Is The Covered Call A Bullish or Bearish/Neutral Options Trading Strategy?

FIRST VIEW (and comment)!

first

Bro, looking looking good. Lost mad weight, right?

Eat some food dude.

Proud of you for losing weight!

It's just premium money chase.

I use covered call premiums to approximately buy 1 extra share every 30-45 days. But your sentiment is going to be the delta of the call that you sell. You are still pretty bullish at 20 delta. Not so bullish at 40 delta.

💯%. Love the CC for icing on the cake. I sure do miss my 100 shares of GOOGL after miss managing that debacle. Live and learn. 👍

A covered call is when a short call is covered by 100 stock. A covered call is bullish because you make money -- albeit less money than if you did not hedge -- as the price of the stock goes up because the value of your stock "outweighs" that of your short call . A short call is bearish/neutral.

The covered call is realistically bullish. It's bullish with the understanding that the market has both ups and downs. You're hedging to the downside and also realistic about the potential upside.

Great poll Brad... I missed the actual poll... damn... ok my opinion - Covered Calls are neither bullish or bearish - dey Gangsta 😎

I'm experiencing the problem you talked about concerning the stocks shooting up passed my strike prices. 4 of my dividend stock CCs are ITM, and 2 of them are well in the money. It's a very weird feeling wanting the stocks to fall to avoid assignment, but gains are gains i guess

Would I write a CC on nvidia? At a .26 delta the strike would be $1010 when it’s currently trading at $906 and the premium would be $18.95/share expiring on March 22. I 100% would do that. I do daily CC on QQQ at a .2 or lower delta and make consistent income and have had to roll it only a few times this year.

The payoff graph suggests it’s bullish, because the payoff is positive above current price and mostly negative below. However the graph is in dollars, so the implied assumption there is that you’ll sell your equity by expiration date, or that you’re measuring the payoff of the combined positions. In dollars, if the stock goes down, your position as a whole objectively goes down.

If you don’t really care about the dollar value of the equity you hold and just want to keep the premium in dollars without sacrificing equity, then it’s neutral bearish. If you do care about the dollar value of the stock going down, then it’s bullish.

It’s not debatable. It’s a bearish strategy.

Delta, strike, near the money, out of the money, greeks ect all irrelevant to the question.

100% couldn’t agree more.

Man, you really look SATISFIED these days. Comfortable. Really happy for you Brad.

Bullish vs bearish....do you profit when the underlying goes up or when it goes down?

Thought experiment....if you have $100 stock and cover it with an $80 call, which direction do you profit? You profit when it remains high or goes higher. You shield yourself from some loss by connecting premium, but if the stock drops below strike-premium, you lose. That's the opposite of profit, and clearly bearish, so your position is bullish, right? RIGHT?

It's more obvious when the call is out of the money. You surely profit when the stock goes higher, you just lose some of that profit if it goes higher than strike+premium. And that lost profit means you don't want the stock to go higher, so you're bearish, right? RIGHT?

Don't confuse attitude with profit. An absurd example would be substituting "short" for "option"....just because I can make money and profit by shorting a stock doesn't make me bullish on the stock, or even "bullish on my short". It's nonsense. Just ask which direction you prefer to profit the most.

Basically you don't want the stock to go up too much, and you don't want it to go down too much. If it stays petty close to the strike, you're indifferent.

If you were bearish, you'd just sell the stock, and if you really want it you'd expect to buy it back later for cheaper. If you were actually bullish, why would you bother with selling a call and losing upside?

Edit: actually finished the video, lol. Looks like I pretty much agree with you, for the same reasons. The little moves up and down can't really define an attitude about a position, so I guess one might say it's bearish if one expects it to only go down a little, but by that logic I could say it's bullish if I only expect it to go up a little, and both are ok rationale for entering a covered call. As long as it stays within strike +/- premium, you'll profit, although you'll profit most at strike.

Wait a minute, what if I have a $100 stock and write a $1 call? Assuming I can find someone to buy it, don't I profit the most at the strike? So I profit the most if the stock basically crashes, right?

Ive been doing covered calls on Nvidia 😬 $905 4/5

What app do you use for tracking your runs?

100%...I'm fighting a CC on WFC currently. Stock has languished for years in the 40's and now its jumping through the 50's over the last 2 months...crazy.

💯💯

The answer depends on the strike price.

If you sell covered call deep in the money, it’s like you sell cash secured put (PnL covered call and cash secured put are the same). In the case it’s a bullish/neutral strategy. You get premium and divs.

If the strike price it above and you sell OTM call, it’s hedge, but not bearish, because delta is always less than 100.

I would say it's neither bullish nor bearish. What you want is small movements, and the upward direction is better.

A large move up means you missed out on a big gain, but hopefully made a small gain as a consolation prize.
A large move down means you have a significant capital loss, which may take a long time to recover requiring risky "below your basis" options, or just waiting it out.

Small movements up or down mean you can keep the stock, write more calls, and outperform buy-and-hold considerably.
If it is a slow climb, your strikes can move up with it, so if you do eventually get assigned, you capture that gain.

A covered-call is a neutral to moderately bullish strategy by definition. Just look at the profit-loss diagram. The thing is, the only time you actually lose money with this strategy is if the stock's price drops below a certain point called your break-even point. So, as long as the stock stays above that point or goes up, you're in a pretty good spot and you make money. I prefer the stock to move up 20% overnight because this means I reach the max profit for that strategy overnight. The opposite, if the stock moves down 20% is a sure way to lose money with a covered call. Then you are in trouble and need to apply a stock repair strategy (or variants) to mitigate the situation.

So, you can think of a covered-call strategy as being kind of like a 'not too bothered' or 'slightly optimistic' approach. It's not super bullish where you're expecting big gains, but it's not pessimistic either. It's somewhere in the middle, where you're basically saying, 'I'm okay if things stay the same or get a little better.

I consider covered calls to be a neutral bullish strategy. The short call is a bearish element to the strategy, but if you have 100 shares of stock (equivalent to 1 delta) and add in a short call at .3 delta, you have equivalent to a .7 delta strategy, meaning you make 70 cents if the share price gains $1 and lose 70 cents if the share price loses $1. I agree with you that you don't want to sell covered calls on NVDA because it is a neutral strategy, but if you do sell covered calls you would rather have NVDA rise 50% and hit max profit than drop 50% and lose let's say 45% net of premium. Options sellers like dividend stocks because a lot of times they're reputable companies that will slowly and consistently grow their share price which points to the neutral to bullish strategy.

It’s a strategy that is neutral to slightly bullish!

I really like your explanation and I agree with you….i always questioned why Robinhood calls a covered call bullish…if you goto Robinhood it shows as bullish

I wouldn’t mind if I wrote a covered call and the stock goes up with an OTM call. I’m willing to let go of the stock cause I’m generating cash flow. And I’ll get capital gains too. If the stock goes up while I have a covered call in place, so be it. I’m in it for premium and gains.

(I am posting this again because I included a link to Schwab's definition, and I think YT deleted it.)

Absolutely bullish, albeit not overly strong if the delta on the covered call is high. You can't possibly have a negative delta here.

Schwab defines the strategy as: "A covered call is a neutral to bullish strategy where a trader typically sells one out-of-the-money1 (OTM) or at-the-money2 (ATM) call option for every 100 shares of stock owned, collects the premium, and then waits to see if the call is exercised or expires."

Lastly, if the stock goes to the moon, you win. If the stock drops to zero, you lose.

It's bullish.

Interesting. Could you make a video asking if selling a Cash-Secured Put a Bullish or Bearish/Neutral Options trading strategy?

Get little upside and all the downside. Consider a covered strangle instead.

I accept your explanation, but I guess it just doesn't matter to me how you characterize it -- i still only want to own stocks that I believe will grow (or at least not lose value), and I write covered calls against almost every single position -- including NVDA -- very successfully. I'd much rather have a stock called away than drop so far in price that I can't continue to write calls or sell the stock. That said, the ideal scenario is a stock that grows at a measured pace, so I can keep the strike price ahead of it every week, collecting both growth and premium. I would consider that 'bullish", but I'm no expert. As for NVDA, or any fast grower, I chose short duration (weekly), which is easier to judge than longer duration, and a delta <.20. It's been working great for me since NVDA took off. If it gets called away, I buy it back immediately and sell a higher call -- which i personally consider a very bullish strategy, but again, I'm no expert -- although I've made a ton of money doing this and i will continue.

Cover call making a weird feeling to any trader usually you want the stock to rise but on the same time you want it to stay below your strike, and it's not the same to everyone, in my case I can't hold the stock when i saw profit CC make me sell the stock for a better price and with a premium for me I don't have an answer, I decid to do it when I think it's going up because I'm trader not investor I'm happy for someone to take my shares on my strike.
Usually I go for 1 to 3 weeks and you need to feel good and relaxed about it by finding new trades, currently sold BA strike 187.50 ends April 5, today it's above 191 and I'm happy.

The way I have been using CC's, I would say Neutral to slightly bearish. I have 3-4 stocks/ETF's that I will use. If I see they have a nice run up for 2-3 days I will sell a call at the money or a $1-$2 above what it's currently trading at. I make decent premium and if I lose it I have that premium plus the built in gain. Then in the next week or so I'll buy it back when/if it drops below what I lost it at. If it drops significantly before expiration I'll buy to close and wait until it makes a run back up, hopefully in the next week or two and sell CC's.

brad why dont you just trade a call spread to protect against the upside? in that case it's not too bad if it shoots up. still bearish/neutral but i wouldn't be panicking if it moved up 20 percent premarket because my max loss of gains is predetermined. i can then roll the short side

Why don’t you trade inside your roth? It is all tax free.

It's BULLISH. If I buy a stock for $100 and sell a 105 call, and tomorrow it goes to 120, I cash out a 5% win. I then look for another stock, I don't care if I lose the stock. If you know which ones are going to shoot up, obviously wouldn't sell the call. But as you say, if I wake up in the morning, I'm thrilled if it moons. If it goes down too far, the stock price defeats the purpose of the short. I would rather max cash out right away.

CC is not a bullish strategy. Listen to Brad.

You're misunderstanding of the greeks is why you don't know that this trade is actually bullish... You mentioned delta is your risk tolerance and it has nothing to do with if it's bullish or bearish which is incorrect. Delta is the change in option price that you can expect for every 1 dollar change in the underlying. So if it's positive (let's say .3) and the stock goes up $1 then your option contract will go up .30 cents. The long stock position of the covered call trade has a delta of 1 since the price will go up 1 for 1 with the underlying (as it is the underlying). So in this case our trade would be positive .7 delta in total. Positive delta is bullish (negative delta is bearish). Covered calls have 2 parts, one is the long stock (this is the most bullish you can get) and short call (this part is bearish -.3 delta in the example, this is negative because we are short a positive .3 delta). Altogether though our delta is positive so it is net bullish and the worst thing that can happen is the stock tanks. The best thing that can happen is the stock goes up (that's where our max profit is after all).

I don’t know what people are talking about when they say a covered call is bullish. It is inherently neutral to slightly bearish. You want the stock to stay under the strike price. If the price goes up above the strike price you risk assignment and lose out on money and are forced to sell below the current stock price.

I use Covered calls as a way to close out my position (in the green) simulating a Limit Sell Order I would place anyways AND I also collect premiums. I want the stock to go up. If the stock rips up and you are kicking yourself then you are not handling your emotions correctly and you don't have a system. A win is always a win.

I'm with you, my man. Bearish to neutral. Delta does actually prove this. A delta of 100 is equivalent to owning 100 shares. Calls have positive delta, so when you short them, you gain negative delta, which effectively reduces the amount of shares you control.