Trading Covered Calls & Short Puts

Hello, everyone, and welcome to Schwab Coaching. My name is Cameron May. I'm a Senior Manager of Trading and Derivative Education here at Schwab, and this is Trading Covered Calls and Short Puts. And for some traders, one of the difficulties they encounter when trading covered calls for income is trying to pick their sweet spot for the timeframe of this strategy. So today we're going to be weighing the pros and cons of weekly covered calls versus monthly covered calls. We're going to look at potential risks, potential advantages of each, We're going to be placing an example trade on Thinkorswim. Should be a great discussion. Before we get to any of that, though, let me first of all say hello to everybody already chatting in out there on YouTube. Hello there, Paul and W.

Velasco, Kelly, Eva, Scott, Ron, Tony, Lawrence, everybody else. Thanks for joining us week after week. We really do appreciate your attendance, your contributions to these discussions. If you're here for the very first time, I want to welcome you as well. And if you're watching on the YouTube Archive app, the fact that enjoy the presentation, but be aware that you're invited to join us in a live discussion. Presentation kicks off promptly at 2 o'clock Eastern, and this is a Monday webcast series. If you'd like to be here in the live audience, we'd love to have you here as a live audience member. I also want to let everybody know that I'm joined in the chats by my very good friend, Ben. Oh, it's Brent Morris. Hey, I got the B wrong.

Anyway, hey, Brent. Great to have you here. Brent and I have actually been working together for more than 20 years. As long as I've been a coach, Brent has like three or four or five more years on me. So thanks for having my back there, Brent. And Brent and I would also like to issue an invitation to everybody watching. If you have an account on the platform known as X, you should be following your favorite presenters there. You can follow Brent there at BrentMoorsCS. You can find me there at CameronMayCS. Best place to connect with us in between the live streams. Matter of fact, one of our attendees here was, was chatting in and letting me know her answer to a poll that I just posted like an hour ago.

So thank you for that. But. Let's get into this. And of course, as we go to discuss covered calls and other strategies. They all carry risks, so we need to keep this important information in mind. Options carry a high level of risk and are not suitable for all investors. The information here is for general informational purposes only and should not be considered an individualized recommendation or endorsement of any particular security, chart pattern, or investment strategy. While this webcast discusses technical analysis, other approaches, including fundamental analysis, may assert very different views. Investing involves risks, including the loss of principal; account is solely your responsibility. All rights reserved. So let's set an agenda for the day. So, the first thing that we're going to do is take a look at our existing positions in our covered calls and short puts example portfolio.

I think there's one that's going to require a little bit additional attention today. Then we're going to take a quick peek at the markets, and that's going to set the stage for today's discussion of weighing weekly versus monthly, very short term versus sort of longer-ish term covered calls. What are the pros and the cons of each? We're going to be doing examples of each kind of trade today. So a lot to address. Let's go right to the Thinkorswim desktop software platform. And let's look at our existing positions first. Pardon me. First of all, we have Apple, and I think that's the one that's going to need a little bit of attention. If we go up here, and let's go to a chart of Apple. We can see that, yes, the position overall is down.

It's underwater. I think, is it the only one? Yeah. No, no, no. Here's a little bit of an underwater position. I think this is last week's trade. Anyway, down about $2,400 on the covered call as it's currently constructed. So we own 100 shares of Apple, and we've sold the 18th of July contract. So that's obviously coming right up. But it's not as bad as it might at first appear. So remember, $2,400 down on the current position. But since we took the initial stock trade, that was back here on, that was now. March 3rd We've actually made some profits by selling calls against that position. So $3 realized here. That was actually sold as a put. That was the initiation of the trade.

But we realized the gain there, realized a profit here. Dove 225 realized a profit here. So doing a quick tally, that comes up to almost $6 . 75 per share of $675. Plus we have another call that we've sold. That I think we're going to be closing out today, hopefully realizing about another $1 . 50 gain. So that helps. It helps reduce the pain of the $2 ,400 setback. But overall, it's probably closer to a little bit less than $2 ,000 on that position. In any case, this is what we find ourselves with right now. We own the stock; it's solidly below what we paid for it. But it's been finding its legs recently. It might be starting to work higher.

We're in this contract that expires in a few days now. And that's at that 220 strike. Now, let's bear in mind there is an earnings announcement around the corner, July 31st. So that's going to play into today's discussion. I think it may actually even play into today's trade. But if we look at that Apple position, we sold that for $1. 77. We might be able to get out of that for maybe $0. 12. That would be a realized gain of about another $1. 55, $155 on one contract. That's, of course, setting commissions aside. It might be slightly less than that after accounting for any commissions that we still need to pay. But let's maybe look. Looks like there's been a near-term resistance here.

Just not very far above where we are right now. It looks like recent highs have really not gone much above about 213. I wonder, I'm going to drag this out to that earnings announcement. Let's see if we can get something that'll expire before that earnings. With that $2. 13 level in mind. And it looks like $2. 12, okay. We could sell potentially a $2. 12 that expires at the end of this week. What was our what was our Earnings date, July 31st. How far out can we push this thing? Looks like the 25th of July is the furthest out we can go. Dipping into those weekly contracts, those are displayed in purple to show us their non-traditional expiration.

A traditional expiration for an options contract was always the third Friday of the month for equity options until these things called weeklies were rolled out. It's been years now, but we still highlight that we're looking at a non-standard expiration. And if we look at that, Let's look at maybe that 212. It's like we might be able to get around $2. And that contract would expire in 11 days. That would be before that expiration. Or we could push up a little bit higher. Let's go maybe at $ 215. Might be able to collect somewhere around $1. 35 for that. So if we're able to close out for $0. 12, get into something else for $1. 35 or maybe around $2. 10 or $2.

15, that could have a decent credit there. What should we do? Which should we do? Which strike price? Obviously if we sell the 212, we're obligating ourselves to maybe have to sell the shares at a lower price. That's a risk when we're doing this. We're getting into contracts. Where we're agreeing to sell shares for less than we originally paid for those. That would be our final realized loss. That would be, all right, we're done. The trade has lost what it has lost at that point. Which one? 212? Or should we go 215, which would be just above that resistance? I think I'm going to push it up to 215. So let's go to our monitor tab. I'm going to right click on our 220 call. Let's create a rolling order, and it'll say sell a calendar.

That's because this is going to buy one call, sell another call with a different expiration. That technically is a calendar, but really if they were both opening orders, this is one closing order to get us out of the 220, and then an opening order to get us into, let's say, the 25th of July. Let's call that the 215 call. And we might be able to get that done for around $1 . 20-ish. I'm going to say, let's say that we're willing to accept the net credit of $1. 20 to do this trade. Even though that's below the natural, it's not a guarantee that this order will fill. We are trying to improve the likelihood of a fill. Still not a guarantee, though. So let's click Confirm and Send.

And let's send that order off. Selling, yes, it's now described as a diagonal, but really to close out of the 18th of July and roll that to the 25th of July, paying commission on each end on the closing and the opening transaction, a total of $1. 30. Please note that I've selected a weekly option series, yep, with a non-standard expiration date. Nice little reminder there. Let's send this off. See if we can get a quick film. See if that's going to get out. There we go. Sold out. So it closed out and then back in. That's really what rolling means. So there it is. So it looks like we closed for 12 cents, sold for $1. 77, closed for 12 cents. That is a dollar, I think I said $1.

55, $1. 65 realized gain there. And then we're in a credit for $1. 33, so that carries some new profit potential, but we are now limited. We might have to sell our shares for $2. 15. Hey, Will, welcome to the show. Great to have you. So we're done with that trade. The rest, there's really not anything that I intend to do with these, with the ABT. We own 100 shares, but there's earnings right around the corner. I'm gonna leave that one alone; the stock is doing okay; we've sold some calls against it previously. With Salesforce, we sold a put with a 260 strike. The stock is at 261. So it's still above our strike, but it's been coming down a bit.

So we're looking at a little bit of an unrealized loss at this point. I'm going to let that continue to work. With GILD, another short put, sold the $80 strike. This was a long-term trade, 339 days on the contract. We sold that for $310. The stock is at $112. So we're still, what is that, $42 out of the money. And as a matter of fact, stock's been rallying recently. So that's looking okay. About $110 unrealized profit on that trade. With Philip Morris, we have a covered call. Own the stock, sold the 187. 5 call. What we would prefer is for the stock to go up but stay below 187. 5 by the 18th of July. Well, 187. 5, yeah, actually that's looking like we're going to expire out of the money there.

Not guaranteed, but looking very highly probable. But the stock's been kind of waffling around, not doing much-I'm going to leave that one go till expiration. For better or for worse, we'll talk about that next week. Finally, we have our Tesla position. Own the stock. We own 100 shares. Sold the 345 call. This one's treated us great over time. Bought the shares at $233. 07. They're worth $314. So this contract is still white out of the money. It's still about $30 out of the money. There's about 55 cents or $55 left that could be made there. We're not going to be making any changes to that one either. There we go. With the covered calls, since they're all behaving relatively similarly, I wanted to spend more time on one, but leave the rest of our time to talk about this strategy.

When putting on a new trade, how might we choose an expiration? What might be the trader's quote-unquote sweet spot? Is it going to be a weekly contract? Is it going to be moving out maybe into those monthly expirations? So let's go have a look at what's going on with the stock market first to set the stage for that part of the discussion. And yeah, the S &P 500 has pushed through these highs that held for months from February. We had the fastest stock market recovery, bear market recovery in history on the S &P 500. And then we pushed even higher. Just steadily looking pretty bullish, trading just below. Those were the all-time highs just back there on Thursday. It's only Monday now. And we're trading a fraction of a percentage point below that.

So let's just say that our hypothetical income trader who's looking to these bullish strategies for potential for income, maybe just thinks as they're planning for a new trade, let's set something up maybe in these next weeks, maybe moving out as far as August 15th. But we want to look at. Well, the pros and the cons. Do we keep it closer to the current day? Or do we want to push it further out toward that monthly contract? So to have that discussion, and I know that wasn't a highly sophisticated analysis of what's going on with the S &P 500. This isn't really a technical analysis discussion. But let's just say that our trader here just thinks that prices have had a nice bit of momentum for the last several months and maybe for the next week, two, three, four, five.

They think that's just more likely than not to continue unless something else comes in and pushes in the other direction. Obviously, that could happen at any time. But I wanted to have a look at a couple of stocks that we already own in this example portfolio, and they have very different scenarios. First of all, we own 200 shares of NEE. For NextEra, purchase those shares for $72. 5. That very likely came when I seen those big round numbers like that very likely came from assignment or exercise of a contract. But stock is trading right now at 75. So there's about a $2. 50 unrealized gain on that stock. But I wanted to have a look at what's going on with NEE. So let's bring up our chart of NEE.

Here's our position. This was a nice move. But where are we trading right at this very moment? If you look at this $75 level, so this is just a line that I drew in at $75 to make a technical point here. In the last, what is this now, seven months? In those last seven months, NextTera has essentially refused to close above 75 with one solitary exception. It had a really nice strong day up here and then turned right around and went right back down the next day. So. Yeah, this is a stock that has struggled at $75. And for some traders, you know, if they're sitting on a $2. 50 gain, maybe they decide to just sell the stock and capture that profit.

But let's put ourselves in the shoes of a would-be income trader. Who maybe just sees this as a short-term bump. Yep, stocks go up, stocks go down, but they see this. As a likely time if appreciation isn't providing the potential for reward, at least the anticipated potential. Maybe now we're looking for some income. All right. So I'm going to go place covered call just straight out of the gates on this. And then we're going to talk about the pros of what I did and the cons of what I did. And then we're going to do a comparison using our Walmart position, it's going to be quite different. So, um, With this one right around the corner. There's an earnings announcement just July 23rd.

So let's go to our trade tab and stick with contracts that are more in weeks till expiration. As I look at this 18th of July, It's in black font here. What does that mean? That's actually the traditional third Friday monthly expiration. So technically this is a monthly contract, but it's not a month long. This is now only four days till expiration. So I'm going to lump this, even though I don't know if it's entirely correct to do this. I'm still going to call that a weekly contract because there's literally less than a week left on it. And I want to look at that one because that expires before that earnings announcement. So let's go to the 18th of July. And I'm going to put myself in the shoes of that trader again who sees that resistance up there at $75.

And let's see if we can push for a potential income from this, and it looks like if we went to 76, might be able to get about 50 cents. If we go to 77, just $2 above our resistance, that potential for income is drying up pretty quickly, maybe only a quarter here. I'm going to sell this one. Let's see if we can get 50 cents for this contract. I'm going to click on that bid price. There are 200 shares in this portfolio, so let's do minus two for our contract quantity. The 76 strike and let's say that we're willing to settle for a 50 cent credit there As we click confirm and send, I'm going to sell these two, NEE, 18th of July.

One week long contracts for the $76 strike for a 50 cent limit. Right. And now there's a there's a commission to be paid. So if we do get the 50 cents, that's $100. But we got to subtract out the commission. That leaves us with about $99 that we could potentially make there if it's 50 cents. It could fill for more than that. It won't fill for less than that. Just wouldn't fill if there's not at least 50 cents available. So let's send this off. See if we get that filled. But while that order is up here working. Oh, Stephen filled. All right. Oh, look at that. We filled at 55 cents. Let's map out here. Some of the pros and some of the cons.

Let's clean out. This from a previous webcast. And map out for our weekly contracts. I'm the pros. and some of the cons. So, I'm just going to, sometimes I'll write one of these out and I'll explain it. I'll write another one out and I'll explain it. I think let's just rattle through these. Number one, what's an advantage, a potential advantage? Higher daily what we call theta. I'll explain that in a moment. Number two, shorter term and fractional obligations by doing this. Number three, there's more flexibility. And actually, that's going to apply twice. Not flexibility. Thank you. Here we go. There's more flexibility in a couple of ways by doing this. There's more potential flexibility with stock market timing. And there's. The potential for more flexibility with Volatility. That's fun.

It's always fun to talk about the pros of things. Well, in order to have a balanced view and really understand a strategy, we also need to give significant consideration, sincere consideration to the other side of the coin. What are the cons of doing these shorter term contracts? Well, as we've already seen, there are smaller premiums. Small premiums, however, if we have a series of good trades, whether a trade goes well or not is never guaranteed. But those can add up quickly, but smaller, smaller per transaction premium. Number two is what you may have noted as we were looking a little bit further out of the money on these contracts. Those premiums dried up pretty quickly. So very commonly, the trader has to sell contracts that are closer to the current price of the stock. We have to be closer to the at-the-money strike, and that can really increase the assignment risk.

A third potential con here is if we're doing shorter term contracts and they expire and we want to get into another one and another one and another one. The commissions can add up, now it's nice, and how many of you have been around the markets for decades or more and you know that way back in the day commissions were enormous and now they're teeny tiny fraction of what they were, or before that's nice, but there's still consideration especially with these sorts of strategies where there is a commission charged. But we need to get that on the list of potential cons. With these shorter-term strategies where they're close to expiration, there can also be more management of these kinds of trades. And number five: does tend to be lower liquidity.

Not as many people trading these shorter-term contracts as the longer-term contracts, particularly if they carry that purple weekly designation. And just generally struggle with liquidity because they just don't exist for there very long, and so they don't have much much time to attract attention. PriceBird says Cam's exactly what dilemma I've been contemplating with some stocks. Okay, well hopefully we can help with some alternatives here. All right, so there are pros and cons to this. So let's go through the trade that we just did, ticking off the pros and the cons and seeing those in detail. So the first potential pro, what is the purpose of a covered call that driving motivation for most traders anyway? It's income. And in the short term, the daily income potential tends to be higher than the longer term.

So when we're comparing a weekly contract, for example, to a monthly contract, it tends to have Higher potential for daily income. I always have to label it as potential income because it also carries risk. And the income may not be ultimately realized. But let's look at our example here, the $76 weekly contract. And I'm going to have to see. Might even have to do it with the 75. I'm not sure. Let's go out here to maybe August. See if we have a 76. Nope, I'm going to have to do a comparison with 75. I suspect as we got out a little bit further. You might want to put that in a column for potential pros. There may be more choices for the strike prices. Anyway, not always going to be the case, but it's possible.

And it is the case in this case. So let's look at 75 as a matter of comparison. If our trader were selling this weekly contract that's expiring in four days for the $75 strike, look at that delta. Pardon me, not delta, theta. Selling that theta means that that trader, if the stock continues to behave, unless it goes sideways, volatility doesn't change. The only thing that's happening here is time decay working in the favor of the trade. How much potential? Income. Realized and unrealized income gain is there about 12 or 13 cents for the next 24 hours. Doesn't sound like a lot. Multiply it by 100. We're over $13. All right, now that's starting to add up. Well, let's compare that if we were to go out to, let's say, the 15th of August, same strike.

Let's say that our trader sold a little bit longer term, a monthly contract. That data is $0. 04. Literally over the next 24 hours, the potential on the weekly contract outstrips the monthly contract by a factor of three. Three times the potential for income. In other words, time decay is working three times as fast in the favor of our shorter-term trader compared to our longer-term trader. So, yeah. That's a potential pro. And if the objective here is income, that's where a trader might be dialing up that possibility. Number two: a potential pro? Is there shorter? It's just a shorter contract. So the obligation is only hanging over the head of our trader here for four days instead of, for example, 32 days. I don't think that takes any more explanation.

Number three: there can be more flexibility with stock market timing. How does that work? Well, if one contract is only for four days. We're in and out in quite a short period of time. At the longest here in this scenario, trade's done one way or the other by Friday. Well, that means if the markets have moved a bit, or maybe if they're moving rapidly, it makes the trader, it gives the trader more flexibility to react. They're already done. They don't have anything tied up there. Maybe they got assigned. Maybe they didn't. But in any case, trade's over and they might be able to initiate something new for next week's market conditions whereas And the other trader might be still. Waiting, they might still have 25 plus days left on their contract.

And if the markets are moving, they can't really necessarily adapt to that, take advantage of new opportunities or whatever. All right, so that's assuming that they're held through expiration. But yeah, there can be more flexibility regarding what the stock market is doing. That's also accurate to say. Regarding volatility levels. Let's say that our weekly trader here happened to sell into a four-day contract when volatility levels were low and premiums weren't all that great. So that week, they didn't do terrific. But the next week, volatility levels spike, premiums are higher. Well, great. They either have all their cash and they can go buy something and sell a covered call against it. Or if they didn't get a sign, maybe they still own the stock and they can maybe sell for new higher premiums.

It just makes it can allow for more flexibility. For some traders, that is a strong selling point. Now, I do not want you to come away thinking that this is a promotion of any specific approach to the markets. because there's this as well, okay? With our With our current position, 50 cents is what we collected. If we were to go out and look at maybe selling the same contract. Actually, we got 50 cents. What's the 20? What's a 75? Got to be fair here. We can't compare a 76 for the 15th of July. So let's look at a 75. If we were to sell that, that's around a dollar, a dollar and a few pennies. If we go out further, we take on a longer-term obligation, there's a larger premium for that, almost three times as much.

So. The shorter term contracts just have smaller premiums. Also, those shorter term contracts. We might have to sell closer to at the money as we go further out of the money on those short-term contracts. There may not be much premium at all available there. Going closer to at the money increases assignment risk. You know what else increases assignment risk? Being closer to expiration. So short-term contracts can be that magical combination of elevated assignment risk as a permanent way of doing business. If that's what we're doing week after week after week after week. So a trader better be comfortable with that scenario. Assignment risk is always present regardless of the time frame till expiration. But shorter term contracts that are closer to or if they've gone in the money.

Um, those have higher assignment risk. Yep, there are more commissions if we're in and out on a weekly basis. It may require more management to manage trades. If particularly things like assignment risk are a primary concern for the trader. Um, with a stock that is so close to expiration. Look at this. Ooh. NEE is moving toward that 76. It looks like it might be pushing through that resistance. If it gets up above 76 in the next few days, there's not much time for reaction. So, yeah, this can require more management. And just the fact that getting into and out of and into and out of shorter-term trades, it's just more work. All right. Now finally, These shorter-term contracts can carry lower liquidity. I kind of hinted that earlier. But yeah.

The thing about short-term contracts, and for this I'm going to use the actual weekly contracts to illustrate this. This is a monthly contract. It actually started its life out here as a normal monthly contract, then it just worked its way toward expiration. So when it has a long time like that to build up an audience, that can generate a lot of volume and it can help with liquidity issues. On the other hand, these weekly contracts. They're never more than a couple of months in duration, their whole lifespan. They come into existence and hit expiration within a couple of months. That's it. So it has two months to attract all the volume it's ever going to have. And that can lead to not much volume on these weekly options, or at least less compared to the monthlies.

And that can lead to, if it's illiquid, it can tend to pricing issues. It can tend to lead toward pricing issues, wider bid-ask spreads. So let's do a little comparison here. Just see if we can see some evidence of that. Let's look at maybe the 25th. July. It's not too bad. This is actually a highly liquid stock. So if we look at the $75 strike, it looks like there's about a six cent difference between the bid and the ask. That's about 3% spread with. Not too bad. It can get really bad with some of these. Let's compare that, though, with a contract that's just seven days further out. I haven't looked at this, so I hope I don't stumble into not a good illustration. Okay, this is also about a 6% spread, but on a $3 wide contract, something like 2% width. All right, with NEE, it's not a very pronounced issue, but do know that there can be lower liquidity issues leading to, it's more difficult sometimes to get into or out of these trades. The spread width can get wider. Just makes it harder to trade them. Bruce says you're reading. Um,

Bruce, I don't know. I'd have to get more details for me to answer that and be sure that I'm correct. Matt says, do we need to consider implied volatility and a delta combination? All of those are potential considerations, right? Implied volatility, as it rises and falls, tends to elevate and drop. The premiums across most expirations, not all, because implied volatility on the other side of an earnings announcement will tend to be higher than applied volatility that expires before an earnings announcement, which is actually the case here. But yeah, all of those can be a consideration; delta can certainly be a consideration. But I'm not going to focus on delta too much. Strike selection, maybe we'll talk about that later. I'm talking about time frame selection. So those are the pros and the cons.

Kind of a lengthy discussion there. It's going to make it easy. It'll set the table nicely for us for our monthly. But let me throw out a few general rules of thumb for when a trader might choose a weekly option. And I'm going to go back to our chart to begin this discussion, right? Number one. Since there is an elevated risk of early assignment, especially for trading weekly options regularly, constantly close to expiration, constantly probably closer to the at-the-money strike. Quite frequently, potentially going in the money with little time left till expiration. If a trader has a strong preference, to try to minimize the likelihood of early assignment. If they have a strong preference to retain their stock as often as possible, it's not the strategy for them.

On the other hand, if they don't mind, get called out, fine. Move on to the next stock. There's no preference. This one may tilt the scales toward, you know, might lean more toward a weekly contract. If markets are more volatile and we want to be more responsive to those changing market conditions, maybe the trader sticks with shorter-term weekly obligations. If they just inherently have a shorter-term outlook, they're trading highs to lows, and that's about it. Lows to highs, and that's about it. Maybe they lean more toward a weekly contract. Um, Or if they're trying to avoid earnings but still get some potential for income on the table, which is what we just did. Maybe lean toward that weekly contract that falls before the earnings. All right, so there we go. There are the pros and the cons of weekly. Let's just copy this, and we're going to give ourselves one. Is it going to fit? let's see Ooh, look at that. That's pretty good. Let me expand that out just a little bit. And let's do a monthly. Harrison. And really, this is all we're going to do. Is change, invert the pros and the cons. Lower daily fell tariffs. Beta. Longer contractual obligations. Less flexibility.

But it's almost, if we were to go through those, the cons, oh my goodness, nope. Okay. Paste. There we go. I'm gonna copy and paste this here. There we are. Anyway, but if we were just looking at those cons. So, Cameron, this is a. This is an income strategy that actually provides a lower potential for income on a daily basis. It gets me in a contract for a longer period and has less flexibility. Why would I ever go for that? Well, because it comes with. Larger premiums on average. Further.

From. At the money, delivering lower assignment risk. There are fewer associated commissions. It requires less. Management. And these contracts typically have higher liquidity. They're typically more heavily traded. Now, I don't need to go back through all the logic here and just tell you that it's the opposite for this. But I did want to get it sort of mapped out on the page. I think that makes it a little bit easier to keep track of. And so let's talk about when a trader might consider going out to or sticking with the monthly contracts. And the monthly contracts are highlighted. Highlighted is the wrong word. It's sort of the default. The weekly are highlighted in purple. The default black font indicates that these are just traditional third Friday monthly expirations.

And when I say monthly, even those. I'm talking about moving out beyond the first batch of weeklies and going out to one that actually has about a month on it or multiple months. All right. Those can carry these potential pros, these potential cons. And I wanted to use, well, talk through when a trader might consider these and then use an example from our portfolio. So when might we consider a monthly contract? Well, if we really want to minimize the likelihood of early assignment as much as possible. It doesn't eliminate it. A monthly contract can still be assigned. It can still work its way in the money and elevate that early assignment risk. It can still work its way toward expiration. But it's not living every week on the precipice of assignment.

Okay. Number two, we might consider this when market conditions are at lower volatility. When volatility is low or a stock's volatility is low, the premiums tend to be smaller. And so going for a short-term trade that already comes with small premiums, now we're talking about taking smaller premiums and reducing them to where they might even be too small for the trader to even consider it to be worth it for those weekly contracts. So that might be when we move out to a monthly contract. We'd prefer to keep the stock as much as possible if the markets have low volatility and we're looking for larger premiums. If the trader just has a longer-term outlook in general, maybe they've carefully selected stocks that they're trying to hold for a longer period.

Um, And that can relate to a chart as well. So for example, let's look at Walmart. Here's our Walmart position. This is a position that we've had for a while down here. We own 100 shares. It's actually trading right close to where we purchased it, but Look where that puts us. We're down near a support level. Let's say that our trader our traders' outlook, not just for the next few days, but out through the next expiration. Maybe they think the stock is likely to stay below 100. That's not as short-term as our weekly contract. But our trader might still say, well, maybe I could still do a weekly. If I go to the trade tab and try to sell a weekly, if I go to the 18th of July and try to sell at or above that resistance?

Little bit longer term, not truly long-term outlook. It's only five cents. Might need to go out to maybe even the 15th of August expiration, the monthly. All right, now we're getting $0. 83. 85 cents from that contract. I think, okay, Bruce is talking to Eva. All right, next up. So we have the longer-term outlook. If the trader is looking at stocks that are just more stable, maybe their beta is lower, their inherent volatility is less, and they're coming with lower premiums, that could lead us toward going for a monthly contract. Adding more time to the contract can drive those small premiums up a little bit larger. Or if earnings has already passed and that's no longer a concern and we have a nice gap on the calendar of a few months where we can sell a call and let it reach expiration, not have to worry about that.

If the trader is trying to avoid earnings, but earnings is in the rear view mirror, that might be a time to look out to the monthlies. So for Walmart, what we're going to be doing with this position is let's give it some breathing room, give it a little bit more time to work. I'm going to sell a contract up here at the $100 strike for the 15th of August. Let's go to the trade tab. James says some investors may want to sell a premium at 1% to 2% of the stock price. James, some traders do have that preference. But I'll tell you who's going to struggle to hit that benchmark unless they're going right at the money or even in the money.

It's going to be those that are selling the weekly contracts. Or they may have to look at those inherently more volatile stocks that are offering the bigger premiums, but those come with larger daily risk. So there's a trade-off there. When we set benchmarks like that, we can't do it in a vacuum. We have to weigh the potential implications of saying, 'Hey, I need at least 2%. Getting 2% on a weekly contract is going to require taking some greater risks of early assignment.' Um, more volatile stocks, and so on. Okay, good. Good question there, James, though. It may just preclude that trader from trading weekly contracts at all. And frequently. So let's go to the 100 strike. We just have 100 shares on this one. So I'm going to click on the bid price.

And let's just do one of these monthly contracts, the 100 level. I'll say that we're willing to settle for $0. 82. As we submit that as a limit order. Still at risk, it might not. Bill? We're going to sell that 15th of August, the weekly contract, looking for $0. 82. There is a commission to be paid here, leaving us with a potential minimum acceptable credit of $81.35. If lower credit is required, lower credit it will not fill. So I'm going to send this off. And we sold it for 84 cents, okay guys, we've actually accomplished what I set out to do today. I wanted to weigh the pros and the cons of weekly versus monthly contracts.

There's not a right or wrong universal answer for every trader out there, but I wanted to give the education to hopefully make a more informed decision, whatever that income traders preferred time frame is. All right, everybody, I will see you again. We're going to do this again next Monday. We're going to be following up on these trades, making additional adjustments to the existing positions. But between now and then, we have other webcasts, including I have webcasts every single day of the week. So if you haven't done this already, first of all, make sure that you have subscribed to our Trader Talks channel. You can go down in the lower right-hand corner and click on that subscribe button. It only takes a second to do it. It doesn't cost anything.

But our YouTube channel is where we post the recordings for these webcasts. The vast majority of our webcasts wind up being housed right here on our Trader Talks Schwab Coaching webcast channel. You can find those right here under playlist. Of course, you can join our live streams right there as well. And you can even do searches for topics of specific interest. Like, for example, somebody asked Cameron, 'Can you do um can I do the probability of expiring cone for this strategy? Isaiah didn't have time to do that, however, That's known as the risk, pardon me, as the, as the, um, it's the, uh, probability analysis tool. And I have done webcasts on that in the past. So if you want to see that, you can type in 'probability' right here and find it pretty quickly.

All right. But also, everybody, make sure that you're following Brent and me on X. It's really the very best place to connect with your favorite presenters in between the live streams. You can find Brent on X at Brent Moores CS. You can find me there at Cameron May CS. And what I'd like right now is your input regarding this question. Hey, since we're talking about earnings today, I did a trader poll. What is your preferred approach to earnings season? Is it to avoid earnings trades altogether, or do you actually do trade over those earnings? Looks like right now there's a bit of a majority leaning toward avoiding earnings. Doesn't mean that that's the That's the best approach for everyone. I'd like to get my audience's input there. Great resource there.

Everybody, thanks for clicking the thumbs up. If you enjoy one of our webcasts, it's always appreciated if you'll click that like button. I can see 143 people watching right now, and I can see it looks like 53 have already clicked the thumbs up. That's like applause to your presenter, and it gives a boost to our webcast and the YouTube algorithm, so it helps more people find these discussions so they can make more informed comparisons of weekly versus monthly covered calls. So, yeah, thanks for doing that, guys. Go enjoy the rest of your day. Enjoy the rest of the week. I'll look for you in a future webcast. I'll also look for you on X. But whenever I see you again, until that moment arrives, I want to wish you the very best of luck. Happy trading. Bye-bye.