Update on SDS Buy-Write Strategy Covered Calls


I entered a buy-write strategy covered calls with SDS, ProShares UltraShort S&P500, on 4/12/2012. The ETF was purchased at $10 a share. The covered call was written at $0.55 per contract. The cost basis of the stock was $9.45.

SDS buy-write strategy covered calls entry and exit dates

What Happened

It was not a good trade. SP 500 closed at 4127 on 4/12/2021. It climbed 105 points higher and closed at 4232 on 5/7/2021, or 2.5% higher since 4/12/2021.

My SDS position reached as low as 9.41 on 5/7/2021. The breakeven basis was $9.45. The $0.55 premium received should provide roughly about 2.75% protection. $0.55 / $10 = 5.5%. SDS provides 2x daily short leverage to the S&P 500 Index. Therefore, 5.5% / 2 = 2.75%. Well, it did just that.


SP 500 reversed and began to trade lower on 5/10/2021. I decided to take a very small profit just to cover the options commissions and get out of this position because of 3 reasons:

  • 4128 / 4000 could provide decent support for SP 500
  • The entry point was right in this support zone for SP 500, which was terrible in my opinion.
  • The money has been tied up in this position for a month.

The cost basis was $9.45. I placed the limit order at $9.42 to close it out. As a result, I made a 3-cent profit on this position, which was a bit more than enough to cover the options commissions.

Lesson Learned

I should have stuck to the Renko chart technical analysis. I was trying to predict and time the market, but making a big mistake. In the daily Renko chart below, SP 500 was in the record territory on 4/12/2021. There was nothing on the chart to indicate a trend reversal. All things pointed to a very strong uptrend. I was looking at the RSI and thinking SP 500 should correct and not go any higher. Wrong. Timing the market is not a wise move. Trying to predict a top is also not wise. Fortunately, I was able to exit the position unharmed. I’d consider myself very lucky.

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