Covered call (bearish move)
Last Thurs and Fri have already given us some hints that Tesla could be weak this week. The trading volume were unusually high. Someone always know something.
Have also shared 3 bearish signals in my Youtube video, and sold this bearish covered call on Friday.
Don’t fight the trend. Go with the bearish trend. But if you are a bull, let the share price settles a little.
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samuelqy : Cover call is definitely a weak bullish move. If it falls, the profit you earned from selling calls cant cover the loss generated from the shares you earned. Like win $10 and lose $100
Cow Moo-neyOP samuelqy: Covered call is actually a bearish move. Also, there won’t be any loss if i don’t sell my shares. These are fundamental strong companies that I intend to hold for a long term. Since they are going to be in my portfolio for years, why not milk some premiums out of them
samuelqy : No, its bull! You lose money overall on this “shares+sell call” strategy when it falls. Bearish is when it falls you make money, well, if it’s selling call alone, it’s bearish for sure. Considering you will own the shares no matter what, then it can be thought of (selling a call) alone. Overall, it’s still bullish
Cow Moo-neyOP samuelqy: I am indeed making money from the option trade when the share price falls. For instance, if Tesla falls to 200 tomorrow, the option contract value will drop, which means my profit will increase. Therefore that’s bearish in my opinion because a falling share price increases my profit.
The only bullish thing about this is because I hold on to the stock i.e. i am long the company
And as shared earlier, I don’t lose any money as long as i don’t sell any shares
With all above being said, if your view is that covered call is a bullish move, it’s fine too. We will just have to accept that both of us have different views
samuelqy Cow Moo-neyOP: Yeah, you will own the shares no matter what. So thats selling a call alone, thats bearish for sure, its just that you don’t get busted if it rises
Cow Moo-neyOP samuelqy: That’s right. If it shoots up, I won’t get busted as I have the shares as collaterals. Otherwise it would be a naked call - which is a very risky move
samuelqy : Usually when you do a cover call, you go sell an otm call. The perfect spot is the stocks closes right underneath the strike at expiry. However if it falls a lot, why not sell an itm call and let it falls that itm becomes otm? So yeah, weak bullish. You don’t want it to rise too mich and missed the upside potential, and you don’t want it fall too sharply since the premiums you get is negligible. So the real bearish move is buy a put that cover all the downside risk
Cow Moo-neyOP samuelqy: Selling an ITM call can be risky as the share price may not continue to fall. If it bounces up, the ITM call will be come deep ITM, and the shares will face a higher risk of getting called away
And i agree that buying put is definitely a more bearish trade. But i don’t like time to work against me.
There are pros and cons in each strategy. At the end of the day, it’s really about finding the one that suits us the most.
samuelqy Cow Moo-neyOP: Haha, you’re a theta gang
Seraphicall : Covered call is bearish move