Jerry Talks Options Strategy and Covered Calls with Greg

options strategy

Greg: What is your favorite options strategy and how many trades do you keep open?

Jerry: I usually keep about 10 trades open, but most aren’t ones that require a lot of care or feeding. The majority are simple covered calls. The rest are more neutral iron condors. I’ve been recently doing more calendars for earnings as well. I won’t go over 3 or 4 more “complex” trades at any given time.

Most of the time I like to sell premium over buy it because the probability of success is more in my favor. I realize the risk/reward isn’t as great buying a long call, but I usually try to enter trades with a 75% or higher probability of making 50% of the credit I initially received. For example if I entered an iron condor for $100 in credit, I would look to close it for a $50 debit around 21 days before expiration. This leaves me with a $50 in profit. It’s fairly easy to repeat options strategy.

Greg: How much Buying Power do you typically use?

Jerry: I typically use around 50% of the available stock buying power. When I go over that, I start looking to take trades off when I can. It’s a simple risk management “sleep at night” options strategy I use to keep my sanity.

Greg: Are you long or short the market?

Jerry: Currently I’m long but not by design. My beta weighted delta (using SPY as my underlying) is about 47. I’d like it to be neutral but I’m holding some stock there that is pulling up the delta by about 27. Subtracting that out it’s 20 and I am trying to only add bearish positions until I get to 0. But if there’s a good opportunity in something that makes me longer or neutral in this market, I wouldn’t necessarily turn it down. So that’s my options strategy for being long vs short.

Greg: You mentioned covered calls, how are you trading I them?

Jerry: For my options strategy, I usually buy 30-45 day 30 delta short calls. They seem to be the best risk reward in my opinion. (70% POP). I don’t always roll them right away. Sometimes I buy to close the current month but don’t roll to the next month until the premium and IVR% is high enough to warrant doing the actual trade.

Greg: Have you had stock called away before?

Jerry: Yes it’s not a big deal and you should only enter a covered call in a stock you don’t mind selling. Reasons you might not want to sell a covered call against a stock :

1. Your short call is below your cost basis (avoid this in the first place).

2. You would suffer large tax consequences for selling the actual stock.

3. The stock is rallying and why would you want to limit your profits on something like that?

4. You are about to get paid a nice dividend

5. Earnings are coming out next week and there could be amazing news for your stock.

6. The ex-dividend date is coming up and you would like to participate in the next dividend distribution.

Greg: Which brokerage do to use for all this?

Jerry: I use TastyTrade. Very easy platform to get in and out of trades, roll, manage, and set GTC orders. Here’s the link to our referral code:

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