To The Moon

$QYLD 20250919 16.0 CALL$ 

$JEPI 20250919 57.0 CALL$ 

Selling In-the-Money Covered Calls: A Defensive Play Against Market Highs

When equity markets are trading near all-time highs, the risk of a short-term correction always increases. Last Friday, I adopted a defensive options strategy by selling in-the-money (ITM) covered calls on a portion of my holdings. This move was not about chasing upside, but about managing risk, locking in gains, and creating a buffer against potential drawdowns.

To illustrate, I held 100 units of QYLD at an average cost of around $16.47. With the ETF trading near $16.71, I sold a covered call at the $16 strike, collecting a premium of $0.48 per share, or $48 in income. This premium not only lowered my effective cost basis to $15.99 but also provided immediate downside protection. On a percentage basis, that’s nearly a 2.9% buffer in a single options cycle, which is significant for an income-focused ETF$Global X Nasdaq 100 Covered Call ETF(QYLD)$  

The same logic applied to my Palantir (PLTR) position, where volatility has been elevated. While PLTR options tend to be more expensive due to implied volatility, I used that to my advantage by selling ITM calls, effectively trading off a portion of potential upside for the certainty of realized income. For example, while the stock traded in the $270–280 range, I structured a call that locked in premium and gave me protection in case of a sudden drop back toward support. The daily P&L shows how this adjustment worked in my favor: +141.01 SGD from the PLTR call side offsetting -55.00 SGD from the PLTR put side, resulting in a net gain instead of a sharper drawdown.

This is the essence of options as a risk management tool. If the market had continued upward, my shares might have been called away at the strike price — but that would still mean I had realized profits plus premiums. On the other hand, with today’s market pulling back, the option income shielded me from the full brunt of losses. Instead of being exposed to a potential 2–3% slide in my equities, the premiums narrowed that loss materially, leading to a +24.45 SGD daily net P&L even on a red day.

In professional portfolio management terms, this is about smoothing volatility and ensuring capital is preserved. Selling ITM covered calls is not a perpetual strategy — it works best in overextended markets where probability of a pullback outweighs chasing marginal upside. In my case, it allowed me to lock in gains, generate additional cash flow, and maintain discipline in risk management.

This is why I consider ITM covered calls a defensive cornerstone of my Options Puppy journey. While many investors only think of options as speculative tools, I see them as levers to balance risk and reward — protecting my portfolio when valuations are stretched, while still keeping cash flow steady

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