Opened (IRA): TQQQ December 22nd 35 Covered Call
... for a 33.55 debit.
Comments: Selling the -75 delta call against ... .
Metrics:
Buying Power Effect/Share Price Break Even: 33.55
Max Profit: 1.45
ROC %-age At Max As a Function of Buying Power Effect: 4.32%
ROC %-age at 50% of Max: 2.16%
Delta/Theta: 26.44/2.98
Here's why I'm doing this instead of selling a put at the delta equivalent strike (the +25): if you look at the 25 delta put in the same expiry at the 35, it's paying around 1.27 at the mid (i.e., $127 max). The delta equivalent covered call setup has a slightly better max payout at 1.45 ($145) probably due to a couple of things: (a) IV skew (it's slightly higher on the call side than on the put); and (c) call skew. Relatedly, the short put break even is 33.73 relative the 33.55 break even of the covered call setup.
I also wanted to see what the frequency of monied covered call random call away of shares was; most literature suggests early, random assignment is somewhat rare (around 7%) but there isn't much information out there in addition to that, such as when the highest likelihood of early exercise is (it's most likely when the extrinsic value in the call is de minimus) or how deeply monied the call is (which is related to how much extrinsic is left in the long call that the other person would be exercising; deeper in-the-money options have less extrinsic in them relative to less monied options of the same duration). This could naturally give the setup a slight edge over a short put, since an early exercise by a counter-party would result in max profit without having to wait until all the extrinsic has leaked out of the monied short call.
Comments: Selling the -75 delta call against ... .
Metrics:
Buying Power Effect/Share Price Break Even: 33.55
Max Profit: 1.45
ROC %-age At Max As a Function of Buying Power Effect: 4.32%
ROC %-age at 50% of Max: 2.16%
Delta/Theta: 26.44/2.98
Here's why I'm doing this instead of selling a put at the delta equivalent strike (the +25): if you look at the 25 delta put in the same expiry at the 35, it's paying around 1.27 at the mid (i.e., $127 max). The delta equivalent covered call setup has a slightly better max payout at 1.45 ($145) probably due to a couple of things: (a) IV skew (it's slightly higher on the call side than on the put); and (c) call skew. Relatedly, the short put break even is 33.73 relative the 33.55 break even of the covered call setup.
I also wanted to see what the frequency of monied covered call random call away of shares was; most literature suggests early, random assignment is somewhat rare (around 7%) but there isn't much information out there in addition to that, such as when the highest likelihood of early exercise is (it's most likely when the extrinsic value in the call is de minimus) or how deeply monied the call is (which is related to how much extrinsic is left in the long call that the other person would be exercising; deeper in-the-money options have less extrinsic in them relative to less monied options of the same duration). This could naturally give the setup a slight edge over a short put, since an early exercise by a counter-party would result in max profit without having to wait until all the extrinsic has leaked out of the monied short call.
Trade closed: target reached:
On second thought ... . Taking profit at 50% max. In for a 33.55 debit; out for a 34.28 credit (50% max). .73 ($73) profit.