SDS ATM Covered Calls Update – A Buy-Write Strategy

Overview

This is about the SDS stocks I bought and sold the SDS ATM Covered Calls. This is a buy-write strategy.

Purchased SDS at $10 per share and sold the 6/18/21 $10 Call at $0.55 per call on 4/12/2021. SP 500 closed at 4128 on 4/12/2021.

What Happened

SDS is ProShares UltraShort S&P 500, which offers 2x daily short leverage to the S&P 500 Index. SP 500 was very strong in April. It was up 5%. The covered call premium would give me about 2.5% protection against the SP 500 cash index to the upside. Between 4/12/2021 and 4/30/2021, SP 500 cash went up as much as 2% before it closed at 4181 on 4/30/2021.

Here’s the SP 500 CASH Daily Renko Chart between 4/12/2021 and Today

What’s Next

SDS closed at 9.74 today, 5/5/2021. The 6/18/2021 $10 call ASK is $0.41. My position is currently down $0.12 or 1.27%.

  • Stocks Position: $9.74 – $10 = $-0.26
  • Covered Calls Position: $0.55 – $0.41 = $0.14
  • Total: $-0.26 + $0.14 = $-0.12
  • Percentage: $-0.12 / ($10 – $0.55) = -1.27%

If on 6/18/2021, SP 500 is below 4128, my SDS should be more than $10 and will be called away. The maximum profit of $0.55, or 5.8%, is reached. That would be 5.8% * (365/67) = 31.7% annualized.

Note: 67 is the number of days from 4/12/2021, the date the covered calls sold, to 6/18/2021, the date the covered calls expired.

Below is the Buy-Write positions Payoff and Probability graph

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