Thank you for the comment Joe. I’m happy to hear you enjoyed the article. Here are my thoughts.

  1. Setting the stop loss means the position becomes uncovered if you sell the shares at $272 apiece. You could stop your losses at $272/share and break even on the premium, but if QQQ rises to above $280, you have to buy back all of the shares and then sell them for $280 each. If QQQ happens to hit $290, you’d lose significant money because you buy all of the shares back at $290 and then have to sell them at $280/share. Usually if the price goes down to something like $272 in this example, I’ll close out the covered call and then sell a covered call with a lower strike price still out of the money to collect a higher premium.
  2. The $278.50 stop can become a cash secured put where you earn premiums, but only if you are committed to buying at that price. I have become bearish of most of the stock market lately and have cash waiting to get deployed at the right moment. There are always opportunities, but I am playing a little extra cautious for the time being. If I had to pick between selling out of the money (OTM)covered calls and out of the money cash secured puts, I’d pick the OTM cash secured puts.
  3. Buying the put would definitely eat into premium returns. Sometimes people will focus more on the fact they have a put for protection and view the covered call premiums as a way to essentially buy the put at a discount. It’s an extra hedge of protection for people who want it, but it’s not for everyone.

I used QQQ in this example because its an index for the NASDAQ that I wouldn’t mind holding onto even if it went down 10% or 20%. If it were to go down that much, I’d sell further out of the money covered calls to protect myself from a sudden increase in the ETF.

I hope you found this comment helpful. Please let me know if you have any follow up questions.

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