The ETF Covered Call Plus portfolio chooses covered calls and diagonal spreads on exchange-traded funds or ETFs. This portfolio is best for options traders who might be comfortable with covered call trading but are interested in exploring other more complex options strategies.
The diversified nature of ETFs make them less volatile and therefore ideal for covered calls.
ETFs can be ideal for this strategy because their diversified nature makes them less volatile.
Covered Call Strategy Details
We choose 4-to-6 month covered calls with a target annualized return of 15% to 20%. Each trade in this portfolio assumes 100 shares of the underlying ETF and one option contract. The strike price of these sold calls for the covered call trades is often lower than the strike price for corresponding sold call in the diagonal trade, which is one of the reasons this strategy has slightly less risk.
Diagonal Spread Strategy Details
Our analysts create simulated covered calls by selling a short-term call while simultaneously buying a long-term call at a lower strike price. The goal for these trades is to generate a 25%+ annualized return.
Covered Call Ideal Result
In the best case-scenario, your calls are in the money at expiration. The sold calls are assigned and you deliver the ETF. That closes the position and delivers a full profit. If the ETF pays a dividend, you will also collect those payments while the position is open.
Diagonal Spread Ideal Result
In the best case-scenario, your sold calls are in-the-money during the week before expiration. In that case our analysts will often be able to exit the position for a larger profit than originally targeted. To do this, you buy back your sold calls and sell your long-term call for a net credit. When you exit these trades early, the credit will generally be larger than the difference between the strike prices of our options.
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