top of page

Ratio Covered Calls

I’m a huge fan of ratios, which enable more nuanced risk profiles.

A known downfall of covered calls is capped upside potential. The workaround? A simple ratio.

If we have 100 long deltas (via long shares) and sell 1 call, we have a maximum of -100 short deltas. This limited our upside profit potential to the short strike.

An alternative approach is to create a ratio of long deltas to short. For example, if we have even 101 long deltas (101 long shares in this case) we now have 1 long delta that’s not capped by the short call. We can have 150 long shares against 1 short call. 300 long shares against 2 short calls, etc.

This ensures we have unlimited profit potential.

The general approach I consider:

-The more short calls we sell, the more premium we collect up front - which decreases our capital gains potential.

-The fewer short calls we sell, the less premium we collect up front but we have greater cap gains potential.

-The further OTM our calls, the greater our capital gains potential with lower credit received up front.

-the further ATM our calls, the greater premium we collect up front with lower cap gains potential.

*Nothing says you can’t sell short calls at various strikes - a common approach I use. Aka if we have 5,000 shares, we can sell 10 short calls at a .40 delta, 10 more at a 0.30 delta, and 10 more at a 0.20 delta. Tons of combos available.

Don’t feel boxed in by traditional structures. Tinker with different deltas, lot sizes, expirations, etc. to find your desired risk profile.

14 views0 comments

Recent Posts

See All

Don’t Trade

If you don’t have a written plan. The goal of this post is to share personal mistakes in my early trading to hopefully encourage others down a different path. People tend to hate those kind of stateme

Path to Options Proficiency

For the new traders, whatever you do, do NOT allow the disenfranchised internet trolls dissuade you from learning and asking questions. The goal of this post is to encourage new traders to stay the pa

You're ALONE

For the first 3 years of my trading, I kept no logs, had no written plan, and did what most do. I thought I was careful, consistent and wouldn't need to write things out because unlike the millions of


Post: Blog2_Post
bottom of page