Covered Calls?

Discussion in 'Options' started by KevinO, Feb 19, 2010.

  1. KevinO

    KevinO

    I'm looking for stocks to sell covered calls against. I just want to hold a position short term and make money mostly off the premium. I'm just looking for 3-5% of my portfolio a month. Dividends doesn't really matter to me. As long as the stock has a decent premium and ccan reach my 3-5% a month, I'll be happy.

    Does anyone have any suggestions of stocks that I can use?
     
  2. I'm looking for stocks to sell covered calls against. I just want to hold a position short term and make money mostly off the premium. I'm just looking for 36-60% of my portfolio a year. Dividends doesn't really matter to me. As long as the stock has a decent premium and ccan reach my 36-60% a year, I'll be happy.

    Does anyone have any suggestions of stocks that I can use?
     
  3. If you could consistently make 3% to 5% a month you would be running a hedge fund.

    And you don't consistently make 3% to 5% a month by doing covered calls (equal to naked puts).
     
  4. if you must sell covered calls dont use stocks. use etf or indexes. that will save you from waking up some morning and having your stock at zero.
     
  5. drcha

    drcha

    Over the long haul, you will have a hell of a time making that much return. You might manage it for a few months, but it's very unlikely over time.

    Why are you asking us what stocks to use? Do you think anyone on this board knows what any stock is going to do tomorrow? They don't.

    I would recommend that you get a copy, from your library or elsewhere, of Larry McMillan's Options as a Strategic Investment. Read the chapter on covered calls. If you decide you want to go conservative (you don't sound like that so far), pick some large dividend payers and write calls on them. If you want to take more risk, grab a copy of Investors Business Daily and let them help you pick some growth stocks. Choose big stocks with lots of liquidity.

    It is better to sell one call on ten different stocks than to sell several calls on the same stock. Spread the risk around.

    We may have a nice stock market for a while here. The biggest risk with what you are planning is from a turn in the overall market, not the stocks themselves. If the market is clearly trending upward, it does not make much difference which stocks you pick--the majority of them will work. But when the market is not clearly in an upward trend, get out of all your covered calls and wait for the sun to come out again. While you're waiting, read some more of the book and learn some other ways to make money.
     
  6. Yes.

    Only choose stocks you want to own.

    Never write covered calls because the premium looks attractive. I mean: NEVER.

    You will wind up owning stock often enough that it's mandatory that you have only stocks you want to own. If you do otherwise, then you are just gambling.

    Mark
    http://blog.mdwoptions.com/
     
  7. Making 3+ pct a month with covered calls is VERY easy if you ignore the losses on the stocks. It's called Monkey Math!

    :D
     
  8. Mark, can you clarify why you say this? I wouldn't write a covered call if the premium looked unattractive. Are you implying that the IV/premium are high because the stock is in a downward trend and you'll lose money on the underlying?

    Thanks,
    Ray
     
  9. A strategy I have used in the past is to purchase stock in strong companies paying a decent dividend (like now, since there are a lot of decent companies with divs over 4%). Then, I sell LEAPS about two strikes above the underlying. My goal is to keep the stock and keep receiving the premium each year to add to the divs. I started with one stock and eventually built the portfolio up to five stocks in different sectors/industries. Example: Philip Morris, J&J, Exxon, Bank of America, etc.

    I do only trade futures options now, for I get a better return..but if you are an investor, which I was a few years ago, I really liked this covered call strategy.
     
  10. When I was a noobish investor before the war (g) I opened 5-10 DRIPS in quality companies. Some offered discounts on reinvestment of dividends. Some even offerred discounts on new cash. There's nothing like getting a dollar worth of stock for 95 cents. If a company really rose, I'd find another DRIP and move that money into it.

    When I had free cash I'd send it to the most depressed of DRIP stock, buying more shares at lower prices. It was a good way to accumulate a small portfolio. This was an investment not a trading plan.

    As the number of shares increased, I began writing OTM covered calls in a similar fashion (usually moved the shares out to a street account tho I occasionally wrote naked in the street account).

    I don't know the status of DRIPS is these days but it's a good way to start when at the early end of the earning curve as well as a good thing to do if you have young kids to involve them in learning something that's valuable for their future (the investment for them as well as learning how to manage your own finances).
     
    #10     Feb 20, 2010