Video summary

Why I Sell In The Money Covered Calls

Main summary

Key takeaways

Finance

Finance-focused summary (covered calls “in the money”)

Presenter / program

  • Mark Yaggi explains why he prefers selling covered call options with strikes that are “in the money” (ITM) rather than out-of-the-money (OTM).
  • He references his teaching system/program: “Cash Flow Machine.”

Core thesis (why ITM covered calls)

  • Primary goal: generate option income (“juice”) rather than stock appreciation.
  • Account protection first: keeping the short call ITM is framed as a way to reduce/avoid dollar-for-dollar losses under the strike price (presented as downside protection).
  • Why ITM helps: ITM calls provide a cushion because you receive:
    • Intrinsic value (because the call is ITM), and
    • Extrinsic value / time premium (the “juice”),
    • Both contribute to the premium collected.

Caution/disclaimer-style points (as stated)

  • He emphasizes he’s not predicting stock direction:

    “I have no idea if a stock is going up or down.”

  • He repeatedly warns that “hope is not a strategy.”

  • He uses non-guarantee language (e.g., “never” / “not guaranteed”) regarding covered call outcomes.

Option mechanics / methodology used in examples

  • The premium is treated as two components:
    1. Intrinsic value (the ITM amount)
    2. Extrinsic value (OTM/time value = “juice”)
  • At expiration:
    • Time value (“juice”) → 0
    • Intrinsic value depends on where the stock ends relative to the strike.
  • If the stock moves:
    • ITM intrinsic value on the short option can move against you,
    • He claims it offsets with gains/losses on the long stock position,
    • Leaving “juice” as the intended return driver.
  • He mentions the “maximum profit cap” idea, but values the higher probability of realizing “juice.”

Step-by-step framework / decision logic (as stated)

  • Before selling calls: focus on protecting the account; prioritize downside management over maximizing upside.
  • Choose strike positioning:
    • Prefer ITM (left side of the “ATM” line) in many/most markets for more downside cushion.
    • Use ATM when appropriate, but he argues ITM is safer in “crazy markets.”
    • He notes there are times for ATM/OTM, but he prefers ITM “especially these days.”
  • Income driver: collect time premium via theta decay / time erosion (“the juice”).
  • Market regime overlay (near the end):
    • He says he uses market timing and “stock timing”, determining whether the market is red/green/yellow.
    • When probability improves (e.g., “green”), he suggests considering ATM or slightly OTM.
    • Otherwise, avoid consistently selling far OTM in down markets.

Key market/investing performance claims (numbers given)

  • He claims that covered calls structured this way can yield:
    • “1 to 2% a week”
    • or “2 to 4% a month”
  • He contrasts this with “buy and hold” or covered-call approaches that are typically OTM.

Examples with explicit tickers and strikes

Apple (AAPL) example (≈32 days to expiration)

  • Stock reference: around $182.80 (subtitle shows “18280 or something like that”).
  • Two call strikes from an ~1-month option chain:

ITM call strike: $170

  • Intrinsic component roughly $12.88 (framed as “$170 vs ~$182.88”).
  • Extrinsic/time premium (“juice”) roughly ~$12.7 per share.
  • Framed total income roughly ~$1,200 per contract (math references options typically being 100 shares/contract, with his example using 12k with “10 contracts”).
  • Downside cushion / break-even (in his simplified math):
    • Stock could drop about $24.95 before break-even.

OTM call strike: $190

  • No intrinsic value (OTM), so downside protection is only the “juice.”
  • “Juice” roughly ~$11.85 per share (about $1,185 per contract).
  • Break-even cushion stated as about ~$11.85 (about half the protection vs the ITM setup).
  • Upside capped:
    • He mentions making about “$17 bucks” if the stock rises to/exceeds $190.
    • He reiterates that the most likely outcome is “nothing happens” (i.e., minimal movement beyond the strike).

Tesla (TSLA) example (≈32 days to expiration)

  • Stock reference: around ~$224.
  • Compares:

ITM call strike: $205

  • Intrinsic value roughly $19.39 per share (also described as “$1939 a contract” / “$19 a share”).
  • “Juice” roughly ~$28.56 per share (about $2,856 per contract).
  • Break-even cushion roughly ~$47.95 downside before break-even.

OTM call strike: $235

  • Intrinsic value $0 (OTM).
  • “Juice” roughly ~$29.15 per share (about $2,915 per contract).
  • Break-even cushion roughly ~$29.15 downside before break-even.
  • Emphasis:
    • ITM offers a larger downside cushion but caps upside at the strike.
    • OTM can offer similar “juice” but much less downside protection.

Delta / probability metrics mentioned

  • For the Apple example (conceptual, using option-chain delta):
    • He states delta is ~0.67 and interprets it as a “67% chance” the stock closes at/above a specified level.
    • He references delta logic with strike mentions that appear blurred (he mentions 205 in the delta explanation, while earlier Apple strikes discussed are 170/190).
  • Later comparison references:
    • A lower probability scenario around ~53% for higher-upside OTM calls.

Exercise/assignment and taxes (risk/disclosure points)

  • Assignment (“exercise”) question addressed:
    • He says assignment typically means you’ve likely achieved maximum profit, then you can roll into another trade.
    • He claims assignment “rarely happens” if you roll.
    • He mentions he hasn’t been assigned in a long time.
  • Tax issues (as a possible concern):
    • He suggests assignment could affect whether you can do the same stock-option cycle again for about 31 days (subtitle phrasing suggests a timing constraint; the exact rule wasn’t clearly cited).

Overall tone

  • He frames assignment as something not to fear if the goal is income generation and rolling.

Explicit recommendations / cautions extracted

  • Recommendation: Prefer selling covered calls ITM in many markets, especially during declines/“crazy markets,” to avoid “catastrophic losses.”
  • Caution: Avoid selling too far OTM based on the assumption the stock will bounce; “hope is not a strategy.”
  • Risk framing: covered calls can still lead to losses when wrong; he discourages assuming guaranteed outcomes.

Disclosures / disclaimers

  • No explicit “not financial advice” disclaimer appears in the provided subtitles.
  • He states he’s not sure whether stocks go up/down and discusses outcomes probabilistically.

Tickers / instruments mentioned

  • AAPL (Apple): strikes referenced 170, 190 (≈32 days to expiration)
  • TSLA (Tesla): strikes referenced 205, 235 (≈32 days to expiration)
  • Instruments: covered call structure, intrinsic/extrinsic value, theta decay / time premium.

Key timelines referenced

  • Examples are shown for roughly ~32 days (~1 month) to expiration.
  • Rolling is described as a typical cadence in weekly intervals.

Sources / presenters (end)

  • Mark Yaggi (sole presenter; “Cash Flow Machine” referenced as his program)

Original video