To Covered Call, or Not to Covered Call

Cashing in on the Bull's Latest Run: Choppy Waters for Covered Calls

Author

Courtney May
December 13, 2023

Hello hello.

To start, let me own up to a few slip-ups from last week’s Stonk Enjoyer:

  1. I misspelled “reeks”

  2. I incorrectly scheduled Stonk Enjoyer after misinterpreting India’s time zone and sent it out before I was able to edit it (and on a Tuesday instead of Wednesday) 🙃

    *FACEPALM*

     

    But anyway, cheers to you for sticking with me even when I’m swinging and missing!

Art by My Boyfriend on DALL-E

This is not investment advice and is intended for entertainment purposes only

Writing Covered Calls in today’s interest rate environment

As 2023 comes to a close, let's talk about making some extra dough with covered calls over the past two months - because who doesn't like a little extra cheddar?

Covered Calls: The Investor's 'Side Hustle'

Think of covered calls as your stock portfolio's side hustle. You've got these stocks just lounging around, so why not put them to work? It's like renting out your spare room on AirBnB but with less laundry afterward.

The last two months of a green market were like the final laps in Mario Kart - things got wild! This is prime time for premiums because volatility is premiums’ greatest companion. It's like selling umbrellas in a rainstorm - everyone wants one, and you're there with the goods.

While volatility is good for collecting juicy premiums, we also saw many stocks hit their YTD high in the last two months which led to higher assignment risk.

So while it was a golden time for premiums, it was rough waters for getting sold assigned.

Interest Rates and Volatility

With interest rates doing the cha-cha, the stock market is more jittery than a squirrel on espresso (or me after literally any coffee drink).

But with the upward trend within the last two months, I found myself having to roll some positions at a net loss because contracts were coming in the money.

(See my old piece explaining covered calls more in-depth if that didn’t make sense to you)

Ways Combating Assignment Risk:

  1. Choose the Right 'Dance Partners'

  2. Be More Conservative

Not all stocks are fit for the task.

If you are chasing higher premiums, pick the ones that have been the life of the party during the bull market. If you want more stability, go with a stock that doesn’t have as high of price volatility.

To mitigate assignment risk you can also write covered calls that are further out of the money and collect the smaller premium - sometimes that means swallowing your pride.

Covered Calls Come With Risk

Remember, with great power comes great responsibility. As with any options strategy, there is always risk.

Happy trading, and may the bull be with you!

Weekly Market Tidbits

  1. JPow’s Final Main Character Moment of 2023: The Federal Open Market Committee meeting is TODAY

  2. Dub for the environment: COP28, a historic agreement to eliminate fossil fuel usage to combat climate change, was signed by over 200 countries

  3. Inflation is easing: The Consumer Price Index rose only 3.1% year over year in November, and just 0.1% from the previous month.

What am I Reading?

The final Stonk Enjoyers Book Club of 2024 is next Monday!

Join the next one if you like hot dogs or books.

Here are the details:

  • Current Book: Elon Musk by Walter Isaacson

  • Next meeting: 12/18/23 at 5 PM PST

  • Location: X Spaces

  • Discussing up to the end of the book

Meme of the Week