Today’s video reviews the best practices for trading ITM covered calls around earnings announcements.

Notes

ITM Cov Calls

Buy 100 shares of stock for $52

Sell 1 $55-strike call option for $2 credit, delta 0.30

                a) Usually you are neutral to mildly bullish so you sell an OTM call.

                b) The short call obligates you to sell the stock at the strike price. IT places a CAP on how much you can make.

                c) You get paid a premium that acts as potential cash flow and protection

I want MORE protection and am willing to forego any upside in the stock.

SELL AN ITM COV CALL

                1) Amount of protection is EQUAL TO the Call Premium

                                a) Sells ITM call for $3

                                b) Sells deeper ITM call for $6

                2) Profit potential is EQUAL TO the Extrinsic Value

                                a) you can’t make ANY MONEY in the stock

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