So, semi recently got into options. And have been doing pretty well selling CSPs. Trying to only use companies i dont mind owning, but also planning to sell covered calls once any of the puts get assigned. None have yet however.
My question though is on the timing of swapping to covered calls after a CSP assignment. Generally this only happens after a good dip in stock price, assuming OTM CSPs. Being solid stocks nothing too crazy conventional wisdom would suggest they are poised for a rebound after such a drop. Seems like this would be a risky or unprofitable time to sell covered calls would it not? Is it wise to wait for a rebound THEN sell covered calls on the assigned shares?
Does the appreciation plus premium upside outweigh just holding them and not capping gains? Ive been selling CSPs after a stock has already dipped, limiting further downside, and assumed the inverse would also be a good idea for covered calls. But having just dipped not peaked at time of assignment im wondering how to best enter a covered call at that point.
Posted by CompetitiveEmu7698
2 Comments
Wheeling is not easy money. The upfront premiums feel rewarding, but they often mask the hidden opportunity costs of underperforming a standard buy and hold strategy. Unless your primary goal is generating regular income, keeping your portfolio in buy and hold will serve you better.
There are no easy, mechanical trades.
There are many different philosophies on this, but it really comes down to time-frame and the price you are happy to buy/sell at. The traditional Wheel is basically you just do it 30-45 dte above cost-average, because the main goal is harvesting Theta for income. Standard Wheel.
You could aim to maximize Vega as well by selling weeklies on quick sharp movement in one direction or another if you think it is over done however.
I think the what would serve people selling CSPs/CCs best would be accepting that most of the gains of wheeling blue chip individual stocks is going to be price appreciation of the underlying compared to the cost average. That you never now. I remember selling 250$ Jan CCs on LEU last year before it spiked to 400$ and I had to accept that I took the premium and sacrificed the ability to sell the top (similar with rddt too last year).
Both are now much below the strikes I had currently and I wish I had been able to sell, but I capped my gains. It happens, there is no free money. The Wheel is not free money, it’s just gives more ability to control your return, sometimes it’s painful.