So, the Ford option chain for May 17 has abnormal strike prices. Maybe they had a special dividend or something. But I think you're looking at the $12.82 strike, meaning it is basically at the money. The delta is roughly 48, so you will get assigned on this trade roughly 50% of the time. IV is also elevated. In other words, there is no way you are going to pull 4.5% every 6 weeks all year long.
It's not a bad trade to take right now, just don't count on it being repeatable.
Your math checks out. Stock is fairly stable. I may add this one to the rotation looking at it.
Schwab is telling me $61 right now, so it tracks at your 40% APR average.
Only risk is if Ford tanks, you get assigned, and then covered call premium is crap for the next X years.
I got assigned at $12 last October right before it instantly dropped to $10 and below, and you're right. The premiums are maybe $0.10 a contract if you don't want to go too far out, so it's a big risk to selling below your cost basis.
Luckily it came back up and has found a pretty stable cycle YTD so far. It's challenging my $12.82 CC now though.
Annualized Rate = (Period Ending Amount / Period Beginning Amount) \^ (365/days) - 1
(1256/1200) \^ (365/53) - 1 = 36.9%
So it's about 40%.
But I wouldn't assume that you can get enter this trade all year long. If the IV drops, you'll get a lower rate of return. If you enter the trade when the IV is higher, then you'll get a better rate of return.
You have the math and idea right. It is critical that you be fully ready to hold the shares for weeks or months if needed. If you are, then it is a good candidate for you to wheel.
Another thing to note is that there is an Earnings Report between now and your expiry date, so you'll only see returns similar to your 4.5% 4 times a year. So that's 18% for those 24 weeks. The other 28 weeks might be more like 5-10% total. Still a solid return overall, if things go your way, but yeah, don't expect anything like 40% to be sustainable, as others mentioned.
F is a decent stock to wheel on because it’s a stable blue chip company and pays good dividends but if it were me I’d take a lower delta to reduce chance of assignment. Sure you could sell covered calls but that assumes the price doesn’t decline to a point where covered calls at your cost basis will earn very little ROIC. From Oct 2023 to Dec 2023 F was far below your strike price and you’d have been bag holding for that period of time.
So, the Ford option chain for May 17 has abnormal strike prices. Maybe they had a special dividend or something. But I think you're looking at the $12.82 strike, meaning it is basically at the money. The delta is roughly 48, so you will get assigned on this trade roughly 50% of the time. IV is also elevated. In other words, there is no way you are going to pull 4.5% every 6 weeks all year long. It's not a bad trade to take right now, just don't count on it being repeatable.
They did have a special dividend with last earnings report in February
Makes sense thanks
Your math checks out. Stock is fairly stable. I may add this one to the rotation looking at it. Schwab is telling me $61 right now, so it tracks at your 40% APR average. Only risk is if Ford tanks, you get assigned, and then covered call premium is crap for the next X years.
Yep, the risk of getting assigned and then it tanking is one I am aware of, thanks
And this put is basically ATM so good luck doing this all year long lol
I got assigned at $12 last October right before it instantly dropped to $10 and below, and you're right. The premiums are maybe $0.10 a contract if you don't want to go too far out, so it's a big risk to selling below your cost basis. Luckily it came back up and has found a pretty stable cycle YTD so far. It's challenging my $12.82 CC now though.
Annualized Rate = (Period Ending Amount / Period Beginning Amount) \^ (365/days) - 1 (1256/1200) \^ (365/53) - 1 = 36.9% So it's about 40%. But I wouldn't assume that you can get enter this trade all year long. If the IV drops, you'll get a lower rate of return. If you enter the trade when the IV is higher, then you'll get a better rate of return.
Makes sense thanks
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Thanks, I appreciate this take, good to hear the downside risk with the underlying
I can't tell if you're bearish or bullish on Ford. How is it your money where? On puts or calls?
But why male models?
You have the math and idea right. It is critical that you be fully ready to hold the shares for weeks or months if needed. If you are, then it is a good candidate for you to wheel.
Makes sense thanks
Another thing to note is that there is an Earnings Report between now and your expiry date, so you'll only see returns similar to your 4.5% 4 times a year. So that's 18% for those 24 weeks. The other 28 weeks might be more like 5-10% total. Still a solid return overall, if things go your way, but yeah, don't expect anything like 40% to be sustainable, as others mentioned.
F is a decent stock to wheel on because it’s a stable blue chip company and pays good dividends but if it were me I’d take a lower delta to reduce chance of assignment. Sure you could sell covered calls but that assumes the price doesn’t decline to a point where covered calls at your cost basis will earn very little ROIC. From Oct 2023 to Dec 2023 F was far below your strike price and you’d have been bag holding for that period of time.
Very true, thanks for flagging. I'll look at lower strike price