- Execution: SellToOpen 1 03-Nov-2023 Call 350 @ $3.40 (Delta: 0.19).
- Premium: Per share: $3.40 (credit)
- Premium and risk:
- Premium earned: $3.40 x 100 (per contract) = $340
- Max risk: Limited to stock ownership
- Breakeven point: Varies based on stock cost basis
- Yield for covered call: 11-day yield: 1.07%
- Rationale: Writing covered calls provides income but caps upside potential. The strategy is effective if you expect the stock to trade sideways or slightly up in the short term.
- Stock vs Options Comparison:
- With the stock, you receive no income unless you sell the shares or they pay dividends.
- With a covered call, you receive immediate income and potentially have the stock called away at $350, which might or might not be beneficial depending on your outlook.
When it comes to investing in options around Meta's earnings, each strategy comes with its unique set of rewards and risks. The key is aligning your strategy with your market outlook and risk tolerance.
The comparisons between buying stock and using options reveal interesting facets:
- Buying calls: The leverage effect of a call option allows you to control the same amount of stock with less capital. A $1 increase in Meta's stock results in an $81 gain with a call, compared to a $30 gain by holding 30 shares of the stock.
- Selling ITM puts: This strategy could allow you to acquire Meta at a discounted rate compared to buying shares directly. The effective purchase price would be the strike minus the premium received, which can be calculated as a percentage discount against the current stock price.
- Buying puts: Options offer a leveraged way to bet against the stock with a defined risk, which can be particularly useful in volatile times.
- Writing covered calls: This strategy provides additional income and an annualized yield of 35.44%, which you can't get by just holding the stock.
Each option strategy can serve a purpose depending on your viewpoint on the stock and market conditions, making options a flexible tool for various investment goals.