ASX Shares Covered Calls

Discussion in 'Shares & Funds' started by geoffw, 24th Apr, 2019.

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  1. geoffw

    geoffw Moderator Staff Member

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    Has anybody in here had experience with covered calls?

    Peter Spann used to go into them in some detail back in the day, but I'd be interested in knowing if anybody has had experience - and what sort of returns they might get year on year (total return, share growth + dividend + call premium).

    I'm just looking to see if it's possible to add a modest boost to share income.

    Thanks.
     
  2. Jess Peletier

    Jess Peletier Mortgages, Finance & Property Strategy Aust Wide Business Member

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    HI Geoff,

    They can be a great way to get some premium income from an existing portfolio in a flat market BUT you need to be willing to sell (and pay taxes) or buy back the option at a loss if you don't want to sell - it's not risk free.

    There are ways to stack the odds in your favour though, through technical analysis.
     
  3. The Y-man

    The Y-man Moderator Staff Member

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    Hi @geoffw

    The OCH fees and brokerage really made it difficult to make any money when we were trying it a few years ago. Haven't run the numbers now admittedly.

    We found more success in doing the bear call spreads (covered in the same course), but overall liquidity (i.e. being able to sell the calls to make it worthwhile) was a real deal killer at times.

    Might revisit it again at some stage.....

    The Y-man
     
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  4. geoffw

    geoffw Moderator Staff Member

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    Thanks Jess

    It's through the SMSF which is in pension phase so taxes are smaller than they would have been.

    Overall, what sort of income might you get? I'd be thinking that 3% on the top of dividends and capital gains (less costs) would be good.

    What resources have you used to get up to speed? For technical analysis as well as for covered calls.

    Have you traded with US stocks and options?

    @The Y-man what course is that?

    Do any of the discount inline brokers do options? Many of them don't appear to.
     
  5. Jess Peletier

    Jess Peletier Mortgages, Finance & Property Strategy Aust Wide Business Member

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    I haven't looked into it for ages Geoff so not hte best person to ask, but Louise Bedford had a book called the secret of writing options which was good. CMC did options and wasn't too badly priced.

    The TA is really easy, if you have access to a charting package I could talk you through it in a zoom call :)
     
  6. The Y-man

    The Y-man Moderator Staff Member

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    I thought you were referring to Peter's "Instant Income" - he covered the covered call and spreads in it.

    Commsec does. The platform has been greatly improved too from what I have seen.

    The Y-man
     
  7. PandS

    PandS Well-Known Member

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    I use covered call for all my shares when I see their run is peak, well based on my judgement
    I can get it wrong but it has not stop me doing it for years.

    I also used naked put to buy shares and also collecting the premium

    I do it on continuous basis 3-5 months expiry date, it generates an extra 6-10% premium for me each year with the odd assignments here and there that I already factor it in.

    I always has cash ready to backup any naked put assignment if I write 100k contract I have 100k liquid cash I can access within 2 days, be it offset or saving

    I hold till expiry date and never close either I get assigned or I get free premium.

    The last time I remember getting a naked put assigned was QBE at $10.50

    Almost all other time it pocket free premium plus dividend.

    If you know what your are doing it very neat way to collect free cash with the risk that you be up for holding or selling the parcel which you would have bought at market or sold at market anyway.

    @geoffw if you got specific question you can message me, I been doing it for about a decade

    I don’t trade options or play any dozen of strategies or spreads available for it. I work out my own system to generate income only
     
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  8. Sannie

    Sannie Well-Known Member

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    @PandS , would you be able to provide an example with actual numbers on writing puts and pocketing premiums. Not that I want to be a trader but to see if I could get my head round to it.Not to speculate or for a hedge but purely to generate income in relatively safer way.
     
  9. PandS

    PandS Well-Known Member

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    I don't trade options, I write naked put and covered call just to get premium and I hold till expiry
    you need to know your options though and work out your risk and reward

    let say STW which is the ASX200 index, if you got holding in that you can write covered call or if you don't and you want to buy some but instead of buying today price say $57 I said how about I write a naked put of strike $56 expiry Sep 2020 with the premium of $3, the market isn't open so I don't know what the bid and ask price is I just use the last trade price of $3.160 on 05/06.

    and let say I want to write 10 contracts of 100 shares each that 1000 shares
    1000 shares x 3 premium, I pocked $3000 premium upfront (this money is your now nothing can take it back but you face the risk shares price can dropped below strike price)

    if the share never trades at $56 in September I get $3000 for free, if it drops to $56 I get to buy it at
    $56 x 1000 = 56K cash I got to have it ready

    if it drops to $54 in by September I still have to buy at 1000 x 56 that your risk there, it can dropped below the strike price and you still have to pay strike price but you get $3000 premium compensation it similar to insurance money someone paying you.

    if it drops to $20 I am @#[email protected]#[email protected]#$ hahaha I still have to pay 1000 x 56 but then it no different if you were to buy it today at $57 and it dropped to $20 right but you don't get the 3000 premium

    not all that easy but with proper risk management, it a good play.

    I wouldn't get into it if you know what you are doing you got to know your stocks and your risk tolerance and has plenty of cash to back your naked put option
     
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