In The Money Covered Call Option Strategy

What are the characteristics of this option strategy?

The in the money covered call option strategy is a relatively conservative income-oriented strategy which involves buying both Leaps and Options. The strategy is designed to generate income from selling options against the purchase of Leaps. As the underlying stock rises, the selling of options tends to create a steady stream of income for the portfolio.

Is this a bullish, bearish or neutral strategy?

The in the money covered call option strategy is intended to provide a neutral position since the long leap position should approximate a directionally neutral position in the stock while the income should offset any loss due to stock weakness or the losses due to option time decay.

Is this a beginner or an advanced option strategy?

This strategy requires a moderate level of knowledge and understanding of options trading, so it is considered an advanced strategy.

In what situation will I use this strategy?

This strategy works best when the underlying stock is performing in a range-bound pattern and is expected to remain relatively directionless.

Where does this strategy typically fall in the range of risk-reward and probability of profit?

The risk-reward for the in the money covered call strategy is generally medium to low as the premiums received from selling the options helps to offset the losses from a potentially bearish market. The probability of profit with this strategy is also medium to low depending on the time to expiration and the strike price of the option.

How is this strategy affected by the greeks?

The greeks (delta, theta and Vega) will affect the in the money covered call option strategy as with any other options strategy. Delta will affect the amount of levers the strategy will be able to utilize and Theta will affect the rate of decay in the option and Vega will affect the rate of decay as volatility changes.

In what volatility regime (i.e VIX level) would this strategy be optimal?

The in the money covered call option strategy is typically most optimal when the VIX level is between 15-25.

How do I adjust this strategy when the trade goes against me? And how easy or difficult is this strategy to adjust?

Adjusting this strategy when the trade goes against you will involve closing out the option position at a loss and then re-initiating the strategy with a higher strike price. Depending on the market conditions at the time, this could involve a series of adjustments with the goal of eventually getting back to the original position. This strategy is relatively easy to adjust as it just involves taking the opposite end of the previous position.

Where does this strategy typically fall in the range of commissions and fees?

The commissions and fees associated with the in the money covered call option strategy will vary depending on the broker, but most brokers offer reasonably competitive fees.

Is this a good option income strategy?

The in the money covered call option strategy can be a good option income strategy when utilized with the right underlying stock. It provides income while also providing limited downside protection and capital gains if the underlying stock moves higher.

How do I know when to exit this strategy?

The in the money covered call strategy can be exited when the underlying stock has moved sufficiently to offer the opportunity for profits, or when the underlying stock has moved sufficiently away from the strike price of the option such that the net investment is losing money.

How will market makers respond to this trade being opened?

Market makers will typically respond favorably to the in the money covered call option strategy as it provides liquidity and offsetting of orders which helps to provide an orderly market.

What is an example (with calculations) of this strategy?

For example, assume an investor purchased 10 GE puts at a strike price of $20 with June expiration. The investor also purchased 10 GE LEAPS at a strike price of $20 with June expiration. The cost of the LEAPS was $2,500. The investor then sold 10 GE calls at a strike price of $20 with June expiration for $550. The net investment cost was thus $1,950, from which the investor received $550 in income from the option sale, for a net cost of $1,400. The investor would then be in a position where any gains in the underlying stock would be realized until $21.50 (the strike price plus the income derived from the option sale).

MarketXLS

MarketXLS is a powerful Excel toolkit that can help you analyze your options trades with calculation and analysis tools. You can use MarketXLS to manage your stock portfolio, analyze options trades, and even help you construct collar option strategies, all within Excel. With MarketXLS you’ll have access to advanced calculations, analytics, and customized data delivered directly to your spreadsheet. MarketXLS can also help you quickly and easily place trades with just one click by connecting to major brokers. With MarketXLS, you’ll have the analytics and productivity tools to help you make profitable options trades with confidence.

Here are some templates that you can use to create your own models

Covered Call Option Strategy
Covered Put
Covered Put

Search for all Templates here: https://marketxls.com/templates/

Relevant blogs that you can read to learn more about the topic

Covered Calls – What They Are & How You Can Profit (With Marketxls Data)
The Wheel Strategy For Options (Explained With Example)
Options Trading (Strategies)
Options Investing: The Best Way to Profit from Volatility
Collar Option Strategy – A Synopsis