Quick question, let’s say spy goes down and you get cold feet and want to sell the 100 shares you hold and you don’t want to wait for the option to expire, how do you close the option before the expiration date? I would call this the just in case back up plan. Also, the answer is probably buy the option to close, but will this option has more value for the original bought or less? For example, let use the example in the video, I got 160 dlls of premium, if I buy to close the option before time, will the option have a smaller or higher price than the 160? Just curious to know what happens to the value of the option if everything goes totally opposite of what is planned. Thank you!
Great video, thanks Eric! At expiration, if the covered call is in the money (price at expiration is higher than the strike price), do the underlying stocks/etf get sold automatically by Fidelity? or do we have to go in and sell them manually? or do one need to sell the stocks/etf at all? Just wondering how it works..
Great question, Manh! If the covered call is in the money, the underlying stocks/etfs will get sold automatically by Fidelity. There shouldn't be any work necessary on the customer's end. It would perhaps be different if you did not own 100 shares of the underlying security, but that would be a naked call which is on a much higher risk level than covered calls.
Good video although you should tell people that if you were to sell your SPY shares during that timeframe you would need to close out the option position buy buying back the call....
@@EricTangOfficialwhat does this mean? If I own 100 shares of SPY already, why would I need to repurchase them again if I am selling them if they hit my strike price?
Sounds like some super solid picks! I see you're a dividend growth investor 😉. OTM calls could definitely be a possible option to supplement that dividend income!
Thanks, Barry! And yes, I do sell covered calls on almost all of my stocks or ETFs. I typically aim for low delta's (0.05 to 0.25) and high strike prices that I'm happy to sell shares at. The premiums aren't as high for index funds like SPY compared to individual stocks like Apple, but they do the job well enough!
When selling covered calls, time decay (theta) often works to the benefit of the seller. The value of the option decreases as time approaches the expiration date. This decay is slow early in the option's life but accelerates as time progresses. It's certainly something to take note of but not a variable I personally am too concerned with.
Absolutely! The volume on ETFs besides SPY and QQQ tend to be a bit lower, so the bid-ask spreads tend to be a little wider. That said, VTI does offer enough options liquidity for selling calls!
I've been researching covered calls for a couple hours now, and none of it made any sense until this video. Great job!
Thanks so much, Conner!!
Quick question, let’s say spy goes down and you get cold feet and want to sell the 100 shares you hold and you don’t want to wait for the option to expire, how do you close the option before the expiration date? I would call this the just in case back up plan.
Also, the answer is probably buy the option to close, but will this option has more value for the original bought or less? For example, let use the example in the video, I got 160 dlls of premium, if I buy to close the option before time, will the option have a smaller or higher price than the 160? Just curious to know what happens to the value of the option if everything goes totally opposite of what is planned.
Thank you!
Great video, thanks Eric! At expiration, if the covered call is in the money (price at expiration is higher than the strike price), do the underlying stocks/etf get sold automatically by Fidelity? or do we have to go in and sell them manually? or do one need to sell the stocks/etf at all? Just wondering how it works..
Great question, Manh! If the covered call is in the money, the underlying stocks/etfs will get sold automatically by Fidelity. There shouldn't be any work necessary on the customer's end.
It would perhaps be different if you did not own 100 shares of the underlying security, but that would be a naked call which is on a much higher risk level than covered calls.
Good video although you should tell people that if you were to sell your SPY shares during that timeframe you would need to close out the option position buy buying back the call....
Absolutely! Buying to close is required to close out that position if one wanted to do so!
@@EricTangOfficialwhat does this mean? If I own 100 shares of SPY already, why would I need to repurchase them again if I am selling them if they hit my strike price?
I'm contemplating wheeling SCHD, DGRO, SPY in my Roth IRA. These are buy and hold forever, so OTM calls sound attractive.
Sounds like some super solid picks! I see you're a dividend growth investor 😉. OTM calls could definitely be a possible option to supplement that dividend income!
So do i need to first own 100 shares of the stock in order to sell a covered call contract?
Yes! Covered calls would require 100 shares of the stock. If you don't have the 100 share requirement, it would be considered a "naked call" instead!
Great video, Eric! Do you sell calls on all of your stocks? It looks like you own 300 shares of SPY, so do you sell 3 calls?
Thanks, Barry! And yes, I do sell covered calls on almost all of my stocks or ETFs. I typically aim for low delta's (0.05 to 0.25) and high strike prices that I'm happy to sell shares at. The premiums aren't as high for index funds like SPY compared to individual stocks like Apple, but they do the job well enough!
When selling covered calls, is time decay a factor? Is that something to be concerned about?
When selling covered calls, time decay (theta) often works to the benefit of the seller. The value of the option decreases as time approaches the expiration date. This decay is slow early in the option's life but accelerates as time progresses. It's certainly something to take note of but not a variable I personally am too concerned with.
@@EricTangOfficial thanks!
can I sell calls on VTI? That's an etf im currently buying so this could be a good way to earn additional income
Absolutely! The volume on ETFs besides SPY and QQQ tend to be a bit lower, so the bid-ask spreads tend to be a little wider. That said, VTI does offer enough options liquidity for selling calls!