Maybe we should have joined the Fire Department because we really like using ladders and in this segment we discuss and examine the use of laddered covered calls as compared to regular covered calls, two strategies that can reduce cost basis and are allowed in IRA accounts. The numbers here should be of interest to all traders.
A covered call can be an effective method to reduce cost basis when holding a long equity. We can “ladder” the calls with various strikes and expiration cycles when we have more than one hundred shares of an underlying,
A graph comparing a regular covered call and a laddered covered call against a position of long 300 SPY (S&P 500 ETF) was displayed. A regular covered call consists of selling 3 SPY February calls against our long 300 shares of SPY. A laddered covered call consisted of selling 1 SPY February call, 1 SPY March call and one SPY April call (with staggered strikes) against our long 300 shares of SPY.
An example of selling the 30 delta laddered covered calls in SPY (trading at $205) was displayed. The example included the strikes, days to expiration (DTE), premium collected, new cost basis on the long SPY stock, max profit, max return on capital (ROC) and max ROC per day.
A study was conducted using the SPY from 2005 to present (1325 occurrences). We compared selling three of the SPY 30 delta calls with a 45 DTE and compared that to selling one SPY 30 delta call with a 45 DTE, one SPY 30 delta call with a 75 DTE call and one SPY 30 delta call with a 105 DTE call against our long 300 shares of SPY stock.
A table of the results comparing the standard covered call and the laddered covered call after 45 days into the trade was displayed. The table included the average P/L per trade, win ratio, largest loss and largest profit on both strategies. Another table listed the pros and cons between a standard covered call to a laddered covered call.
Watch this segment of “Strategies for Your IRA” with Tom Sosnoff and Tony Battista for the takeaways and the pros and cons of a regular covered call to a laddered covered call.
This video and its content are provided solely by tastylive, Inc. (“tastylive”) and are for informational and educational purposes only. tastylive was previously known as tastytrade, Inc. (“tastytrade”). This video and its content were created prior to the legal name change of tastylive. As a result, this video may reference tastytrade, its prior legal name.
tastylive content is created, produced, and provided solely by tastylive, Inc. (“tastylive”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastylive is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer. Options, futures, and futures options are not suitable for all investors. Prior to trading securities, options, futures, or futures options, please read the applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on tastytrade.com/disclosures.
tastytrade, Inc. ("tastytrade”) is a registered broker-dealer and member of FINRA, NFA, and SIPC. tastytrade was previously known as tastyworks, Inc. (“tastyworks”). tastytrade offers self-directed brokerage accounts to its customers. tastytrade does not give financial or trading advice, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastytrade’s systems, services or products. tastytrade is a wholly-owned subsidiary of tastylive, Inc.
tastytrade has entered into a Marketing Agreement with tastylive (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade. tastytrade and Marketing Agent are separate entities with their own products and services. tastylive is the parent company of tastytrade.
tastycrypto is provided solely by tasty Software Solutions, LLC. tasty Software Solutions, LLC is a separate but affiliate company of tastylive, Inc. Neither tastylive nor any of its affiliates are responsible for the products or services provided by tasty Software Solutions, LLC. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.
© copyright 2013 - 2024 tastylive, Inc. All Rights Reserved. Applicable portions of the Terms of Use on tastylive.com apply. Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastylive’s podcasts as necessary to view for personal use. tastylive was previously known as tastytrade, Inc. tastylive is a trademark/servicemark owned by tastylive, Inc.