OPTIONS TIP: COVERED CALL CANDIDATE TRADE SELECTION
Recently, I've posted a number of ideas of covered call setups, but which one or ones do I choose? I can naturally try to put all of them on, but for various reasons I may not want to do that ... . So how do I cull out the wheat from the chaff? The UNG, GPRO, HUN, MW, and JCP ideas are the result of quite a bit of work already; out of these, are some better than the others?
Naturally, the selection choice is somewhat subjective, but I do think a couple of these have slightly more going for them than others.
Were I to be stranded on a dessert island and could only take 1 or 2 covered calls to the island with me, I'd probably go for UNG and JCP. Why? They are the most liquid underlyings of the bunch, which at least partially insures a fairer price for my setup than the other plays; bid/ask spreads are wider in the others, which potentially makes getting fills at the mid price more of a headache. UNG and JCP also offer weeklies, which offer a little bit of more flexibility in terms of rolling my short call (although this is not the kind of deal breaker it is when I'm doing short strangles, where I really want to have those weeklies to do short-term rolls with if I need to).
Were I to have to rank the plays, it would be a close call between GPRO and HUN, after the UNG and JCP plays.
GPRO's not as liquid as UNG and JCP; then again, its liquidity isn't terrible, it offers weeklies, and has quite a bit of volatility in it such that the premium received for the short call is fairly rich (in fact, its IV is higher than in UNG, JCP, or HUN), but a potential downside is that I'd have to devote about $1700 in buying power to the trade (100 GPRO at 18.22; Feb 19th 19 short call) and that might of concern to smaller account holders.
HUN has better liquidity than GPRO, but no weeklies, but it's also cheaper than GPRO, so ties up less buying power.
MW is the least liquid of the bunch and has no monthlies ... .
The other factor that you might want to look at is correlation. For example, I've already got a long natural gas play on via CHK. Do I really want to increase my exposure to natural gas?
All of these factors -- liquidity, availability of weeklies, current implied volatiity, correlation, buying power -- should be evaluated in considering which plays to go with ... .
Naturally, the selection choice is somewhat subjective, but I do think a couple of these have slightly more going for them than others.
Were I to be stranded on a dessert island and could only take 1 or 2 covered calls to the island with me, I'd probably go for UNG and JCP. Why? They are the most liquid underlyings of the bunch, which at least partially insures a fairer price for my setup than the other plays; bid/ask spreads are wider in the others, which potentially makes getting fills at the mid price more of a headache. UNG and JCP also offer weeklies, which offer a little bit of more flexibility in terms of rolling my short call (although this is not the kind of deal breaker it is when I'm doing short strangles, where I really want to have those weeklies to do short-term rolls with if I need to).
Were I to have to rank the plays, it would be a close call between GPRO and HUN, after the UNG and JCP plays.
GPRO's not as liquid as UNG and JCP; then again, its liquidity isn't terrible, it offers weeklies, and has quite a bit of volatility in it such that the premium received for the short call is fairly rich (in fact, its IV is higher than in UNG, JCP, or HUN), but a potential downside is that I'd have to devote about $1700 in buying power to the trade (100 GPRO at 18.22; Feb 19th 19 short call) and that might of concern to smaller account holders.
HUN has better liquidity than GPRO, but no weeklies, but it's also cheaper than GPRO, so ties up less buying power.
MW is the least liquid of the bunch and has no monthlies ... .
The other factor that you might want to look at is correlation. For example, I've already got a long natural gas play on via CHK. Do I really want to increase my exposure to natural gas?
All of these factors -- liquidity, availability of weeklies, current implied volatiity, correlation, buying power -- should be evaluated in considering which plays to go with ... .
评论:
I'm likely to attempt fills on all of these, with the exception of GPRO (already have a short strangle there). Some I may chase a bit with price to get a fill (JCP, UNG, HUN); others, eh, not so much (MW) ... .
