning]

►► AVAILABLE NOW! Limited to the FIRST 100 people, get my brand new online Option Trading course (Intermediate option trading) for $497. Regular price is $997. Here is the link to check it out: mylifeoflearning-randy.mykajabi.com/offers/EgeavtWJ Join my Patreon to get access to my all my Stock & Option Trades, Open Orders and Weekly Top 5 Stocks: www.patreon.com/mylifeoflearning Subscribe to this Channel: kzbin.info New Beginnings: The Option Trading Story amzn.to/2OgXx58 Facebook: facebook.com/jamiston.queens.5 Website: mylifeoflearning.com/index.html

[@cookietote]

I was wondering about that others don't explain it this way. Best explanation of pmcc thus far

[@KBBAKTHA]

best is to do wheel strategy with dividend paying stocks and do PMCC with non dividend paying stocks.

[@StockandOptionMyLifeOfLearning]

I totally agree! 👏

[@ba177ba18]

This channel is GOLD for option sellers!!!

[@StockandOptionMyLifeOfLearning]

You’re awesome! Thank you so much for that and for your support!

[@manpreetsingh25]

Happy New Year. Good informative video!!

[@StockandOptionMyLifeOfLearning]

Thank you so much for that and for your support!

[@sarkiskalfaian8502]

Perfect, was waiting for this video. Great value as usual Randy.

[@StockandOptionMyLifeOfLearning]

Hey Sarkis thank you so much as always for your support! 👏 I really appreciate you!

[@Onlyextrinsic]

on Interactive brokers, you can add a " time value" column so you dont need to make any calculations to find out this value.

[@StockandOptionMyLifeOfLearning]

I've seen that and had it set up on my screen for a while. It didn't seem to be very accurate. Have you found it to be accurate?

[@Onlyextrinsic]

@@StockandOptionMyLifeOfLearning actually i have not tested it. but i dont think it may be wrong, it just a formula.

[@StockandOptionMyLifeOfLearning]

Thank you for sharing. 👍

[@Onlyextrinsic]

@@StockandOptionMyLifeOfLearning my pleasure

[@aligregg9969]

Thank you for this video, very informative! I’ve wanted to try PMCC, but I only find videos about PMCC going RIGHT instead of going WRONG. How do you fix a PMCC if it goes against you? Thank you for answering my questions. I’ll have to save this video and rewatch a few times. The idea of selling puts to leg into a strangle is a good idea, too, assuming you have the capital. Thanks again!

[@StockandOptionMyLifeOfLearning]

Thank you so much for that and for your support! I made a video last year in which I went in detail about how we tried to fix several positions that went against us. Some of them were cash secured puts and others covered calls. You might go to find some ideas in that video. Here's the link if you want to check it out: kzbin.info/www/bejne/bJXXk3ekpcuofa8 Here's another video I made on our Disney PMCC position. It hasn't really gone down on us but I talk through every trade we've done over the previous year and a half in the position including selling some naked call options and additional cash secured puts. It to might give you some ideas: kzbin.info/www/bejne/oXm5gmqMpb1njaM Finally here's a playlist that talks through trading in LEAPS and PMSSs if you'd like to check it out: kzbin.info/aero/PL3j38I2YtGw3d2osU5O6XRHJ8-Wul2ZW7

[@desiexpat7]

Very useful and practical info. I have had to roll a lot of covered calls up and out. That's why it is critical to select the right CC strike price.

[@StockandOptionMyLifeOfLearning]

Thank you

[@zombiedriver7442]

Happy New Year! Your advice and knowledge is appreciated. With your help through these videos I’m sure 2022 will be the best year yet!

[@StockandOptionMyLifeOfLearning]

Thank you so much for your support! It's going to be an exciting year!

[@AL-lm4te]

Genius! thank you so much, was just what I had requested, much appreciated :) Liked this vid on both my KZbin accounts and did a happy dance. The most helpful videos are those that help others get out of difficult trades.

[@StockandOptionMyLifeOfLearning]

Thank you so much for that and for your support! It means a lot to me! 😊 The difficult ones if handled properly are what help us be successful.

[@beanwithbaconmegarocket]

Another note on short options is to be mindful of your available margin. While it doesn't happen often, short options can face early assignment. As always, position sizing is key.

[@StockandOptionMyLifeOfLearning]

Good point 👍

[@beanwithbaconmegarocket]

@@StockandOptionMyLifeOfLearning Great videos, man. Just found your channel.

[@AJF66OG]

Good video. How exactly then is the long LEAPS option protecting short option? Is it that you can exercise it if you cannot afford to purchase 100 shares at the current market value to cover the short stock position created by the assigned short option position? I think it is but just checking. Your solution in the video was to purchase stock shares to cover the short stock position. Thank you for the video.

[@StockandOptionMyLifeOfLearning]

Thank you so much for that! Yes that's correct. You generally will be better off buying the short stock and selling your LEAPS call option (if you wanted to exit the position) but worst case scenario, you could always assign the LEAPS even though you'd give up whatever time value is left in it and that would bring you back to no option positions and cash.

[@edbrandt8972]

I have a PMCC using IWM as the underlying security. I am selling short calls about 1-2 weeks out in time. If the price of IWM approaches or exceeds the strike price of the short calls, I immediately roll up and out by a dollar or two higher strike price. I am trying to avoid going DITM as much as I can sine I anticipate making most of my profit off of the appreciation in value of the long LEAPS.

[@StockandOptionMyLifeOfLearning]

Hey Ed thank you so much for sharing! It sounds like you have a good game plan. Let me know how it progresses please.

[@edbrandt8972]

@@StockandOptionMyLifeOfLearning So far so good. I feel it will be easier to manage the upside risk of the PMCC as opposed to naked puts or even put credit spreads. The saying goes the market will take the elevator down but then takes the stairs up. That should translate more favorable rolling opportunities using the PMCC.

[@edbrandt8972]

@@StockandOptionMyLifeOfLearning The CC portion of my PMCC is working out quite well this week. I will look to roll again late next week as I expect most of the time value to evaporate by then. I am also opening call credit spreads on IWM to help fund put purchases on naked put positions that I allowed to go ITM by several dollars.

[@vincenty4328]

Thanks for the great video. You have explained the fix clearly for the situation where the short call goes ITM. But how do you fix the PMCC if the stock price goes below the long strike price?

[@StockandOptionMyLifeOfLearning]

Thank you so much for that! I really appreciate it. I should probably add repairing a PMCC that's gone against you to my list of future videos. I did make a video on how to fix positions that have gone against you including covered calls. If you haven't seen it and would like to check it out here's the link: kzbin.info/www/bejne/bJXXk3ekpcuofa8 and one more on some strategies I use to repair covered calls that go against me: kzbin.info/www/bejne/l3yQn4OOj5abd6M

[@vincenty4328]

@@StockandOptionMyLifeOfLearning Thank you Randy. Looking forward to the repairing PMCC video.

[@chasincam]

When you roll a short leg up and out, then also add another short put, does that require cash collateral as a cash secured put?

[@StockandOptionMyLifeOfLearning]

If you roll a cash secured put option up and out and you were selling a strike price that is higher than the one that you previously sold, that should require a greater amount of capital if it's naked or cash secured. If you then sold an additional naked or cash secured put option, that would also require additional capital.

[@seangreen8262]

How large a portfolio do I need to follow your trades on the main options accounts please

[@StockandOptionMyLifeOfLearning]

In our main option trading account, currently we have set aside right at 1.1 million so that we do not have to use any margin.

[@moem1164]

Great job Randy explaining all the scenarios with PMCC. I believe you had a similar video 6 months ago but it wasn't as detailed as this one. I just have a question if you get assigned with a short 100 shares, what price will be at? is this the market price of the same day that you are assigned? Thank you and happy new year :)

[@StockandOptionMyLifeOfLearning]

Hey Moe thank you so much for that! 😊 If you get assigned, then you'll be short 100 shares of the stock at the strike price of the call option that you sold. Let me know if you have any other questions. I hope you have a great 2022! 👏

[@zenescrow6114]

Great video

[@StockandOptionMyLifeOfLearning]

Thank you

[@braddeicide]

The high dte call is not a great hedge for the short dte you sell because gamma is much higher as we approach expiration. The short low dte would gain more value than the long high dte call.

[@StockandOptionMyLifeOfLearning]

Thank you for sharing your thoughts. I agree that if you're looking for max gamma increases, a longer days to expiration option might not be the most effective. It's really situation specific. Lots of factors need to be considered: What are you trying to hedge? Is it a position or a portfolio hedge? How much of a hedge do you really want? If you get too big of a hedge, you will give away a lot of profits so that hedge might not be worth it. Or are you using a lot of margin? If so, you definitely want closer to at the money hedges so you don't wipe out your account. There are a lot of factors that go into picking the proper hedge. Gamma and days expiration are definitely two of them, but not the only ones.

[@chrisk7546]

Hi, Randy! Thanks again for posting some valuable stuff! I just used one of your suggestions in this video to fix one of my trades. (I hit the like button every time btw) Do you have any videos or info available on how you organize your trades and portfolio in spreadsheets? I have something, but with more trades it's starting to get a bit overwhelming. As always, thank you!

[@StockandOptionMyLifeOfLearning]

Hey Chris thank you so much for that and for your support! I really appreciate it! Thank you for sharing that you were able to put it to use! I have spreadsheets that I make available to my patrons, it's the spreadsheets that I use and show on my videos. All my patrons (kzbin.info/www/bejne/jJbCgWlofM2LZ68), even at the lowest level get access to it as soon as they sign up. If you have interest, here's the link to the post that I send them when they sign up: www.patreon.com/posts/53254442

[@enjoibrian]

In the example where you sold the 310 call as well as the 305 put, how is this assessed by the broker? Do you need collateral for the short put?

[@StockandOptionMyLifeOfLearning]

Hey Brian that's a great question! In this position, the 310 call was taken care of by the LEAPS call we own. However with the 305 put, Interactive brokers requires us to have some capital set aside for that position. Since we are under portfolio margin, the amount of cash they require is small however we also do not use much if any margin. So we go ahead and set aside the entire $30,500. One nice thing about this position, is that if the position came down but stayed above the 305 put, the more it comes down, the better of a roll we will get for the next month when we roll that short call option out.

[@enjoibrian]

@@StockandOptionMyLifeOfLearning Thanks for your reply. That's what I was thinking, but I don't think I would personally use this rolling strategy since it introduces so much more capital to the original trade.

[@StockandOptionMyLifeOfLearning]

Thank you for sharing 👍

[@options888]

Hey mate always loved your videos. Been trading options because of you, not sure if you are able to answer my question, but are we taxed for trading options on equities / etfs? Regardless of whatever strategies we use including spreads, selling puts, iron condors etc.? Thanks mate

[@StockandOptionMyLifeOfLearning]

Thank you so much for that and for your support! I’m not sure which country you’re in but I know in the US traders are taxed on there profits. I’m definitely not a tax expert so it’d probably be best to check with a tax professional in your country to see if your taxed and if so, at what rates.

[@options888]

@@StockandOptionMyLifeOfLearning I see, generally in your case as a us citizen, when you close your option selling trades before expirations, those net premiums you receive are they before or after tax? When would you normally be taxed? Is it only during withdrawals?

[@StockandOptionMyLifeOfLearning]

I have someone that handles all my taxes so I could be totally wrong here, but I believe we are taxed on the gain once a position is completely closed out. There are some nuances such as when we’ve been selling put options, and the stock is assigned to us so that we buy the stock and begin selling covered calls. It’s my understanding that potentially from a tax perspective, those put options and covered calls decrease our cost basis. Potentially we may not be taxed until we liquidate the stock at whatever our cost basis ended up decreasing to. Again, I’m not an expert so I could be totally wrong in that and what I’ve noticed is that different tax preparers look at things differently if they’re in gray areas. There’s also some peculiarities depending on whether the trader is considered a professional trader or if they just do it as a side gig.

[@deepu_youtube9313]

Thanks for the video, great info, one question, on TD, let’s incase of call credit spread, stock end in between two strikes and short call gets assigned, i understand my account go short by shares, in addition cash will be added to my account, and then I use that cash to buy shares from market, obviously I may have add some more money depending on open market value of stock, is that correct?

[@StockandOptionMyLifeOfLearning]

Thank you for that! Yes all that sounds correct. Since you shorted the stock you sold stock you didn’t own so you would receive cash for the amount that you sold the stock for. You could then use that cash and if need be some of your own additional cash to buy the stock back so you’re at a net zero shares of stock ownership.

[@deepu_youtube9313]

@@StockandOptionMyLifeOfLearning thanks for the confirmation !

[@johngutierrez2687]

If you have a pmcc, I would imagine your long call would be profitable. In that situation would it not also make sense to roll the short leg to the same expiration as your long leg, since it’s close to the money. It’ll add a larger credit, and when the spread expires in theory you’ll be paid the distance between the strikes.

[@thomasd5488]

The PPD, profit per day, on premiums become less and less, the farther out in time you go. When SELLING options, choose the shortest expiration available. Selling a weekly option, 4 weeks in a row, earns way more premium than selling 1 monthly option. See for yourself. Divide the premium on a Jan 2023 option by the number of days until expiration. Then compare the PPD of a weekly option, or a monthly option. When BUYING options, buy LEAPS (1 YEAR OR MORE) options. When SELLING options, sell the shortest expiration available.

[@StockandOptionMyLifeOfLearning]

Yes you could always do that. You just want to keep in mind that the farther out the short call option is that you're selling, generally the lower the return. You're usually better off selling nearer term call options that are ATM or slightly OTM then you are longer-term call options at those same strike prices.

[@xingu6554]

can I ask a stupid question? What is the point of that long term deep in the money call option we bought for poor man cover call if that doesn’t hedge the call option we sold?

[@StockandOptionMyLifeOfLearning]

I'm not sure I understand the question. Could you give me the timestamp you're referring to please? I want to make sure I answer you accurately. Thank you.

[@xingu6554]

Your video is perfect, it not the question from the video, I just don’t understand the pmcc strategy itself. Because I used to do is the normal cover call, so when the share rises above the call, I just let it get call away. However in pmcc, since there is no share, I assume we just use deep out of money call to somehow hedge the call we sold, so if the share blast through the short call strike, isn’t that we make money from it??! Sorry, I never done this pmcc, it is my very first time to time this, at moment I am trying pmcc on my demo account, try to figure out what is going on, your video is my bible.

[@xingu6554]

Actually, don’t worry about it, I didn’t realise that US option can exercise before the expiry, silly me.

[@StockandOptionMyLifeOfLearning]

There are definitely some big differences between cover calls and PMCCs. This playlist is dedicated to LEAPS and PMCCs. I think it’ll really help you understand them better and how you can use them successfully: kzbin.info/aero/PL3j38I2YtGw3d2osU5O6XRHJ8-Wul2ZW7

[@xingu6554]

Thanks heaps

[@blp9724]

Can u please clarify why a drop in price (that “bearish” move while holding the 310 strike) is a challenge to a covered call.

[@StockandOptionMyLifeOfLearning]

Can you please give me the timestamp that you’re referring to and I’ll be glad to reply to your question?

[@blp9724]

3:50-3:59 why roll a sold CC at 315 to 305 when stock price drops?

[@StockandOptionMyLifeOfLearning]

In hindsight, if I had known that it was going to bounce back so fast I wouldn't have rolled that call option down. However, the stock had switched from looking bullish to bearish. I expected it to be down for at least the next month below that 305 strike price. That's why we rolled it down.

[@blp9724]

@@StockandOptionMyLifeOfLearning I really appreciate your prompt replies…what am I missing? Doesn’t the lower, bearish move in the stock price benefit the 315 covered call? Does it benefit the lower strike more? Just trying to be clear on the motivation to buy to close the 315 at that point. Do u have a threshold for % profit that would cause you to buy to close?

[@StockandOptionMyLifeOfLearning]

Yes if a stock is moving down, you’re better off selling a lower strike price call and than a higher one because you’ll show a potentially greater gain for the lower strike price call than the higher one. That’s why we rolled the strike price down. Initially we were able to collect more premium by selling the lower strike price call than if we had stayed at the 315. I do not have a threshold for profit that would prompt me to close every position. However once an option I’ve sold has less than 15% of time value left in it, I begin to watch it to either liquidate it if it’s out of the money and use that capital for a new position, roll it out if the return is good enough, or if it’s ITM, look to potentially adjust it when the time seems best.

[@redeyes5568]

I've heard that Robinhood will automatically sell your Long Call option to fulfill the Short Call assignment. Hoping you or someone can confirm that this is indeed what they do. I would rather see a person getting an assignment notice so I have the choice as how I want to resolve this. I could buy shares at the current price or exercise my Long Call option but in doing the later I believe I would loose any premium that has been built up in the Long Call. Does RH auto exercise the long call?

[@StockandOptionMyLifeOfLearning]

I don’t know about Robin Hood but none of the trading platforms I’ve ever used automatically force sale my long call options unless it’s at expiration and its ITM.

[@daron73m]

I just was hit with trader violation while in a PMCC and I went to roll up and out because my short calls were in the money and expiring in 4 days and couldn’t roll. I freaked out. Lets just say thank goodness that brokerages dont like that risk and rolled them for me with a call. Still not happy because now Im basically stuck for 90 days and cant trade since im not allowed margin.

[@StockandOptionMyLifeOfLearning]

Thank you for sharing. I haven’t heard of that, but each broker has their own rules.

[@A_D624]

I don't see assignment as a big issue with Pmccs

[@StockandOptionMyLifeOfLearning]

I totally agree. If you keep an eye on the time value and any forthcoming ex dividend dates then it shouldn't be a problem.

[@edbrandt8972]

Do you generally have to take action to exercise the long LEAPS if you are assigned on the short side. Assignment is not a bad thing if it's for a profit.

[@StockandOptionMyLifeOfLearning]

At expiration, if the option is in the money, most brokers will automatically assign it. However if you're wanting an option to be assigned early, to the best of my knowledge you have to request that.

[@MindTrain17]

When putting together the PMCC, the Max Profit and Max loss show zero. Sell OTM, Buy Deep ITM at later exp... but comes back as zero??? I would appreciate any help.

[@StockandOptionMyLifeOfLearning]

If you’re buying a deep in the money longer term call and selling an out of money nearer term call, it shouldn’t come back as zero. If anything, your loss will be how much you’re out of pocket as long as the strike price of the option you bought is lower than the strike price of the call option you’re selling. It’s hard to lay out all the scenarios without seeing an actual snapshot of what you’re looking at.

[@MindTrain17]

@@StockandOptionMyLifeOfLearning hey, thank you for the reply! This problem is killing me 😆 Example Trade on tastytrade Ticker: PLTR Stock: $42.6 49 Strike, Short call for $104 16 DTE, Delta @0.27 28 Strike, Long call for $1,525 58 DTE, Delta @0.94 ------‐-‐---------- This is my setup in tastytrade. Both max profit and loss show zero. It does show the Buying Power that's required. Any help would be appreciated. Hope all is well!

[@Ks13007]

At 4:20 you said msft was trading at 337..and than you rolled your CC from Nov $305 to Jan $310 ?

[@StockandOptionMyLifeOfLearning]

Yes, that’s correct. We also sold a new cash secured put option in it. That gave us enough cash to roll that short call up.

[@nubeblanca570]

Hola hola! so glad I found your channel, it has helped shape my investment strategies tremendously... thank you so much for your contribution to the investment community.

[@StockandOptionMyLifeOfLearning]

Thank you so much for that and for your support! It makes me happy that you're finding value in the videos. I'm glad to be able to play a role in your progress. I hope you have an awesome 2022!

[@drreal]

hi what type of option trading are you more specialize in? i need training in sell puts and calls but i can't find training that offer more in selling puts. i also emailed you on your AOL email. thanks

[@StockandOptionMyLifeOfLearning]

I've traded many different strategies, techniques and ways over the years. The one's I have found work best for me is selling cash secured puts, bullish put credit spreads, covered calls, poor mans covered calls, bearish call credit spreads, naked calls and on occasion, combining several of those strategies.

[@SoCal90755]

You are making my brain hurt... lol -- Wish you were here to help me figure out what the heck to do with my mess I made.....

[@StockandOptionMyLifeOfLearning]

I’m sorry to hear about that. I had some messes in March of 2020. Maybe some of the things I did might help you. Here’s a video I made about it: kzbin.info/www/bejne/bJXXk3ekpcuofa8

[@animated000]

Wait. You're doing the PMCC bc you don't have the cash for the stock. If you sell the put, you need cash for 100 shares at the strike you sold!?!

[@StockandOptionMyLifeOfLearning]

If you want to avoid using margin, then you're absolutely correct. You would need enough cash to buy 100 shares of the stock per put option contract you sold.

[@YaelEylatTanaka]

If you are assigned at $155, and are therefore short 100 shares, if you buy them back, you'd be paying the current market price.

[@StockandOptionMyLifeOfLearning]

I'm not sure where you're referring to in the video, but it sounds like you're referring to if a call option you sold it was assigned. If that's the case, then yes, as you mentioned you'd be short 100 shares per contract. When you buy them back, you would have to pay what the current market price is.

[@alfsilva]

Very informative but you speak quite fast, maybe is better to slow down a bit even if the video ends up being a little bit longer

[@StockandOptionMyLifeOfLearning]

Thank you for that Alfredo and for the suggestion! Based on multiple suggestions, with newer videos we are slowing the pace down some.

[@moontradr]

You can adjust the playback speed of youtube videos. I frequently play videos at 1.25% if the speaker talks too slowly, so you could try .75% if too fast for you.

[@brendanquinn6894]

The best way to fix a poor mans covered call is to become a Rich man ! (Ok, I know, I'll let myself out now !).

[@StockandOptionMyLifeOfLearning]

😆

[@mylesjenkins8915]

All the buying pressure from AAPL is because they (AAPL) keeps buying back their shares.

[@StockandOptionMyLifeOfLearning]

They do have ample cash to do that...

[@figh761]

After tax, do u guys really make any serious money

[@StockandOptionMyLifeOfLearning]

If you'd like to see how much we pocket it before taxes on a monthly basis, you might like to check out this video series: kzbin.info/aero/PL3j38I2YtGw0W9xSkNpaOw73OmuEA5xf9 In this video series I show exactly how much cash flow we pocketed every month and the amount of capital we had set aside for those trades.