One thing. You have to be long term bullish, and you have to be right. If you are wrong and the underlying goes south and stays there till expiration, you can lose up to (your entire investment - the premiums you get from selling calls). The advantage in that situation with owning the stocks is that at least they can recover if you hold them while an expired option cannot.
Also he doesn't mention with poor man's CC you pay way more commissions than trading stocks or conventional CC. It's because you can trade stocks on most US brokers commission free but not options.
You got yourself a new subscriber. Why? Clear explanation, zero fluff, no background biography - video not one second longer than it needed to be. Thank you. Now I'm gonna go binge your other videos.
OMG i watched one of those the other day where some guy continued to talk about background of himself and his whole family but also testimonials one after another. OMG we get it...
@rockwell me too thanks for these easy to understand videos. I️ just hate long videos and it’s just a bunch of fluff. But one question, how would I️ get my premium that I️ paid for the longer call? Do I️ sell it after my option expires?
Thank you so much! I truly appreciate your feedback. My goal has always been to simplify trading and make it accessible to everyone, no matter their experience level. It’s great to know that the way I explain things resonates with you. If there's ever anything you'd like more clarity on, don't hesitate to reach out. Happy trading!
Seeing this video in dec 2023, and i got to admit this is one of the simplest, fuss free, straightforward, no nonsense explanation videos about covered calls and poor mans cc in youtube! You got urself a sub and lots of likes and viewtime sir!
Nice video! Selling credit spreads is my favorite approach for consistent performance, but I like cash settled index options better as there is no assignment risk and offer more stability.
It has been a blessing to have the videos with Spanish subtitles. Thanks to that, I have been able to study and earn in dollars, spending in pesos. Greetings from Colombia and thank you very much for the teachings
That is actually a good scenario. All you have to do is exercise your long option into shares, and then they will be called at a higher price than you exercised them for. PLUS, you kept the premium for the short call. The only downside to this scenario is that your profit is capped.
@@johncalvo1743 Well you do have to be careful that your profit isn't less than your premium paid. Say you paid $7 per share for a 3 month call at 150 and sold a 1 week call at 152.50 for .80. If you get assigned you'd make a total of 3.30 on the premium+share profits but lose $7 on the premium you paid. In that case you'd be better off buying the 152.50 call back before it gets exercised and then you could sell your 150 call that should have increased in value for a profit.
Don't you need extra money to exercise the ITM option? I thought you are poor and almost all the money is in ITM calls. Or so you need margin, or does the broker step on? They also allow you in a Level 1 account to sell a call without owning the stock?
If your PMCC gets called, most of he brokers automatically resolve it. You don't need to put more money because the profit you made with the BUY CALL is enough to compensate the SELL PUT, and 6 receive cash.
Thank you so much for the feedback! I try to make these videos as clear, and to the point as possible. I'm glad you're getting good information from them. 😀
Best presentation on PMCC I have seen. Would be great if you can do a follow up on PMCCs addressing managing your positions such as when to sell your long call and when to buy to close your short call and then when to “roll it”. Also would be helpful if you can address other PMCC strategies regarding using LEAPS for the long call buy position and also pros/cons of using Delta as low as .70
Oh Thank Heavens I found someone who goes in details to explain cover call and poor man strategies. I have been watching few videos and I did not get it because they didn't go in details!! Thank you so easy to understand and showing the example helps!!!!!! BUT I do want to add that if you do a cover call and price goes up to 190 you wouldn't really make 1,450 because the call have to be executed meaning the stock would have to go to $200 since you did a cover call/ sell call for $200. Isn't it once at the expiration date the stock goes up above $200 the cover call will be executed therefore than you would make extra $20 per share x 100 = 2000 + 450 (premium)= Total gain is 2,450.
This was fantastic, you are the first person to get me to understand covered calls fully, and I like the poor man's CC idea! I love that you have the three different outcomes laid out visually, and you take your time explaining what happens in each scenario. Thank you for this valuable video, I will definitely be dropping a like now.
One of the friendliest video about covered calls. All the other videos are a little harsh in explaining how ever your explaining goes above and beyond just explaining.
@@rockwelltradingservices Is there a wheel strategy explanation as well? I would link that in the description. "How to use PMCC as a long term investment strategy." or something.
Excellent breakdown. Very easy to follow. One thing to note: Rolling your covered calls at expiration unlocks a number of options. Either roll them down to a higher strike price or roll for additional premium. With PMCC, it's way easier to just completely eliminate the basis before exiting the trade. Also, I think settling for a lower delta on the long call is worth the trade-off of a lower opening basis. But this is a personal preference, I guess. I tend to calculate max profit as the difference in the strikes, without really regarding delta.
Thanks for the video but am I missing something here? The downside of the "poor man's covered call" isn't that you lose $650, but that you end up losing your $7100 (seems no different than buying a call without owning the shares...). You mentioned that they do not own the shares, and do not have the capital to buy it. At least with a covered call, if your original idea of the stock going up is incorrect at least you own the shares and they can recover over time as time goes on (and you're bullish which is why you're doing calls anyway). With non-covered calls you're ponying up $7100 with the risk of volatility dropping, or time decaying and no shares to pad the landing if the trade turns against you...
thats the exact question i have, if the stock price ends up with the same price or not move at all and time expires, your lost that $7100... if i understand this right, if u dont make $7100 which is the cost to buy the contract. u are losing money. however, i guess you can keep doing this every day or every week or month, until you recover that $7100 and some. but again it feels like alot of work to even earn that upfront investment cost back. and you are pressured by time and its expiration dates.
@@SuzetteSantori1 It was a major thing missing from this video and it lowers the credibility of the youtube for misleading the viewers, like a scammer. All the info in the video is correct which is good, but he needed to cover the devastating loss If the stock plummets like it has done with the current news about BA. It goes below your "bought call", you will still get the full premium from the "short call" (+$650) but you will lose all of the "bought call" value (-$7100) by expiration. As Xoxo put it, if you own the 100 shares to could hold on and hope BA recovers in a few years but with Poorman's CC, you will have to take the large loss. It's why he said its used for slightly bullish or bullish, not for a bearish scenario. If you do a covered call, you could do the "wheel strategy" cycling between covered calls till you assigned and then use the money for cash secured puts until you exercise it and then go back to covered calls. I should also note, if the stock does drop to zero, if you keep doing covered calls you could lessen the blow vs just owning the stock but in this scenario, in a bear market, you wouldn't do a Poorman's CC as its suicide. If you know there is no hope for the share price recovering above your "bought calls" by expiry, you can close the "bought and sold calls" ahead of time to reduce your loss before max loss.
Thank you for this thoughtful lesson. Respectfully, didnt you skip half the equation? isn't a pmcc a short call , shorter term than long call, out of the money, combined with the long call. The short call reduces your cost basis? The whole thing is a debit calendar spread. The trick to learn is how to manage the two calls to maximize profit under a variety of situations. thank you for your consideration to my question
Great video, however what happens to your deep in the money option that you paid $7100? it loses value over time. You either have to either roll it continuously which will cost money or sell it at a lower price?? Don't you have to account for this expense in your calcs? Also is it possible to get assigned before the expiration date if the stock price goes way up? How would you handle that. thanks
Great explanation. I actually started with buying regular calls and puts. I now discovered covered calls and will use them from now on. It seems safer than what I was doing before (buying calls and adding on the dips then selling them for profit).
Excellent video! While i do get the concept, i am getting a hard time navigating through tastyworks. I already own a leaps of Apple but i dont know how to sell a covered call against it making sure that my long position is actually held as the collateral. I have seen people doing it with long diagonal spread for the very first call they sell. but how do you keep selling more covered call after the first sold call expires and make sure that your long position is the collateral? Do you just sell naked call and the platform is smart enough to pick up that you have a leaps to cover for it? Thank you!
I came to this video looking for an answer to this specific question. I went through the video and the comments, but don't see an answer to this. With Interactive Broker, it won't allow me to place the covered call holding the LEAP as a collateral.
Markus - I think you have a way of explaining Options Trading that demystifies it and is easily understood by a layman. Could you also touch on Iron Condors, Diagonals and Iron Butterflies?
Thanks, Hamsini. I appreciate the feedback. And YES, I will put it on the list and cover these strategies in one of the upcoming "Coffee with Markus" Shows. Make sure to subscribe to the channel so that you get a notification from RU-vid whenever I release a new video. This way you don't miss it. 😀👍
Late to the party, but I'll still ask. What happens upon having the short leg assigned? Do you need to have the funds available to cover the transaction of the long call? Or does it all work out on the broker's end like without any further input from you as it does with a normal vertical spread?
yes i was wondering the same thing because you cannot sell a call of a 180 $ stock without putting up collateral in case your assigned ?? at 200 which would be 20,000!!!
Theta is small for long, deep ITM call. The farther out the expiration of the long call, the lower the theta value as well. If you're long term bullish on the underlying, it makes sense to pay a higher premium for a lower theta and more time for the underlying to rise (also, more time to sell short OTM calls). I would do 3 months at a minimum.
@@connorlynch4695 Yeah, video has the ITM call at slightly under 2 months, which is probably too short as theta is going to start ramping up at 45 days. Worth paying extra here to go a bit further out and not being hurt on the time decay as much. Worth mentioning, though, you need liquidity on the option and the further out you go, sometimes the wider the bid-ask spread.
I don't know why I hadn't seen this video sooner but glad I came across it. What I don't understand is buying that deep in the money, there isn't much open interest to be able to buy the call. Am I missing something?
Let me see if I got this straight: So you sell a call at an earlier day than the call you buy (which is really deep in the money). What happens if you get excercised on your sell option at a higher price is that you excercise your deep in the money call to cover, thus limiting your gains, but not by much. If you stay below the strike of your sell option but higher than the original prize, you're fine. If the underlying stock falls, but it's still higher than your option, your losses are limited. So basically it's the nearly the same risk as a Covered call, but the returns/losses graph is curved instead of straight lines due to the difference in IV between your short and your long positions?
Also I'm liking selling covered calls on stocks I either plan on holding or I planned on selling if the stock hit that strike price anyway. I think its win win to sell cover calls
If the short call gets assigned at expiration, your broker should automatically exercise the long call. Because of the higher delta of your long call, you will still profit in this situation.
@@connorlynch4695 So your broker “should” exercise the longer call, buy the stock at the price that is DITM and then sell those stocks at the assigned call?? And you profit the difference? The other way to make money would be to close the legs right?
Very helpful! I also appreciate you waiting until we've had a chance to watch for a few minutes before asking for likes/comments. Too many RU-vidrs ask for likes/subscribes before I've even had a chance to decide whether I actually like the video. It's incredibly annoying.
One other scenario I wish you had shown - capped downside of the option vs the stock if we blew it and Boeing tanked below our deep in the money strike.
Pretty straightforward your out what you paid for your in the money call minus what you sold the covered call. Big win from a stock or an actual covered call. Both of those two your simply left bag holding
When you hold the stock you wouldn't need to realize the paper loss and just write more OTM CCs in perpetuity, until you hit you strike price one day. The poor man has to realize the loss due to expiry date. I learned the strategy is not for me.
I came here after seeing the INthemoney channel try to explain this concept. He has no idea how to explain things to people who are trying to actually learn. THIS explanation in your video is a clear as can be. I really appreciate your hard work and your use of the charts and graphs and plugging in real examples. You earned a sub and a like, my friend - thanks so much, you are dynamite!
Usually that is correct. Any delta over 75 is good for this. Im happy with a .75/dollar move towards profit when I'm about 80-90% less cash outlay. (than if i bought the stock)
That has no bearing. If you have trouble closing the position, just exercise the option. I do this often to teach the MMs a lesson. A stock like RH is notorious for trying to overcharge you when you try to close out a leg.
@@JonathanScheele There have been many times where I don't have the capital to exercise. My broker allows me to exercise, then flatten. It all comes out in the wash.
One thing, probably the most important thing I feel was missed (maybe I am wrong) is that in both 1 & 2, there is equity, an asset which we hold on to, which is 100 stocks of Boeing. In the third scenario, there is no such asset because we have to exercise our September option, in order to fulfil the July option. In August or September, if Boeing goes up to 200 or even 190, both 1 & 2 still have the stocks which can be sold, while 3 does not! This is an important difference.
How does it work when you get assigned? How do you evaluate the profit/loss? [Short call strike x100] - [long call strike x100] - [cost of buying the long call option] + [any premiums generated while holding the long call] ?
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I really appreciate you time spent on this video - I'm was originally a teacher and I can tell that you're very good at teaching this stuff without any "get rich quick" tone to it. Just the facts. Instant like and subscribe for me!
Great explanation, however I have a question: The stock is at $180 I want to buy it at $160 and sell it at $200. How can i use a poorman's option for this, pls?
Nice video, thanks. One thing to point out: There is a big downside - if the stock drops the poor man's covered call will expire with a permanent loss, whereas with the stock or covered call you still have the original asset (which is a temporary loss that can of course rise later.)
This I a great video and channel, thanks for that, the only thing I don't understand is with the poor man's covered call, want you lose the initial investment of 7100 when the call runs over expiry? That means you won't make money unless you've sold enough calls to outweigh the initial investment?
This is a very interesting strategy. I didn't realize that you could own a covered call without actually buying the security. I've liked it so that it shows up on my "likes" list and I can review later, hitting like is also a good organizational tool to find videos later.
