Ep59 - We’re in the Money!

Dan breaks down how to think about in-the-money covered calls and in-the-money cash-secured puts. These trades can be powerful tools when you want to sell stock more efficiently or buy it at an effective discount, but they require a different mindset. Dan explains how to separate intrinsic value from time value, how to evaluate the real benefit of the trade and how to weigh assignment probability against the risk of missing a larger move.

Key Topics

• Why in-the-money covered calls can make sense when you want to exit a stock
• Separating intrinsic value and time value for clearer trade analysis
• Thinking of intrinsic value on covered calls as a direct hedge
• Why time value is the true benefit of selling an in-the-money covered call
• Choosing between shorter-term and longer-term in-the-money covered calls
• The key risk: the stock falls below the strike and you don’t get assigned
• Why lower strikes may make more sense as you go further out in time
• How in-the-money cash-secured puts differ from standard put-selling setups
• Using ITM puts to target assignment while still getting an effective discount
• Why these trades can smooth returns but also cap upside participation

Key Takeaways

• In-the-money covered calls are often best used to sell stock you no longer want to own. They can increase assignment odds while still paying you time premium.
• Time value is the real edge. Intrinsic value mostly offsets the stock price difference; extrinsic value is what improves the transaction.
• Shorter-term ITM covered calls are often cleaner. They usually offer a simpler risk/reward tradeoff when the goal is just to get out.
• Longer-dated ITM calls can work, but they require more judgment. You’re balancing more time premium against more time for the stock to move.
• With in-the-money cash-secured puts, not getting assigned is the risk. The goal is to buy the stock at an effective discount, not just collect premium.
• ITM puts can outperform buying stock outright—up to a point. But if the stock rallies too much, you may miss a larger upside move.
• The wheel smooths returns. You often give up some upside in exchange for more consistency and less downside pain.

Connect

• Learn more about host Dan Passarelli and Market Taker Mentoring: MarketTaker.com
• Get exclusive content including video trade walk-throughs, Dan's actual trades, monthly AMA webinars and more: wealthbuildingpodcast.com
• Subscribe on your preferred platform and leave a review to help more traders discover the show.

Disclosure:

Options involve risk and are not suitable for all investors. Prior to buying or selling an option, investors must read Characteristics and Risks of Standardized Options (ODD) which can be found at https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document

Don’t trade with money you are not prepared to lose. Anything discussed on this show is intended to be generalized information and not intended to be a recommendation to buy or sell any security. The host and guests are not familiar with listeners’ specific situations. For trading information relevant to your specific needs, speak with a licensed broker or advisor.

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