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📝 Description
tastylive’s video discusses a trading strategy called covered calls, which is a bullish position that reduces stock basis while adding a positive theta component. This helps improve the probability of profit by 20-25% while limiting upside. There is a study comparing Zero DTs to longer duration covered calls that showed the former made more money than the latter on up days, but it comes with more risk as markets can change rapidly. The hosts discuss the difference in profitability between zero-day and 45-day covered calls. The zero-day call profits more on unchanged days due to a higher theta, but loses more on down days due to no downside protection. On large up days, the 45-day call outperforms the zero-day call due to the upside cap being further out of the money. They suggest that selling daily zero-day options against a bullish position is reasonable if you have good pot odds and believe you can predict market direction. However, if you’re just long and want to hold on to your position, it may not be worth doing every day. In summary, covered calls are a strategy to improve the probability of profit by limiting upside and reducing stock basis. Zero-day calls are more profitable on up days but riskier, while 45-day calls have a better P&L on down days. Selling daily zero-day options can be beneficial if you have good pot odds and market prediction skills, but may not be worth doing if you just want to hold on to your position.
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25 comments
Another FANTASTIC Tutorial video!
2:20 it does matter, a lot.
Being you're capping you're upside so tight, down days will crush your portfolio.
I've a few guys I know online that swear by covering their large spy positions with 0dte covered calls and using good chunk of that premium to load weekly UVXY puts as a day trade.
On down days for the zeros, what if you roll the calls down when there's no theta left?
100?! That’s it? Talk about lack of statistical powering…
Correct me if I am wrong but if you go short 25 delta call than your POP is 75% right? not 65%
To me covered calls are bearish and not bullish.
Not to mention slight positive drift which would be another supporter of 0 dte.
How are the covered calls managed on down days? When the stock goes down further than the premium collected on the covered call. Do you sell the stock for a loss and re-establish the next day or sell the next day's covered-call at the new breakeven? Assuming on positive days you just let the stock get called away and re-establish the next day
How does selling zero dte compare with rolling the 45 dte calls at 21 days over a long period of time say 1 -2 years? assuming each time the zero dtes are called away, there is a new position established the following day with long stock and yet another zero dte covered call..
Would a PMCC be worse or better or just more volatile?
for down days, keep selling calls
50% to 65% is 15% not 25%>>>
There's a reason this always works against you. You miss out the big upwards moves, of which there are about 20 a year, and capture all the shit ones.
1:30 Does anyone else look at this the opposite way? If im long a stock I wouldn't sell a covered call on an oversold stock. I would sell them when the market is overbought. And puts the inverse. Would sell them when oversold.
8:00 30-45 DTE is King
Basically it's a bet for boring slow moving trading range days, in which case an iron condor would be a better move. But cool that you guys are studying this stuff.
Are there only certain stocks that have a market for zero day options, since I have not seen them for any of the stocks that I have written calls on so far?
Thanks a lot! Nice video. I do daily covered calls on SPY. When they end ITM are easy to roll to a further SP and expiration. The downsides are basically the ones of looking for directional trades….. there can be long periods when there is not a nice chance to get into SPY.
I wonder what the results would be if you did this ATM? Idea for the research team. As always, awesome content out of you guys!
Why sell the 25 delta rather than selling right at the money and covering the downside some more?
What about doing 0 dte deep in the money covered call, any ideas?
I’m using this
This is a bullish med vol to flat (to negative) lower vol days. You can oscillate the expiration to date depending on volatility.