What I was saying is that compared to not selling the covered call (just holding the shares), selling an OTM covered call is relatively more bearish than not selling it.
It may seem like semantics, but bearish/bullish is not relative to other positions, it refers to underlying movement. More importantly there's a spectrum of bullish and bearish (as opposed to binary or step functioned categorization) that is useful to apply, and its good to understand the more binary tendencies at the edges of the spectrum. For instance, while a $1000 covered call for next Friday is technically less bullish than a $1200 call for next Friday, they are for all intents and purposes, equally VERY bullish positions, since the odds of price getting close to $1000 (let alone above) by next Friday is all but zero.
I like to think of selling the CC as selecting a bullish pre-sale price, but hoping the SP won’t quite get there, thereby keeping the premiums.
Exactly. If you Biff a future a price/time point on the chart, that's where you'd sell a call. In fact, that's the proper way to actually identify a covered call's strike and expiration. Use whatever tools you prefer to identify some significant future price/time point and then tune that point +/- on the X (time) and Y (price) axes based on any supporting data/logic you have (whether you want to keep the shares or not, whether there are events coming up like earnings, etc.).
Easier said than done of course and certainly there's no one right way to do it, other than having some defensible logic behind the method, but its imperative for sustaining profit when selling contracts. Selling contracts with a fixed strategy (like some ∆, probability OTM, % of underlying, etc.) is very much casino odds--you will lose, and its very easy for one loss to wipe out months or more of profits. Selling contracts with a layered and dynamic strategy is analogous to counting cards at the blackjack table and adjusting your bet accordingly.
Selling ITM puts was definitely not on my radar.
And it shouldn't be. Selling ITM puts is a high risk to reward position and a pretty terrible use of capital. There's a time and a place for all manner of positions in all manner of accounts; its hard to imagine any time and a place where an ITM put is the best play.
Your explanation about OTM CCs still doesn't make sense to me. Once the transaction has taken place (ie, I've sold the call), why would I want the stock price to go up?
A bit flippant of me, but: Because you want to maximize profit.
So its really important to understand how the individual legs of a position affect the total performance of the position, because the total position performance is the thing that's moving the needle on your account balance. To wit, [in many cases] it doesn't make sense to earn $1k selling a contract if it was covered by 100 shares that just lost $5k in value.
An OTM CC gives the underlying shares room to run up before you "lose them"; you absolutely want to capitalize on that potential growth. Once you hit the strike price your at-expiration profit potential plateaus, because any gains in the underlying shares are offset by losses on the -C leg.
P/L is much more complicated pre-expiration, but its important to study pre-expiration complications/possibilities because that can also inform your [evolving] exit strategy on the position.
I don't understand how I can capitalize on positive delta/theta burn/high volatility at that point.
So in general: If you want your position to capitalize on underlying movement, you want the position to have a big ∆. If you want your position to capitalize on theta burn, you want a high theta. If you want your position to capitalize on high volatility, you want to maximize IV and Vega. Note that the vice versa is true for all of those as well--if for instance you DON'T want your position's value to move much with underlying (for instance if you were only targeting time decay or volatility), you build a position that has a near-zero ∆ and you keep modifying that position to maintain a near-zero ∆.
Turning any of the knobs on those greek optimizations kind of impacts everything, so its not like you can build a perfect position that does it all, so its important to know what you're actually building and how it is going to perform. Its even more important to know what position to build and when.
Anyway, for an OTM CC:
∆ is pretty high, explicitly over .5. That's because the ∆ of the shares, which is 1, is offset by the much smaller ∆ of the call, and because the -C itself is a short position we actually represent the ∆ of the -C as a negative number. Let's call it -.3. So the total ∆ of this position, (right now) would be .7. That's a pretty healthy ∆ and, whether one intends for it to be so or not, that ∆ wants the price to go up; that's what I mean by "capitalizing on ∆". The nuance with the CC is that as underlying goes up so does the magnitude of the -C's ∆, so the overall position ∆ is constantly decreasing. That's not ideal if you're super bullish, but it is not necessarily a bad thing even if you are bullish (Which you are if you're entering an OTM CC) and may be a complete not issue.
Volatility kind of is what it is (its really the thing that most drives options prices), and so the only real thing you want to do here is generally sell a contract when its volatility is high, with the logic being that over the course of holding that contract volatility will decrease. The 'capitalizing' here is that when you sell at high volatility you receive a higher premium that statistically will burn down over time. If you sell a contract at low volatility, especially one that's farther dated (like, ~months out, let alone years), you end up fighting the statistically rising volatility of the contract so you don't really end up with an unrealized revenue stream. What's most important to understand here is that it is both the Vega of the contract and the probability of IV movement that matters, NOT the contract's IV value, since the actual impact to contract value is [IV% change * Vega]. Usually farther expirations have MUCH slower movement in IV%, but MUCH larger Vega than closer expirations, so they are kind of opposing functions.
Theta is, if I'm honest, the killer with selling options. Its easy for newer traders to get sucked into the "free money" perception of theta and really focus on that. While theta is ultimately a revenue generating element of a position, it is typically FAR out shadowed by Volatility and ∆, so you really need to understand what you're getting into. Capitalizing on theta burn here is finding an expiration close enough to actually have a material daily payout, and far enough away to sustain that payout. Monthlies end up being a pretty good balance here; if you're selling 12-24 months out looking to capitalize on theta, you're Doing It Wrong.
...what I cannot determine is what is the impact if everyone has a similar plan and there is a drastic increase in these similar short term calls? Basically, too many people thinking and doing the exact same thing.
Does it:
1) increase the likelihood of a Friday blow-off top scenario in an attempt to capture shares from tightly clustered calls (short price spike)
2) provide increased liquidity visible to MMs allowing for a more orderly distribution of shares to funds needing to acquire (muted price movement, no spike)
3) do nothing as what I am seeing is only smaller retail whose impact is not to scale to create any significant impact (no price impact)
4) ?
FOMO is a strong force. What's important is that you build a proper position based on defensible logic. (And as noted elsewhere that doesn't preclude a YOLO position, it just means that position still needs to be contemplated and sized properly). The most difficult thing for us retail traders to predict in the market is events based action...put another way I don't think I'd believe anyone who gave you a confident answer to your question. Certainly TSLA has been dynamiting fish in a barrel for the better part of a year now so its made us all look good, but this time around if I were giving not-advice advice on the internet it would be to build a position that sacrifices upside potential for downside protection.