Background:
As you may know, I've been running a 5 DTE ATM Buy/Write campaign. This idea is a slight modification of that concept.
A while back, a post by u/pagalvin prompted me to consider this as a "routine play" as opposed to occasional use (mostly on 'troubled' CC).
Instead of selling short calls at the money, sell them in the money. This is a more conservative strategy which has two primary features.
- Lower premium generation (targeting 1% per week)
- Reduced breakeven
Test run:
On Apr 22 I purchased 100 shares of NVDA at $202.31 and sold a call with a $195 strike expiring May 1 for a premium of $9.61 per share.
"Wait. Wut?! You just bought it for ~$202 and sold at a $195 strike so you'll lose ~$7/share? I've been told you should never sell below cost!"
Well, let's look at it. The premium received is $9.61 and the capital loss on the stock price is $7.31, so I'd net a $2.30 gain, which is 1.1% on the $202.31 acquisition cost. I'll take 1% per week. In addition, the stock can drop by that same $7.31, or 3.6%, and my return will still be the same.
Think about that for a moment.
A 1.1% weekly gain that allows the stock to drop 3.6%.
I find that appealing.
I automated the closing of the trade by setting a GTC limit order of $194.65 for the strategy. The net entry cost was $192.70 ($202.31 - $9.61), so this represented a solid 1% return. The GTC limit order struck and was executed on Apr 29.
Identifying Candidates:
As you may know, I use an Microsoft Excel add-in, marketxls.com which I find incredibly useful. I put together a template that I can use to identify candidates for this strategy. Here's one for NVDA for options expiring next Friday, May 8, 2026.
The top left quadrant is where the user enters their own parameters for the trade.
- Ticker symbol for the underlying stock/ETF
- Expiration date
- Max Profit Rate (since this is a 'limiting' strategy which will provide different levels of downside protection based on the maximum profit rate to be achieved)
- Max investment
Once entered and the sheet is recalculated, the rest of the template is filled/calculated.
The bottom left quadrant, using MarketXLS, pulls in the current spot, next earnings date, RSI (21) and upper Bollinger Band (20).
The top right quadrant shows the trade.
- The selected strike and selected premium are brought in through a lookup-up of a table of data, provided by MarketXLS, of the options chain for the underlying/expiration date.
- The breakeven, downside protection, and number of contracts are all computed based on the selected strike and selected premium.
The bottom right quadrant shows the trade's P&L at expiration, assuming the stock has remained above the strike.
Here's how it looks in OptionStrat.
https://optionstrat.com/nODGJ2Y78RfF
While I titled this post as being a 5 DTE targeting 1%, that's "just me" for purposes of a routine play. You could, of course, run this for any DTE and profit % you wish.
Summary:
By selling an ITM short call you trade off premium for downside protection. That trade-off may be an appealing one for traders.
