Selling contracts at a "safe" strike, will work until it doesn't, then you could be left with 100% of your shares underwriting DITM calls, which is difficult to recover, especially if the stock just keeps going up, day after day, and yes, this has happened several times over the years when least expected. What would your strategy be if that were to happen?Checking in for an objective take on my plan below in case what I’m seeking to do is dangerous/foolish and if there’s a better way to accomplish the same goal or similar:
Situation
I’m bag-holding 5,800 TSLA shares with a CB of around $309. Didn’t sell when all support began giving way until it was too late. Paid my dues!
Of the 5,800 shares, 1,900 were put to me recently at CB of $242 (12/16 266.66 CSP gone rouge) which added about $460k to my margin balance.
For various reasons I cannot sell shares at current prices and eat the losses. Plus I’m okay waiting this out even if it’s a year or two and converting them to a long-term investment and only sell some at new highs whenever they’ll come in order to pay off whatever margin is left (I’ll slowly pay it down with other income). But this means paying TD about $3k/mo interest on the margin, and some $$ for buying occasional garbage puts to protect my margin (and the risk if TSLA breaks below 130 which will put my whole portfolio in danger unless I buy even more puts, but maybe we’ve found a bottom and we’ll see 242 before 100).
Current Plan
Sell Covered Calls on the 5,800 shares while waiting out the famine. Locate 2-3 resistance levels above current share price and choose a weekly strike slightly above that (for instance 12/2 202.50, which is about 15-20 delta; 80-85% chance OTM) and sell 58x contracts (was selling for around $6-8k today), rinse and repeat every week (even scalp/BTC on dips along the way when possible) = around $15k/mo.
-Is this realistic?
-What are some ways you found that works for choosing a strike if you DIDN’T want your shares to be called away but you also want decent premiums/income?
-Would you do the same if you HAD to hold onto the shares? What would you different?
Thanks in advance!
Having personally been burned several times in this way (also to the downside with puts), rather than writing all my shares against calls, I tend to do it with a smaller number ATM, or even ITM. Most of the time these expire, can be closed with profits or have an easy roll. If they go dITM then dealing with 10x contracts, as opposed to 100x is no big deal, gives you the possibility to roll them way up and out if you wish, because you still haven't committed all your shares you can also add contracts to facilitate the roll, or just throw them way OTM and write a fresh 5x, 10x for the next week ATM -> rinse/repeat
Not saying this will work for you, but it certainly does for me
Another escape strategy for ITM calls, as long as you don't have too many, is to straddle them with puts. Example, I have 20x -c180's for this week, which I'm expecting (hoping actually) will be ITM on Friday. For the moment, a free-roll would be to 20x -c185 for next week, but another strategy could be to straddle them with puts, why do this, because it will cut the contracts in half, and being a straddle, one side of the trade will expire and you've halved your exposure. Of course you need to have the cash to cover the puts, and be comfortable with the possibility of getting more shares, but puts at this SP aren't the same as puts in the mid 200's, risk is way less - although not zero, of course
Or you can combine the lot - roll a few to March, some to next week higher strike, some to same strike with a few puts -> many possibilities
