High Volatility Covered Call Strategy - Volatility Call Writing

Writing covered calls on volatile stocks for swing trading

The idea is to capture the stock movement when it swings within its short term range from high to low. The calls are written at the top of the ATR  or the stock's range high as indicated by an indicator such as RSI, on the expectation of buying them back when the stock moves down in its range.

Pick a stock  that is volatile, i.e. stock that moves a good bit in the course of the week, sometimes during a single day, i.e a stock that has a faily large ATR (average true range).

When the stock moves up by a sufficient amont and can pull back in its range, sell covered calls that are deep in the money. 

You can use the following methods to know that the stock has moved up by a good amount and can pull back:

• Stock has moved up by an ATR
• The RSI has risen above 70 and is reversing/ falling back below 70. I use the 15 minute RSI on highly volatile stocks.

Also note that one has to sell DITM (deep in the money) calls that have a delta of 80% or above, so that the call options move pretty much in tandum with the stock.

When the stock moves lower in its range, close/ buy back the call at a lower price.

We are simply trading the call option and do not intend to hold the option to expiration. On volatile stocks, it may be feasible to sell and close the calls several times in the span of a month, yielding a return that can exceed 10% a month. This strategy relies on trading for the generation of profits. Obviously, capitalizing on such trades requires monitoring them closely in order in order to seize upon moves that yield a worthwhile profit. The trader will need to be available to watch the price movements.