Strategy: writing a covered call
- Instrument: SellToOpen 1 03-Nov-2023 Call 144 @ $1.41, delta of 0.20
- Premium: $1.41 (credit, per share)
- Premium and risk:
- Premium cost: $0 (you receive the premium)
- Max risk: Limited (potential loss of stock appreciation above 144)
- Max reward: $141 (if Alphabet stays below 144 at expiry)
- Breakeven point: Not applicable (already own the stock)
- Why: This strategy provides extra income while holding the stock.
- For the next 11 days, the yield is approximately 1.04% [(1.41/135.60)*100].
- Annualized, this comes out to about 34.64%.
Time decay consideration (theta decay)
The strategies recommended utilize options with a one-year expiry to mitigate the impact of time decay, or the rate at which an option loses value over time. Time decay accelerates as options near their expiration, making longer-dated options less susceptible to this erosion in value.
Risks and rewards
Options strategies come with their own sets of risks, from potential losses to the complexities of managing multiple positions. But they also offer a robust toolset for hedging and leveraging positions. Therefore, understanding your risk tolerance and employing appropriate strategies is essential.
Options offer a versatile array of strategies for capitalizing on Alphabet's upcoming earnings report. Whether bullish or bearish, there's an options play for every outlook. As always, it's crucial to weigh the risk and rewards before making a move.