Strategic Covered Call Growth
1. Core Objective
Generate incremental income via covered calls on high-conviction core holdings while preserving long-term upside and avoiding unnecessary tax realization.
Covered calls are an overlay, not an exit mechanism.
2. Portfolio Structure
Core Holdings (enforced)
- MSFT
- DIS
- UBER
- AMZN
Rules:
* Core shares must never be assigned
* Losing shares is a failure state
* Exposure changes only via adds or trims under explicit rules
Cash / Cash-Like (enforced)
- Liquidity means the combined market value of BIL plus settled cash.
- BIL is the portfolio's default cash-equivalent parking vehicle and is fully available to fund option defense, rolls, buy-to-close transactions, and permitted adds.
- Do not flag low settled cash as a liquidity deficiency when combined BIL + cash satisfies the minimum-liquidity rule.
- Do not recommend selling BIL merely to "raise cash" or create liquidity.
- When settled cash is required for an immediate transaction, selling the necessary amount of BIL is an operational conversion within the liquidity sleeve, not a strategic allocation change or standalone tactical recommendation.
- Purpose: fund option defense and preserve flexibility
- Normal range: 2%–5% of portfolio NAV
- 5% is a soft target, not a required floor
- Minimum liquidity: greater of:
- 2% of NAV, or
- Expected cash needed to roll or close near-expiry calls
- Combined BIL + cash above the minimum may be deployed when a core holding is Bullish
- Combined BIL + cash above 10% requires a temporary reason and deployment plan
- No leverage or negative cash to fund adds
- All option premium flows into BIL/cash
3. Bias (Live Inputs, Manual)
Bias is a manual input per core holding:
- Bullish
- Neutral
- Bearish
Rules:
* Bias is never judged
* Bias gates which actions are allowed
* Portfolio state must remain aligned with bias
4. Covered Call System (Never-Assign Invariant)
Hard Invariants
- Core shares must never be called away
- Covered calls are always rolled, never assigned
- Rolling for a debit is acceptable
- Preserving shares > maximizing premium
Coverage Targets by Bias
| Bias | Target Coverage |
|---|---|
| Bearish | 40–60% |
| Neutral | 30–40% |
| Bullish | 20–35% |
Call Opening Rules
A new covered call may be opened only if:
1. Bias allows additional coverage
2. Current coverage is below the target band
3. When bias is Bullish, the new call is out of the money and approximately 0.10–0.20 delta
4. When bias is Bullish, the new call does not span earnings or another known binary event
Corrective Actions
- If coverage exceeds the target range, do not open additional calls.
- Buy to close only when extrinsic value is thin and a roll is not viable within 14 days of expiry.
ITM Calls
- ITM contracts are acceptable as long as a roll plan exists before expiration.
- An ITM contract with meaningful time remaining is a timing problem, not a strategy violation.
- When transitioning from a prior Bearish or Neutral phase to Bullish, deep ITM calls are an expected legacy state — do not flag as misalignment, do not suggest corrective action.
- Do not suggest selling new calls when existing coverage already exceeds the Bullish target range, regardless of whether new calls would be OTM. The portfolio is in a drift phase; let existing calls age.
Near-Expiry Risk Management
- When an ITM call has fewer than 14 calendar days to expiration: roll up and out immediately.
- Do not allow assignment under any circumstances.
- Rolling for a net debit is acceptable.
- This supersedes all other premium logic.
Income Pause Acknowledgment
- In a sustained bull run with deep ITM calls, covered call income will naturally slow or pause. This is acceptable — equity appreciation is the return driver in this phase.
- Do not penalize reduced income or flag it as a gap.
- Do not suggest selling new calls to force income when coverage already exceeds the target.
5. Premium Handling
- All option premium is pooled
- Premium is not attributed to any ticker
- Premium increases the combined BIL + cash balance
6. Add Rules (Bias-Gated, Discretionary)
Adds are forbidden unless bias = Bullish.
The app signals an add opportunity when all are true:
1. Bias = Bullish
2. Combined BIL + cash exceeds minimum liquidity
3. Post-add coverage remains within bullish caps
Rules:
* Adds are discretionary, not automatic
* Adds are funded from combined BIL + cash liquidity, liquidating BIL mechanically when necessary
* Adds increase long-term exposure (not swing trades)
* Add in the form of long stock.
7. Trim Rules (Rare, Explicit)
Trims are forbidden by default.
A trim is allowed only if:
A. Risk Control
- A single core position exceeds 60% of total portfolio NAV
B. Bias Change
- Bias shifts away from Bullish
Trim mechanics:
* One-time trim: 5–15%
* Proceeds go to BIL/cash
* No automatic re-add
8. System Invariant
Exposure changes only due to risk or conviction, never price.
The app enforces alignment, not optimization.