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Subject:  Re: ITM Covered calls as bond substitutes Date:  12/15/2020  10:44 AM
Author:  JoKingMe Number:  11289 of 11325

I don't like the idea of starting a position as an ITM CC. You accept most of the downside risk with none of the upside potential. I don't see where DITM CC's generate enough net premium on short term options to make this a worthwhile strategy.

That said, I've been doing OTM CC's buy/write as a substitute for preferreds. My assignment return profile with OTM B/W CC's makes the risk acceptable to offset when a position goes the wrong direction. I also don't want to lose my dividends which can happen when your position is ITM. I'm always happy to sell time for upside in these positions when rolling a position that is ITM at expiration.

Zero commissions allow me to keep positions sizes small. I utilize weekly expirations when available so that positions are staggered. Still have most positions expiring on standard monthly date. When weekly options are available I typically have multiple positions in the same security with staggered expirations dates and/or strike prices.

I opened a 46 day OTM B/W CC position yesterday with 1.6% upside and 1.6% option premium, 1% dividend also. 39.2% annualized return if assigned at expiration, 20.6% annualized income if not assigned. 61.8% annualized return if assigned for the dividend in 24 days.

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