I looked at this when we were around ATH.
(not buy-writes, but 1 year cc's)
Selling cc's this far out means the theta decay is pretty low for the first few months. Depending on IV you could be losing/winning without the SP moving much. In other words, there are many things outside your control.
The main argument for call like this is that they are a decent hedge against pullbacks in SP. When everybody cries TSLA is down 30% you could just close your cc's out for peanuts and your portfolio will have "lost less".
But then again, I think there are better methods for hedging. (Selling ATM for example, instead of 30-50% OTM)
I wouldn't be looking so much at these cc's as hedges, though the idea is also an interesting one.
My own thinking is that somewhere in the 3 month window (maybe as high as 6 months) is the start of the knee in the time decay slope, where time decay starts picking up in a noticeable way. I don't personally see going further out in time than that with cc, but if I want the shares anyway, then there might be something interesting here.
Working out an example - if I'm looking for a 5% credit on the capital in use for a 1 quarter option, I can buy 100 shares at $300 (rounding for easier math). 5% credit is $15. The December 355 strike call is selling for about 15.30 right now.
Buy the shares, collect the $1500 per contract. If the shares go up like many of us expect then I have another $55 on the table that I can earn - if shares are up enough by that date then I'll end up earning more like $70 per share on $300 (25%!!!). If shares aren't up over 355 then I'll have the credit and $300 cost shares.
Or go ITM with the call sale to reduce risk in exchange for reducing upside. The 270 strike December call is selling for $55 or $25 extrinsic / time value. Collect $5500 up front ($55k if I'm doing 10 of these using $300k). If shares are above 270 at expiration and close it all out then give back $30/share at that point, keeping the original $25 ($25k on $300k for 10 of these). $25 on $300 at risk is close to 10%. In the worst case shares are down below 270 at expiration, leaving me with $300 cost shares and $5500 (close to 20% of the original purchase price).
I'm kind of liking the looks of that ITM choice
. IV, for what its worth, is mid 50s out in that timeframe.
EDIT: Adding on to my example above, I've just discovered an important difference between a buy-write and a cash secured put. For me at least they fit into exactly the same slot in my trading strategy, including the logic for opening the position.
This ah-hah moment is that with a cash secured put I receive a net credit up front. A 270 strike CSP for December would get me an $18.30 credit and a commitment to maintain $27k on hand to back a purchase should that become necessary.
Meanwhile the buy write using the 270 strike call will carry a net debit of $250 ($34 intrinsic, $20 extrinsic value). In this case I have $25k per contract deducted from my account, and I have to wait for expiration / close to see an increase in cash on hand as a result of my brilliance (or at least this trade
).
These longer dated strategies will make the difference between cash flow and earnings more readily visible and top of mind.