[jm4275]

Indeed, the decrease in time value accelerates as the maturity approaches, and in general the premium for a 60-day call is less than double that of a 30-day call. I have sometimes seen exceptions, for strikes several % above the price and if there is a dividend payment between 30 and 60 days. But fundamentally, it is better to favor a short maturity and repeat the operation (if the costs do not eat the difference).

Your two examples are telling and illustrate well the different goals that can be set by selling covered calls. And it is the goal that guides the choice of the call to sell!

I don't have a book to recommend, I only trained on the web; I found https://optionalpha.com and https://optionstradingiq.com/the-wheel-strategy/

[jm4275]

Good questions, which make me understand that I don't have a systematic 100% approach.

In fact, I am looking for a compromise between the premium received and the risk of being assigned because the price rises before the expiry. The trends are simple, extending the expiry increases the premium, raising the strike lowers the premium; but the compromise is an individual choice…

Regarding your questions:

1) and 3) I use expirations of 1 to 3 months, rarely more. I aim for a premium sufficient for the sales costs (1.55 CHF per contract at IB) to be negligible in my eyes and for the amount to be "worth it". Typically, a premium of approx. 1.- (i.e. a contract value of 100.-), which is about 1% of the value for Novartis and Nestlé. But it is different with stocks with much higher prices (e.g. SwissLife) or lower prices (e.g. UBS).

2) and 5) I use delta to choose; even if it is not 100% exact, I understand delta as the probability of being assigned; 0.2-0.3 (20-30% risk of assignment) is my target value, but that I modulate based on "how much I want to hold the stock". For Novartis, right now, it would be the 82 call for May.

6) Limit orders, roughly halfway across the spread; liquidity is sometimes low, so the order may take time to be executed.

4) No limit on this, but it will influence my desire to hold the stock; selling a covered call can help a losing position get back into the green more quickly, but obviously one should not let oneself get carried away by holding something that would be better sold.

Some other points:

– in periods of high volatility, all option premiums are higher, and selling a covered call is more attractive

– check if there is a dividend distribution before the expiry; this influences the premiums, and there is the theoretical possibility that the buyer of the option exercises it to receive the shares and their dividends (this is only likely if the price goes above the strike, and the option becomes in-the-money)

– check the contract multiplier; it is 100 most of the time, but sometimes 10 (e.g. Swisscom, Zurich Insurance, Geberit)

– with the premium received, we can buy the underlying asset, which increases the position “almost for free” (this is not true, since we could do something else with this money, but that’s the impression it gives me)

– if assigned and wish to buy back, it is possible to sell a put; this becomes the “wheel strategy” that yakari1400 spoke about in another post (https://www.dividendes.ch/forum-2/topic/trading-pro-et-situation-fiscale/).

[jm4275]

Good morning,

I have been selling covered calls on stocks in my portfolio for several months on IB.

As Dividinde writes, this adds income to dividends, and in my opinion for low risk and effort.

My principles:

– work with major stocks, so that liquidity ensures a low spread

– sell a call above the current price; choose duration (expiry) and strike to obtain a premium of approximately 1% of the stock price

– sell a number of calls corresponding to part of the position (I do not want to completely lose the possibility of capital gain if the price soars before maturity)

– if as the maturity approaches the price is above the strike, but I want to keep the securities, I “roll” the position; i.e. I buy back the call, and I sell another one at a later maturity (at the same strike or higher, depending on the case); most often, I choose the new call so that this operation generates cash for me.

I haven't done a precise calculation of yield or drop in volatility, but at a guess it brings me a few percent per year, with a higher "payment frequency" than the annual dividends of Swiss stocks 🙂

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