Hey AI Option Gurus,
Welcome to this week’s edition of Appmosis Investing – Options Trading for Regular Income Newsletter!
This week, we’re diving into one of the most popular strategies in options trading—Covered Calls.
But, let’s be real—this isn’t a “one size fits all” strategy. There are plenty of ways to approach selling Covered Calls depending on your goals and stock positions.
Let’s break it down and explore the different ways I like to use this strategy.
1. Selling Covered Calls on Long-Term Holds
I’ll be honest—I don’t sell Covered Calls on my long-term shares all that often. Why? Because I love my shares and don’t want to lose them. But when I do, I look for a delta of 0.15 or lower. This means I’m targeting a strike price that’s far enough away that I’m unlikely to get assigned, but I can still collect some premium and generate a little extra income.
The goal here is simple: make some money while keeping my shares. Nothing too fancy, just a solid way to get paid to hold onto stocks I already love. And you can always roll them if the current price gets dangerously close to the strike price.
2. Poor Man’s Covered Call
For those of you who are more active in the options game, you’ve probably heard of the Poor Man’s Covered Call. This is when I sell a call on a stock tied to a long call in my account (rather than owning the shares outright).
I will cover the PMCC in a separate session during our weekly reviews.
I still use the same delta range—somewhere between 0.15 and 0.20, with an expiration of anywhere from a week to a month out.
This setup allows me to use less capital and still benefit from a covered call strategy. It’s a great way to maximize leverage without having to buy 100 shares of a stock. Great for a medium or small portfolio size.
3. Wheel Strategy – Part 1: The Basics
Now, let’s talk about how Covered Calls fit into the Wheel Strategy. If you’ve been assigned shares from selling a put, your cost basis is your guiding light. My rule of thumb here is straightforward: I always sell a call at or above my cost basis. The goal is to lock in premium while ensuring I either get paid what I bought the stock for or better.
4. Wheel Strategy – Part 2: When the Stock Tanks
We’ve all been there—assigned shares, and then the stock takes a nosedive. In these cases, I get a little more creative. Sometimes I’ll sell a call below my cost basis, but only if the delta is low (again, 0.15 or lower) and I’m confident I can manage it without too much hassle. Sure, I might not get my full investment back right away, but I can still collect premium and reduce my overall loss.
Opportunistic? Absolutely. But that’s what makes options trading fun.
5. Selling Shares via Covered Calls
Sometimes, I’m just ready to let go of a stock—but I don’t want to rush it. In those cases, I’ll keep selling a call at my preferred exit price until the shares are gone. And if I don’t get assigned? No problem, I’ll just roll the call over for another week or month and keep collecting premium. Eventually, the stock hits my price and I’m out—while making extra income along the way.
The Bottom Line
There’s no one way to sell a Covered Call. Whether it’s to generate income on long-term holds, take advantage of the Poor Man’s Covered Call, or work the Wheel Strategy, it all comes down to your goals and the stock you’re trading.
Covered Calls are flexible, and that’s what makes them such a powerful tool in your trading arsenal. Don’t be afraid to experiment with different setups and see what works best for you. And of course, always take into account the stock’s technicals and market conditions when making your decisions.
Remember to register for my weekly options review classes. We discuss these kind of tips thrice a week on Tuesdays, Thursdays and Sundays.
Register at: www.appmosis.com/subscribe
Happy Trading, and see you next week!
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Gautam Godse
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