I sell calls ALL THE TIME when the price is lower than I paid for the stock. I just keep the call close to the CURRENT price where the better / higher premiums are. REMEMBER- this is the strategy for a tax advantaged account like an IRA where there is no tax consequence regardless of whether I make money or lose money.sweetandsour wrote: ↑09 Sep 2023, 08:19Thanks MP. Question: Do you continue to sell calls when the current stock price is lower than your purchase price? If so, do you always keep the strike price above your purchase price?MrPiper wrote: ↑09 Sep 2023, 06:38Hi S&S. I get your concern with CAVA. I too am down a lot, but just a thought. How many times have I owned a stock that went well up and then came back down, or went down and came well back up. I buy companies that I believe in for the long run. CAVA is such for me but may not be for you. That's ok either way. I am "down" a few thousand $ on CAVA in UNREALIZED gains because I still own the stock. I have also made a few K on calls. All in all, I am down about 5%. I just continue to write the calls because I personally believe in the long run it will not only come back, but do so with a lot of growth. We will see.sweetandsour wrote: ↑07 Sep 2023, 07:04
Well, I think I've lost enough with CAVA and options to learn my lesson. I'm down 300 instead of being up 300, already out of the trade, and moved on. At least the loss was less than 10% and not all that painful if I don't re-purchase CAVA again.
The whole purpose of covered calls is to hold and make money. Sometimes you lose a little growth on a big upward swing. Sometimes you lose a little value on a downward swing as you see right now, but if you hold the stock on the downward, you continue to make money along the way. Unless the company goes under (which is rare but can happen) it will stabilize and you continue to make money all a long and eventually make your money back. If you wish to sell out as in this case w CAVA, you run the same risks with most stocks.
All this said, if you want lower high and low risk you will get less premium for you calls. BP is my personal go to for that. It moves like a giant turtle, pays a 5% dividend along the way, and yet has a lower premium but I keep it in the pile.
If the stock is down I just keep on selling the calls close to the current price for the best premium and if it calls out, YES I "lost" a little money, but I have been making money on the calls on the way down and I am not at that big of a loss. Also, lets take CAVA. I have several 100 shares I paid about 47 for. I have been selling and selling calls. My current call expires this Friday with a strike price of 45 (already down a good bit from my purchase price) but I got 1.70 per share on the contracts! I have made almost as much in calls as I have lost in value as it has gone down. It WILL (in my studied opinion) eventually go up and I will have the call money I have been making and the principle comes back.
I will let you know what I do on next Monday the 18th. I will sell another call at very near the price on that day and see how much I make. IF that call gets called out, I will just buy the stock back and keep selling calls.
Again, on a stock you believe in and have done your homework on, you are expecting it to come back now or eventually and you keep selling on the way up, but when stocks are on the way up you MUCH MORE OFTEN get called out. Again, I just buy the stock back on the way up as well and sell the next call. The strategy here is to make money going down and make money going up. It's not as much about making money on the stock itself. This is why the CORE strategy is to find mega stocks (again I use BP) that have low volatility and stay in a fairly narrow range and sell calls time and time again.
In short, it is a consistent way to make money regardless of the direction of the stock, and in a tax deferred / IRA, you dont really care about anything related to tax consequences anyway. This is not for the stomach of everyone, but I like it because I find that in the long run, I make a lot more money doing this than trying to pick a winner and hope it takes off.