Selling deep in the money calls on Margin stocks

Feb 24 33 Comments

Margin interest is 6-7% and 4% if you borrow more than million . Monthly calls deep in the money blue chips - say microsoft will generate 10% . So say MSFT 250 C April 14 is 48.30 meaning 4$ per stock per 48 days . Translate to >10% annual and I risk only if MSFT dips below 250 in next 48 days . If not I dispose the stocks and keep 48.30 per stock beforehand . Subtracting interest 7 or 4% depending on amount , I still have guaranteed 3% or 6% return from the money I never had in my account . It’s all margin money . What is the catch ? And why should not I do it ?#personalfinance #investments

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TOP 33 Comments
  • LinkedIn
    FIREman💪

    Go to company page LinkedIn

    FIREman💪
    Selling in the money covered calls is equivalent to selling naked puts at the same strike price. There’s no catch, you miss out on the upside and take the risk that MSFT dips below $250 (which could be a huge loss in a massive crash that might happen every 10 years or so).
    Feb 25 3
    • LinkedIn
      FIREman💪

      Go to company page LinkedIn

      FIREman💪
      It’s called put call parity. If you have $250 in your account and sold a $250 put, that has the same outcome vs if you own the stock and sold a $250 call. Because in each case, you’ll have $250 if MSFT is over $250 on expiry, and you’ll have 1 MSFT stock in your account if MSFT is below $250 on expiry.
      Feb 25
    • Splunk
      ggzubt

      Go to company page Splunk

      ggzubt
      Ah thanks for taking the time to explain!
      It makes sense, and I realized that I slightly misread your first comment too.
      Feb 25
  • There is no free lunch. If you don't see the risk in this approach then you don't know enough.
    Feb 25 2
  • Amazon
    Chadazon

    Go to company page Amazon

    Chadazon
    This is exactly my idea for a hedge fund. Call it the Chadazon Dynamic Income Structured Trust I. Put everything into selling deep OTM options to get the yield to 12-15%, hire some professor at NYU to shill as the risk manager, collect 2 and 20 for a decade until it implodes.
    Feb 25 0
  • Amazon
    🚀YOLO🚀

    Go to company page Amazon

    🚀YOLO🚀
    There’s a 1% chance you’ll be wiped out completely.

    Think covid crash or yesterdays Russian market crash or future crash for <whatever reason>.

    Would you want to be in a $1 mn debt ?
    Feb 25 5
  • NVIDIA
    GeoForce

    Go to company page NVIDIA

    GeoForce
    do yo work for ms? then you are risking your job by trading options of msft
    Feb 25 2