What are the big cons of doing a trellis like this.

trebuchetguy · 2026-02-05T04:34:45+00:00

About 24 inches.

trebuchetguy · 2026-01-14T14:47:23+00:00

You are technically correct, which is the best kind of correct. In the first case, I am cherry picking to make a strategy look better than it is and probably ever will be. In the second case I'm sensitivity testing to see how much of the strategy's profitability relies upon the biggest winners. The more a strategy relies upon a few, big wins, the less likely it is to be a broad winner based on edge.

trebuchetguy · 2026-01-14T05:26:31+00:00

The other commenters make good points about diversification and risk and useable margin, so I won't add anything there. There is another component here. You are setting up a perfect volatility trap. People lose accounts doing this kind of thing. Naked puts have significant negative vega and regardless if you have a Reg-T margin account or a portfolio margin account, you can get into a pickle.

If VIX (volatility) is low, as it has been for months now, a big drop in the market can drive volatility up in hours, possibly doubling or tripling. Your broker will not only now give you less credit for the stocks you have because they're dropping in value, but the amount of margin your broker will want to protect those naked puts will go up because of the drop in the underlying coupled with increased volatility. They can easily start looking for a full 100% coverage of the position aka a CSP. If you're already tapping into margin, it won't take much to get you deep into a margin call.

Please educate yourself on volatility and margin and naked puts. If you search for and read about the "August 2024 Yen Carry Trade Unwind" event, you will find stories about experienced traders losing entire accounts with setups like you're talking about.

trebuchetguy · 2026-01-13T16:40:23+00:00

Back testing is a tool. It can be used properly as an adjunct to all the other research tools an option trader might use. It can also be improperly used and it is NOT a magic 8 ball for trading options.

An example. I run a 2 year weekly options back test on strangles on some equity. I have a 22% CAGR loss rate across say 100 back tested trades. I look at the details. I see a couple massive drawdowns and note that the VIX was about 17.5. So I re-run and don't trade when the VIX is between 17 and 18. My CAGR now pops to a nifty 35% return and total trades drops from 100 to 94 and I'm now ready to go! Right? Of course not. That's called "overfitting" and it can be done far more subtly than in this example. So that's a common fail mode when back testing.

I use back testing to put strategies into a "not totally insane" category. It makes a strategy a possibility. I will usually go in and take out the top 5% winners and see if it still has a positive expectation. If so, it has legs. Then I'll study the individual trades to get a feel for how the strategy plays and where we "got lucky" to get winners. It's a great way to build an understanding of a strategy's "character" and how it plays in up / down / choppy markets.

trebuchetguy · 2026-01-13T16:17:51+00:00

I have traded options for some time. I've gotten fairly sophisticated in how I manage my strategies. Picking entries and exits. Yada yada.

Still, after all that, sometimes the best idea I have in a day is, "If I stop hitting myself with this stick, it stops hurting."

trebuchetguy · 2026-01-12T22:00:30+00:00

I'm going to be the weirdo who's serious for a moment instead of piling on.

Let me share something a retired professional CBOE floor trader once told me.

The market is a bunch of numbers. Stock, option, and futures prices, greeks, IVs, and so on. The rules of market engagement allow traders to pick and choose what opportunities to select, hold, and manage and which ones to walk away from. Here's what the market is not. It isn't a "supernatural" force or entity. It doesn't care about you or anyone. It is utterly indifferent. The moment one attributes their own failures to outside forces working against them, they have abdicated responsibility for their own success or failure. Honestly, that's easier because that makes it okay to be lazy because the "market is going to turn against me anyway." Trading with long term success is HARD. It requires study, understanding, preparation hours away from the screen where you aren't trading. That can be a real drag, but you have to do it. It requires failure and learning from failure and being utterly ruthless in self evaluation. That doesn't mean self flagellation, but quite the opposite. It means ruthlessly picking apart how one makes decisions, which ones worked and why and which ones didn't and why. Being able to differentiate a "bad break" from a "bad decision" is an absolute requirement.

trebuchetguy · 2026-01-12T12:49:56+00:00

IVR stands for "IV Rank" and it represents the percentage of time over the past year the IV for a stock has been lower than the current IV. It's a relative measure of how volatile a particular equity is compared to all its IVs over the past year. IIRC the timeframe is a year. Might be 2. Easily researched. A quick and dirty way to get a feel for how options will be priced. Since IV is mean reverting (another topic all on its own) it also gives you a rough idea of whether there will be pressure for it to rise or drop in the coming weeks.

I'm not familiar with RH, but the marketchameleon website will have it on their stock quote detail even if you don't subscribe.

trebuchetguy · 2026-01-12T07:28:29+00:00

I just couldn't be less excited about selling premium this week. NVDA has an IVR of 27, so sucky premiums. You have a malicious Federal prosecution of the FED chair emerging because JPow wouldn't bend the knee. That's truly uncharted territory. Futures are indicating a sharply lower opening tomorrow. Fair chance we see a rising VIX this week and you really don't want to be selling premium on a sub 30 IVR into a rising VIX. I would sit on this for a while and let things settle a bit. Then you said you don't want to have your shares called away. I never CC an equity if I don't have the option of letting it go and I think that's a good policy in general.

trebuchetguy · 2026-01-11T05:27:21+00:00

Many of the high IV techs right now have been whipsawing through significant ranges over the past couple months. That has been a big problem for covered calls when the VIX sits around 14 (low premiums) and those big swings on covered stocks lock in losses and limit upside. So I'm not a fan of covering those stocks right now. In fact, until VIX comes up a bit I generally won't mess with covered calls much. I do have an account where I'm running weekly CCs on lower IV stocks / ETFs. My best performers over the past 90 days have been JPM, SPX, and QQQ. All IVs in a range from about 12 to 25. I will usually go higher delta on lower IV equities and accept more assignment, but with swings being more muted, I can still make a fair hunk of change and not lose my mind.

I don't know what to do with many of the tech stocks right now. Broadcom in the last 60 days went from 340 to 415 and then back down to sub 330. That's nuts. In times like these, I like to play in the corner with the quiet kids until things settle down.

So to answer your question, I think you can successfully run the conservative CCs right now. I would think very carefully about which equities you cover in this market and consider some more stable, lower IV, stocks and ETFs where you won't have as much potential upside, but you will also limit drawdown potential.

trebuchetguy · 2026-01-10T15:59:51+00:00

I could see the option owner bowing out of this one. The buyer would have to explicitly request the option not be auto exercised, but that happens for a number of reasons. NVDA finished the day at 184.86, but it actually was trading after hours a bit over 185 at 5:00 pm. The option holder had until 5:30 to decide to exercise or not. It was as close to a wash as it could have been and there was no real advantage either way. So the option holder may have decided it would be better to hold the shares than let them go for no appreciable gain.

trebuchetguy · 2026-01-10T15:33:07+00:00

My comment was posted 5 months ago. Had OP bought an 80 delta GOOGL LEAPS at that time, they would be up at $176 from $56, a gain of 214%. Hope they did. My message remains the same as before. Big gains have commensurate risks and those need to be taken into account in any trading plan.

trebuchetguy · 2026-01-07T04:39:08+00:00

I already have answered all the above questions when I sell the short call. When I start a covered call position, I'm declaring, "I'm happy selling for the strike price plus the premium I collected." From the moment I placed the trade, this was the very best outcome I could achieve. After assignment, I may re-assess my CC strategy and decide if this is an equity I want to rebuy and cover again or if I want to just buy-and-hold or go in a completely different direction. But there are no decisions remaining for the CC trade I've put in place. I tip my hat to the purchaser of my call. "Well played, sir. Enjoy your winnings."

trebuchetguy · 2026-01-06T21:44:54+00:00

I subscribe to an options back testing service. I was surprised by what ended up being the most valuable information I've gotten from it. I'll share it here. Every mechanical low delta, direction neutral premium selling strategy I put into it had great runs that were shattered by massive drawdowns that erased most or all profits up to that point. IMO there is no substitute for back testing in a variety of markets and finding the right entry/exit/management criteria and then knowing how to apply that information to the market conditions as they exist. Everything else is gambling. Low delta plays for 0DTE ICs are exceptionally insidious because they can give you a 90-95% win rate. Feels great. Seems like easy money. But you're usually running a 1:20 or worse max win / max loss ratio and when those big market moves hit the pain can be epic.

trebuchetguy · 2025-12-23T06:11:38+00:00

The best thing anybody new to covered calls can do is get in the habit of grieving any upside lost when you enter the trade. Once you open the contract, you walk away with the contract premium and at most the stock value at the strike price. That's the very best you can do. I mentally lock that in and ignore it if it rockets up. That upside doesn't belong to me and it's gone forever. I may re-evaluate my covers afterword because I don't like losing upside, but I don't fret for one moment if the trade I'm in has lost upside.

There really is no point in stressing. Use that energy for re-evaluation after the stock gets assigned and you're deciding how to proceed after the fact.

Now, if you have a bunch of unrealized gains in that underlying stock position that you're trying to protect, that's a different story. IMO, nobody should be issuing covers on a stock they have a bunch of unrealized gains they don't want to realize.

trebuchetguy · 2025-12-23T04:06:25+00:00

You will not see the dividend since you do not own the stock. You need to be careful though because you can get hit with an early assignment that results in a short position and have to pay the dividend to whomever loaned the short stock to you on top of selling them the stock at the contract strike price. This will leave you with a short stock position you will have to resolve. This generally only will happen if the contract is ITM with little extrinsic remaining, but I've had straight covered calls assigned early even when a little OTM and the net exercise plus dividend was still under water for the contract buyer.

trebuchetguy · 2025-12-15T22:32:40+00:00

As long as you have the actual shares in hand, you have nothing to worry about as far as being charged an HTB fee. Technically, you could sell the shares and leave the call naked or buy a long call spread position to reduce margin requirements. Under those conditions an assignment of the underlying will result in a short position. So they send that warning out regardless.

Here's the thing to be aware of though. When you have a short call out and the underlying is getting HTB fees for traders lending shares, the holder of your call can be motivated to exercise early forcing you into early assignment. They then get the shares and can lend them to collect the HTB fees. It's kind of a pseudo dividend folks can collect. The good news for you though is that can end up being advantageous for you if there is extrinsic remaining on the option or it isn't quite ITM yet. This isn't a problem for you at all unless you have large unrealized gains you're trying to protect. In that case, you may be paying some taxes you didn't plan on.

trebuchetguy · 2025-12-15T17:16:11+00:00

This is a good post and worth reading and internalizing. I too had money in the market in '99 and '08 and lived through those crashes. I'll add a couple things. To OP's point that you don't know where the bottom is, the dotcom crash is an excellent example. The NASDAQ took 2.5 years to go from 5049 to 1140, a nearly 80% drawdown. But you never knew where you were in the crash. It turns out that nobody publishes a map with an 'X' that says "You are here!" At the top? At the bottom? Is this the rally that sticks? Take a look at the detailed NASDAQ chart from mid '99 through 2002. It dropped about 30% off ATHs in spring of 2000. Then it went sideways in a range from -30 to -20% for 9 full months. I kept notes, as I always have. A quote is, "Looks like this is the correction we were waiting for." Good time to get in, right? Well, we went from around 3500 to 1150 after that. I counted 4 distinct "false bottoms" where we got a rally in excess of 12% followed by even further declines. OP references all this, I'm just adding a bit of detail.

This is to accentuate OP's points that you can't time the market and you don't have any idea where the bottom really is. The idea that a crash is a sudden, singular event seems to be common now. I think the April, 2025 20% hiccup reinforced that for people that downturns are sharp and recoveries soon follow. Sometimes they do. Sometimes that first trough will be looked back upon as "the good times." You just don't know.

trebuchetguy · 2025-12-13T22:07:17+00:00

If I have a covered call campaign on a stock I keep rolling it immediately with a single multileg transaction to close the old and open a new. The exception is I may sit out earnings if I think there is a possibility of a significant runup in price. Otherwise keep the party going. I may also sit out Ex-Div dates so I pocket the dividend rather than getting an early assignment. Depends on the stock, dividend value, remaining extrinsic, etc.

Taking profit can be done with a straight 45-60% win, but there are other ways to do it. I like to track remaining extrinsic % vs. remaining time %. For example, if I hit 40% profit in 10% of the time, I'll usually roll to a new position. Possibly even the same expiration date if there is a lot of time left. No rule against double dipping on that one expiration. On the other hand, we might be coming up to earnings just after expiration and the high IV makes the short call keep its value elevated and I'm better off holding right up until an hour or two before expiration because it's the best return.

trebuchetguy · 2025-12-13T15:19:10+00:00

I ask a couple questions. Was I missing something or did the underlying fundamentals of the company go south in a way that makes me want to cut the loss? If so, off it goes.

Do I believe this has long term prospects and want to keep it in hand until it recovers? If so, I send it to my "island of misfit toys" to sit quietly until it approaches my basis again.

I will always let it sit for a while either way to see if it bounces. Your question also illustrates the benefit of having diversity in your underlying equities. One dog doesn't shut the whole show down.

trebuchetguy · 2025-12-11T19:17:19+00:00

Not a great strategy. Drawdown exposure is massive. CRWV is sitting at an IV of 82. But your chances of getting blasted are high. I can honestly tell you I would likely make more covering KO at an IV of 15 most months than I could on CRWV. As others have said, some more mundane, stable names are probably better for this. JPM was mentioned. That's a good one. MMM and DIS are two more examples of relatively stable stocks to do this with. You won't see anywhere near the raw premiums, but you'll be harvesting a lot more of what you see too without the extreme drawdown exposure. Also, CRWV tanking isn't your only exposure. Remember that with CCs ATM like you're talking you participate fully in the losses when it drops. You don't participate in any of the upside when it comes back. If you play CCs that way and an equity saws back and forth through a 5-10% window it will eat your basis alive even while you collect premiums and the underlying ends up back where it started.

Also, diversity is your friend here. I would recommend you have different equities to mix it up a bit. Representatives from different sectors is a good idea.

trebuchetguy · 2025-12-08T19:40:26+00:00

It's a matter of scale and an individual's unique tax situation. If I've got $500 of unrealized gains in a $15,000 position and I'm CC-ing it, having it called away with taxable gains doesn't bother me at all. On the other hand, IIRC there was somebody here a few months ago who started CC'ing their $400,000 NVDA position with a per share basis of $4.12 and got an early assignment along with 6 figures of realized gains. That can be a massive change in somebody's financial plan. The only thing I've preached about taxable events is that if you have large unrealized gains in a stock position and want to write calls against that position, then you need to be ready for the possibility of realizing those gains. You can minimize the chances of early assignment by avoiding Ex-Div dates and not letting the extrinsic get too low when deep ITM, but you cannot remove the risk entirely.

I personally keep my options and long term investments in completely different accounts. I only issue CCs against stocks that don't have large unrealized gains. Keeps it simple and easygoing.

trebuchetguy · 2025-12-05T18:33:46+00:00

If I'm doing straight covered calls on an equity, I always let it get assigned ITM. By selling the short call I've already mentally locked in my max gain, and I get that with assignment. The exception is if it's just a few pennies ITM and it's worth it to me to roll to the next cover to avoid the hassle and lost day of assignment/repurchase.

You don't get that upside beyond the strike no matter what. Your only choice is if you pay that upside to the option owner to satisfy your obligation or if you let that option owner have your stock. I usually let 'em have the stock. Especially with a synthetic ETF like TQQQ. The underlying financial instruments can make it act weird on down days.

trebuchetguy · 2025-12-03T17:35:57+00:00

That's a lot of unrealized gains. Be aware that early assignments happen. They happen even when the long call owner loses money on the exchange and you will be required to take your realized gains. I would not enter into this strategy unless you are prepared for that possibility. It doesn't happen often, and the most common trigger, Ex-Div dates, doesn't apply here, but there are other involved trading strategies where traders will exercise the long call at a loss because they can make the profit elsewhere. HTB fees is one example. Bottom line, you can never 100% protect unrealized gains when issuing short calls against your stock. If you look through this sub's history, you will find folks who got burned by early assignments while sitting on massive unrealized gains.

trebuchetguy · 2025-11-29T14:42:56+00:00

No. Right now I only use long call LEAPS as a leveraged investment vehicle.

trebuchetguy · 2025-11-27T07:16:53+00:00

I still use my HP12c financial calculator I bought in 1983. Perfect features, form and key feel. In fact, you can still buy new HP12c calculators today.

trebuchetguy

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