[cashewchoo]

OTM options is one of those things where it works great until it doesn't and then when it doesn't it REALLY doesn't. This is almost literally how we ended up with the inverse volatility trade collapse in 2018. Look up "XIV blow up".

Betting against volatility will *never* not be "picking up pennies in front of a steamroller".

Retail investors should not touch options under any circumstances, anyway. They're hedging tools for institutions and cannon fodder for day traders.

EDIT: I missed that the OP was saying to sell options for stocks already in your portfolio. I'll address that now:

I feel like this makes it even less worthwhile? Remember, black swan events happen once a month in trading. I think people would be really surprised at how far OTM they need to go to truly get to a "minimal" risk of their options being assigned. At which point the premiums are going to truly be pennies. If you're making any interesting amount of money off of a covered trade like this, it's because you're taking on an interesting amount of risk.

[sokoloff]

Selling OTM covered calls is not a trade that's going to blow up your account. The worst case is that you suffer a drawdown in your account (which is a risk of all investing). The second worst case is that you miss a massive, short-term rally.

[TuringNYC]

>> Selling OTM covered calls is not a trade that's going to blow up your account. The worst case is that you suffer a drawdown in your account (which is a risk of all investing). The second worst case is that you miss a massive, short-term rally.

Depends on whether youre fully cash secured or not. If you are fully cash secured, you barely make $. If you're not, now you're leveraged and a steep draw-down can wipe you out.

[tick_tock_tick]

A covered call by definition means you own 100 shares for every contract you sell. Even if you own some of that stock on margin you are not increasing your risk by selling the calls.

[TuringNYC]

The parent was referring to OTM call selling, not covered calls only. Covered calls are pretty low-risk. Selling OTM calls includes selling puts, which is not low-risk unless you're unlevered (everything covered by cash.)

[tick_tock_tick]

The top parent suggested

> sell OTM options against his stocks

I don't see where you get the impression they were ever talking about selling uncovered calls. Selling out of the money calls has nothing to do with selling puts. As yes selling cash secured puts even with some leverage is considered very safe. Here is a fund that does just that.

https://www.nb.com/en/us/products/mutual-funds/us-equity-ind...

[sokoloff]

Probably 35% of my individual stock purchases are done via a series of (hopefully more than 1) naked puts until I finally get assigned.

[sokoloff]

True, but that is the case by virtue of the underlying investments, not because of the decision to sell OTM covered calls.

[xwdv]

You are wrong and need to educate yourself.

Covered calls don't add risk of ruin, you just have potential to miss any potential further gains if you pick a bad strike. This could happen anyway if you were to sell a stock at the wrong time for example.

[stocknoob]

Selling cash-secured puts and covered calls is one of the safest things you can do. You take on less risk (and less reward).

[cashewchoo]

Ah I missed that he was selling calls for stocks he owns. That makes it even less interesting IMO? The premiums on these options are small enough and now you're also capping upside on stocks you already own. And remember that black swan events happen once a month in finance, so I think people would be surprised how far OTM they need to go to actually get to a "minimal" risk of them being ITM.

[stocknoob]

Normally you'd wait until the volatility is a bit higher, sell a few covered calls against 5-10% of your shares. If the market jumps up, roll the calls out and sell more.

If you get assigned, that's great, immediately sell a put. I've been able to do this against SPY/QQQ, rolling and never getting assigned. So it's all gravy on top of the existing market returns.

You can eke out a few pct a year this way, but from a SWR perspective it's like doubling your hoard.

[dbancajas]

> remember that black swan events happen once a month in finance, so I think people would be surprised how far OTM they need to go to actually get to a "minimal" risk of them being ITM.

I think you're talking about the wheel strategy. Keep reading this at r/thetagang but I believe the premiums lately have been higher than normal so that's why lots of people suggest this. HN was one of the last places I would see this suggested.

[stocknoob]

Yep, I basically do the wheel but I try to avoid taking assignment. I just roll out calls if the stock start creeping up. I initially only sell against a portion of my shares so I have the ability to sell more options, at higher strikes, and not take a loss.

If I'm underleveraged, on a weekly expiration date (MWF) I'll sell a bunch of options a few strikes out a few hours before expiration, with stops. Usually they decay down and you get a lot of premium in an hour.

[xwdv]

There’s no need to wheel. Do you own stocks? Yes? Do you own them in blocks of 100 shares? Yea!? Then you could be making extra income just buy selling covered calls on them while you hold them long term.