The US stock market continued its second day of massive selling, especially after the Federal Reserve’s minutes of policy was announced. With the recent selloff in December, it must have been a depressing phase for investors to see their stocks keep falling in share price and losing value.
However, with options trading, it is still possible to earn some returns out of this bearish market. Here is what I did with selling covered call options.
I have 3 stocks that are suffering paper losses and they are Nio, Palantir and Pinterest. I have 100 shares of each stock (except Palantir which I own 1400 shares) due to their previous PUT contracts being exercised. The bought price, breakeven price and current share price are summarized as below:
| Name of Stock | Bought Price (USD) | Breakeven Price (USD) | Current Price (USD) |
| 80 | 64.50 | 32.84 | |
| Palantir | 26.79 | 21.55 | 16.96 |
| Nio | 55 | 45.48 | 29.88 |
On 29 Dec 21, after another red day, I sold covered weekly call options on these 3 stocks, expiring on 7 Jan 22 (7 days) and the details are as follow:
| Name of Stock | Strike Price (USD) | Premium Collected (USD) | Returns (%) |
| 36 | 103 | 1.59 | |
| Palantir | 18 | 14 x 59 = $826 | 2.73 |
| Nio | 29 | 79 | 1.74 |
The total premium collected is $1,008, 2.4% returns in a single week based on my breakeven price. I have already closed my Pinterest contract yesterday (5th Jan 22) and the nett gain is $89.
The risk of these trades would be that if the share price suddenly increases by a lot at the expiration date, then I may have to sell the shares at the strike price, which is way below my breakeven price, thus incurring a bigger loss. I mitigate this risk by selling weekly covered calls, as the probability of price increase over a week is lower as compared to a monthly option. Even if it does increase above the strike price, I will close the contract by buying the option back at a smaller gain or sometimes incur a small loss. But if share prices continue to stay sideways or go down, then I will earn a decent return with the premium collected. That is the advantage of using the Wheel strategy over LEAPS in a sideways/ bearish market.
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Jason I am reading and studying every post that you have made. I really appreciate all. I’m getting ready to pull the trigger but I would really like to know a few names (by rank if possible) the broker/brokers that you would suggest as far as ease of use and tradeable platforms. Any help would be appropriated.
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Hi Brad, thanks for diligently reading them, I am really flattered by your support! I am using ibkr and so far it has been great. This is a step-by-step guide I have created. You can try paper acct too for a start:
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Hi Jason, do you think it will work out if we use your leaps options method, buy v far otm calls with the longest expiration date out ( so that cost is kept to the minimal) , then sell covered calls against it, creating a poor man’s covered call?
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Hey Chris, that’s a great question. Personally, I am not too keen to try PMCC and there are a few reasons. Firstly, the LEAPS may be called away prematurely if the shorter leg sell call is exercised. Also, ibkr only allows me to do the spread for one time (the first time). Subsequently, when I tried to sell calls against my LEAPS, it is treated as a naked call, which is not allowed for a cash account. Lastly, I have not really figured out how this PMCC strategy can work with OTM LEAPS, there must be a catch somewhere. Otherwise, people would use a very low premium to try to simulate owning 100 shares and keep selling CALLs against it and make lots of money. Imagine OTM AAPL LEAPS in Jan 2024 cost $500 but I can sell an ATM CALL contract and collect way more premium than my capital.
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