Vance’s rules for covered call investing

The word “rules” is a bit harsh, but “guidelines” is too soft.

  1. Maximum premium is around ATM
  2. Buy-writes held to expiration have delta of 0 above the strike, -1 below the strike
  3. Don’t mess around too much with bid/ask spreads
  4. Don’t use credit / debit orders for covered call transactions unless it is a very slow moving market or if the spreads are unreasonable. Otherwise use sequential market orders. These orders are executed manually, and I suspect they don’t get too much priority.
  5. If the underlying drops, don’t bail–collect your full premium (not sure about this one)
  6. Ideas: time value approach to taking profits (e.g., 25% of premium 1st day)
  7. Ideas: Increase time in cash by bailing out with 90% of the premium (will this get me into the last day of trading anyway?)

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