Tackle Today – Covered Call: The Trifecta of Winning
December 3, 2021
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Traders,
If you had to choose from a 50/50 chance of doubling your money or a 75% of winning one and a half times your money? Which would you choose? The answer might seem obvious but one might be surprised to know that a lot of folks would choose door number one even though door number one would bring more wealth over time. This scenario is an example of the age-old battle between delta and theta. For those who are not well versed in the realms of delta and theta, please allow me to explain.
Delta can be accurately described as directional trading. You see the odds of winning on a directional trade are essentially 50/50 that the stock goes in the direction you desire. Now, of course, we can increase this probability in our favor by learning to read charts and honing our technical analysis skills but at the end of the day, we are essentially 50/50. These odds may be fine for the masses but I believe we can do better. If you think about this scenario, you are either right or wrong in the trade. What if we could change the game to give us a higher probability of being correct?
In walks Theta trades, specifically the covered call. With the covered call, we can win in multiple ways. We can win if the stock goes up or if the stock goes slightly up or even if the trade goes sideways. The only time we lose on a covered call trade is if the stock goes down below the breakeven price and essentially this means we can win three out of four ways and thus this translates to an odds of winning of approximately 75%. This means that our beloved covered call has the ability to increase the odds of winning and this adds to the already impressive list of pros for a covered call.
This takes the Delta/Theta conversation and leans it in favor of the theta and this should make any serious trader want to become familiar with the covered call trade.
Trade Well,
#TeamTackle
🛑 Upcoming Webinar: Covered Call for Beginners › What is a Covered Call and how to trade it? ›› December 6th 2021, 8:30 PM EST
Join Tackle Trading in this upcoming Trading For Beginners webinar on the basics of this powerful options strategy: the Covered Call. Covered Calls is a great way to increase your monthly income derived from your Investment Portfolio. In this webinar, Coach Matt will go through what the Covered Call is and how to trade it.
Click on the button below to go to YouTube and set a reminder so you won’t miss it when Coach Matt goes LIVE.
Chart of the Day: Ford chart shows a quality set up for a Covered Call
This chart of Ford shows a quality setup for the execution of a covered call. This is where we can stack the probabilities and odds in our favor of having a winning trade as long as Ford either goes up, stays up or even goes sideways.
Video of the Day: Fundamental Focus – EBITDA Explained
Coach Greg explains what EBITDA is and how traders and investors can use this important fundamental concept.
Today’s line up
Traders Lounge 11 PM EST
Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.
Cash Flow Club Replay
If you missed last night’s episode when Coach Gino Poore talked about Volatility Spikes or would like to watch it again, check it out here.
Halftime Report 12:30 PM EST
The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day, and fun in a way that only Matt and Tim can deliver.
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