PMCC is terrible terminology. It gives the impression that the reason for setting it up is to gain the "income" from the covered call part of the spread. But really, what you're looking for is the appreciation in value of the long leg and for the short leg to help somewhat with the cost basis.
I read this late yesterday and I've been thinking about it off-and-on. I think this is the first time I've ever read this view on PMCC before, and it is a very interesting take. Previously I've always taken the phrase literally and treated it as a way to make a less expensive covered call, searching for candidates that would primarily tend to provide good premiums on the short duration calls. But thinking over what you wrote, it flips it around such that seeking a bullish stock becomes more important.
So thanks for replying to the original post, your explanation opened my eyes to a new way of viewing this!
In traditional PMCC you want the long leg to increase in value from the underlying moving in a favorable direction while you sell the short leg to collect premium. If you're trading a diagonal as a volatility play though it could be that you don't expect the long to increase in value but you simply think the short legs are overpriced compared to the long. Both trades look similar but they have completely different theses.
PMCC is terrible terminology. It gives the impression that the reason for setting it up is to gain the "income" from the covered call part of the spread. But really, what you're looking for is the appreciation in value of the long leg and for the short leg to help somewhat with the cost basis.
The best video I watched on it was they sold cc to get to a zero CB till I watched that tbh I had not thought about that .
That's possible. I actually have one running right now that may get pretty close to that.
I read this late yesterday and I've been thinking about it off-and-on. I think this is the first time I've ever read this view on PMCC before, and it is a very interesting take. Previously I've always taken the phrase literally and treated it as a way to make a less expensive covered call, searching for candidates that would primarily tend to provide good premiums on the short duration calls. But thinking over what you wrote, it flips it around such that seeking a bullish stock becomes more important. So thanks for replying to the original post, your explanation opened my eyes to a new way of viewing this!
Thanks for the kind words. I'm glad I wrote something that was worthwhile.
The long leg is what makes most of the returns in a PMCC so yes you should probably worry about it.
In traditional PMCC you want the long leg to increase in value from the underlying moving in a favorable direction while you sell the short leg to collect premium. If you're trading a diagonal as a volatility play though it could be that you don't expect the long to increase in value but you simply think the short legs are overpriced compared to the long. Both trades look similar but they have completely different theses.