How to Incorporate High Implied Volatility Stocks into Conservative Covered Call Portfolios + Alan Interviewed by The Options Industry Council click ↑ 4 FeaturedElite-performing securities with high implied volatility represent good news/bad news scenarios for our covered call portfolios. The good news is the high premium yields received. The bad news is the risk to the downside. This article will analyze an approach to using these stocks and ETFs to generate significant returns while still aligning with o ...

Core Insights - The article discusses the strategy of lowering cash-secured put breakeven price points to provide greater downside protection, albeit with lower premium returns [1][4]. Group 1: Cash-Secured Put Strategy - In bear, volatile, or uncertain market conditions, structuring trades with lower breakeven price points is advisable, which results in lower initial time-value returns [1][4]. - It is essential to identify the minimum acceptable return for the greatest amount of downside protection before establishing trades [1][4]. Group 2: NVIDIA Corp. Example - A real-life example using NVIDIA Corp. (Nasdaq: NVDA) is analyzed, focusing on put options with different strike prices and their respective breakeven points [1][2]. - The $150.00 deep out-of-the-money (OTM) put has a bid price of $2.56 and a breakeven price point of $147.44, offering 10% protection to the breakeven [2][5]. - The $160.00 OTM put has a bid price of $5.25 and a breakeven price point of $149.75, providing 8.66% protection to the breakeven [2][5]. Group 3: Trade Metrics - The $150.00 put has an initial time-value return of 1.74%, annualized to 17.13%, while the $160.00 put has a return of 3.51%, annualized to 34.58% [5]. - The trade duration is 37 days, and the cash required per contract for the $150.00 put is $14,744, while for the $160.00 put, it is $14,975 [2][5].

Core Insights - The article discusses the strategy of rolling-out-and-up covered call trades, particularly when the trade is expiring in-the-money (ITM), allowing investors to retain underlying shares while potentially increasing returns [1][3]. Group 1: Trade Details - A specific example of a covered call trade involving JPMorgan Chase (JPM) is provided, detailing the entry and exit strategies, including the buy and sell prices of options and shares [2][4]. - The initial trade involved buying 700 shares of JPM at $246.04 and selling call options with a strike price of $282.50 for a premium of $0.89 [4][5]. - The final calculations for the trade show a net unrealized return of 15.18% after closing the short call, with a final stock price of $286.87 at expiration [3][5]. Group 2: Financial Metrics - Initial calculations indicated a return of 0.36% with an annualized return of 2.81% and an upside potential of 14.82% [5][6]. - The trade adjustment involved a buy-to-close (BTC) of the original short call at $4.37, which was part of the rolling-out-and-up strategy [3][5]. - For the subsequent expiration on July 11, 2025, the entry stock price was $286.87, with a new call strike price of $290.00 and a premium of $2.42, indicating a potential return of 20.53% [6][8]. Group 3: Strategy Insights - The article emphasizes the importance of accurately calculating the cost-to-close and the premiums for rolling options to maintain clarity in trade management [7]. - The covered call writing strategy is presented as a low-risk approach to generating cash flow, tailored to achieve consistent market outperformance [10][11]. - The article suggests reducing the number of underlying securities and exit strategy considerations to streamline the investment process [11].

Core Insights - The article emphasizes the importance of focusing on annualized returns rather than premium dollar amounts when establishing covered call trades, referring to the latter as a "dollar distraction" that can mislead retail investors [1][7]. Summary by Sections Covered Call Trades - Retail investors often overlook annualized returns in favor of premium dollar amounts, which can lead to poor investment decisions [1]. - The article uses NVIDIA Corp. (Nasdaq: NVDA) as a case study to illustrate this point [1]. Option Pricing and Returns - On June 4, 2025, NVDA was trading at $141.39, with various call options available, including: - The 6/6/2025 $144.00 call with a bid price of $0.72 - The 7/3/2025 $144.00 call with a bid price of $4.70 - The 6/18/2026 $144.00 call with a bid price of $27.20 [4][6]. - The article highlights how the long-dated option's premium can be enticing but may not reflect the best investment choice [4][6]. Initial Calculations - Initial calculations for the three expiration dates show: - A 3-day return of 0.51% (annualized 61.96%) for the 6/6/2025 option - A 30-day return of 3.32% (annualized 40.44%) for the 7/3/2025 option - A 380-day return of 19.24% (annualized 18.48%) for the 6/18/2026 option [6]. - The article stresses the need to focus on annualized returns rather than just the dollar amount of premiums [6]. Investment Strategy - Investors should evaluate initial percentage returns in the context of the trade's time frame, noting that a 2% return over one month is more favorable than the same return over six months [7]. - The article warns against being distracted by high premium amounts from long-dated options and encourages a focus on annualized returns [7].

Group 1 - The FT Vest Gold Strategy Target Income ETF (BATS: IGLD) aims to replicate a gold portfolio while employing partially covered call writing techniques to generate income [1] - IGLD is not expected to excel in capturing sharp upside rallies in the gold market [1] Group 2 - The article does not provide any specific financial data or performance metrics related to IGLD or the gold market [1]