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>> Selling OTM covered calls is not a trade that's going to blow up your account. The worst case is that you suffer a drawdown in your account (which is a risk
by TuringNYC 6y ago
>> Selling OTM covered calls is not a trade that's going to blow up your account. The worst case is that you suffer a drawdown in your account (which is a risk of all investing). The second worst case is that you miss a massive, short-term rally.
Depends on whether youre fully cash secured or not. If you are fully cash secured, you barely make $. If you're not, now you're leveraged and a steep draw-down can wipe you out.
- sokoloff 6y agoTrue, but that is the case by virtue of the underlying investments, not because of the decision to sell OTM covered calls.
- tick_tock_tick 6y agoA covered call by definition means you own 100 shares for every contract you sell. Even if you own some of that stock on margin you are not increasing your risk by selling the calls.
- TuringNYC 6y agoThe parent was referring to OTM call selling, not covered calls only. Covered calls are pretty low-risk. Selling OTM calls includes selling puts, which is not low-risk unless you're unlevered (everything covered by cash.)
- tick_tock_tick 6y agoThe top parent suggested > sell OTM options against his stocks I don't see where you get the impression they were ever talking about selling uncovered calls. Selling out of the money calls has nothing to do with selling puts. As yes selling cash secured puts even with some leverage is considered very safe. Here is a fund that does just that. https://www.nb.com/en/us/products/mutual-funds/us-equity-index-putwrite-strategy-fund https://www.nb.com/en/us/products/mutual-funds/us-equity-ind...
- sokoloff 6y agoProbably 35% of my individual stock purchases are done via a series of (hopefully more than 1) naked puts until I finally get assigned.