Professional option traders know that whenever Euan Sinclair speaks, shut up and listen. Euan is a physics-PhD-turned-options-trading professional who’s written definitive works on options, including Option Trading, Volatility Trading, and Positional Trading. He’s a rigorous academic who writes very well even for the layman. Reading him will not just teach you about options, he will also teach you how to think about trading in general. Everything Sinclair writes is gold.
I just came away from a webinar Euan gave on selling covered calls. Here are some quick takeaways from the session:
- Selling covered calls are synthetically the same as selling cash-secured puts. But they may be dispositionally different as selling a call against an existing stock position feels different from initiating a short put.
- Selling CC is primarily good for portfolio diversification. Specifically CC benefits from two premia: equity premium and variance premium.
- Your selection of the strike price and expiration date depends on your preference in getting price (delta) and volatility (vega) exposure.
- Euan tends to favour selling ATM calls at 1 to 3 months expiration.
- Growth stocks tend to have relatively higher variance premium.
- Short dated calls are less expensive, but are more likely to be overpriced.