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Does anyone here have any experience with covered calls? If so, would you recommend it as an investment strategy?
I am asking this because I understand how options work, but so far, I have only experience with vanilla stock investing, but I am looking at covered calls give me some serious income from the premiums . I know that conventional wisdom states that covered calls are a conservative investment strategy (more so than vanilla stock ownership), and can theoretically give you relatively huge returns with relatively little risk.
However, it still sounds too good to be true. I mean, if covered calls are such a no brainer, why isnt everyone doing them and becoming rich off of them? Whats the downside of covered calls investing? Is there something I am missing here?
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>>1019242
Covered calls mean selling your upside while leaving your downside intact. This isn't a good position if you are uncertain about the underlying's movements.
Capping your gains for guaranteed income has the same opportunity costs as investing your 401k in bonds instead of stocks while young. Lower returns than just holding the stock itself, unless the stock muddles along without moving much.
Selling calls falls apart if volatility goes up because volatility is a bigger input to options than stocks. So you are effectively shorting volatility in a low volatility environment. Not necessarily a great play right now, imo.
Covered calls are best if you expect low volatility and a boring market.
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I use them on low price products $15 or less.
The risk curve is the exact same thing as a naked put. Naked puts have a higher premium and subsequent POP.
They are an expensive trade as far as return on capital works.
if volatility shoots up it can be difficult to exit or roll the position if your stuff doesn't move.
https://www.tastytrade.com/tt/shows/ira-options/episodes/when-your-covered-call-goes-in-the-money-10-29-2015
https://www.tastytrade.com/tt/shows/the-project/episodes/covered-calls-are-not-a-good-hedge-12-16-2015
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>>1019256
You left out the most important difference. Stocks don't move up/down in an instant.
If you were selling covered calls for stocks in 2018 options, then you would be right. But we are looking at 40 day trades. A stock can do nothing in 40 day and when the call expires worthless, you made money on owning the stock.
This can be done multiple times in a year and only get called away once. Essentially, it is playing the fact that most stocks just aren't super whippy.
Of course on Biz, everyone trades 10 cent penny companies. These are not the things you sell covered calls against.
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