This is an update of my A Look at Covered Calls - The Naked Truth project. A hypothetical portfolio of systematic covered call writing (AKA synthetic naked put writing) with a non-margin account.
Just as this market was getting so complacent (relatively) that I was starting to doze off a bit, it throws in a half decent swoon, startling me from my daydreams. Now I find that the stocks I follow... and the index itself at levels of time and price support, I find myself pondering upon some adjustments.
As my covered call stock sell off, the extrinsic value of the call options have reduced, my positive theta is now relatively less, and the positions have built up some extra deltas. I can buy them back at a profit and re-sell ATM again to pick up more premium or leave them to expire .
If indeed the market does get some support here and we get a bounce going into expiry, those extra deltas are going to help the overall position. On the other hand if the market steps of into the abyss, they're going to hurt.
Writing new calls ATM will bring in more extrinsic, reduce delta and will partially hedge downside. On the other hand it opens the risk of taking it once again on the intrinsic value of those short calls if the market bounces.
This introduces a new question: Does the systematic covered call writer want to be an analyst as well, or just write premium at points where he can get it most. If I hark back to the original idea of this, it was to show a hypothetical portfolio to collect premium. .
Well as it's a hypothetical account, it doesn't matter much and the idea is to see different scenarios in real time, so I did record some adjustments earlier.
With GS trading at 116.13 I bought back the April 125 call for 56c and sold the April 15 for $3.40
I also adjust the NOV position; with the underlying at $78.33 I bought back April 80 call for 57c and sold the April 77.50 for $1.32.