Stephen Cooper

Covered Calls

Hanger said: "I said I was going to contribute something about covered calls to the forum, so here goes....alot of it will be generic copy and paste so that people with no clue about options/covered calls can get a bit better understanding, with my input thrown in. By all means anyone with any advice to further it please share... Mind you, that Covered Calls are best utilized in a longterm investment account- not a daytrading/swingtrading account... Taken from Investopedia: Covered calls are an options strategy where an investor holds a long position in a stock and writes (sells) call options on that same stock in an attempt to generate increased income from the asset. This is often employed when an investor has a short-term neutral view on the asset and for this reason hold the asset long and simultaneously have a short position via the option to generate income from the option premium. For example, let's say that you own shares of the TSJ Sports Conglomerate and like its long-term prospects as well as its share price but feel in the shorter term the stock will likely trade relatively flat, perhaps within a few dollars of its current price of, say, $25. If you sell a call option on TSJ for $26.00, you earn the premium from the option sale but cap your upside. One of three scenarios is going to play out: a) TSJ shares trade flat (below the $26 strike price) - the option will expire worthless and you keep the premium from the option. In this case, by using the buy-write strategy you have successfully outperformed the stock. b) TSJ shares fall - the option expires worthless, you keep the premium, and again you outperform the stock. c) TSJ shares rise above $26 - the option is exercised, and your upside is capped at $26, plus the option premium. In this case, if the stock price goes higher than $26, plus the premium, your buy-write strategy has underperformed the TSJ shares. --------------------------------------------------------- [B]My input now:[/B] Ok pretty self-explanatory yes? One of the best times to use covered calls is in a longterm investment account. Ok here is the hardest part about covered calls-how to maximize profit. I go by 2 simple rules: 1) Before writing a covered call, figure out the target price I would sell for. 2) Dont ever sell options where the premium is under 1.00 (1.00x100=1 contract) I say that because, say you sell a covered call for .45x100=$45. You own 200 shares, you made $90...after commisions probably about 75-80 depending on your broker. At this price your not helping offset any possible losses, but you are capped at the strike price that you sold the calls for. Risk/Reward theory here. Where as if you sold a covered call with either more time, or closer to the strike price lets says its 1.20x100=120 You sold 2 contracts again, and took home 240-commision. Not much at all, but in a long term investment account, that you may own 500-1000 shares of a company you will offset your costs by say $1,000. Ok now-one of my favorites we will use as an example as the one above I don't feel gets down into the nitty gritty aspect: Freeport-McMoRan Copper & Gold Inc. (FCX) Closed Friday at $61.81 So say Friday we bought this at $61.50. We bought for ease here 100 shares. I am looking for an upside target here between $64-$65, but also really like the longterm holding possibilities of the company with no specific target in mind. We spent $6,150+commissions of $6.99. Total investment of $6,156.99 Now minutes after we bought this we sold a call for Feb 07 at $65. I say $65 because it is the next strike to be in the money, and the premium is $2.80. So we sell our 1 call at 2.80x100=$280-commision to stay on track with the commissions 6.99+.75 for option=$7.74 So lets recap, we spent $6,156.99 on the stock and got back $272.26 from our call...not a bad little bit of money back, that is ours....do what you want with it... [B] Right now your thinking $272, big deal....but imagine you do this every quarter in your whole investment account. Say you have $20,000 in there there is a good chance you can pocket an extra $1000 a quarter or every 2 months doing this...Probably have your attention now don't I.[/B] So, its Februrary now, and 1 of two things are going to happen.. 1) The stock finishes above the strike price and the call gets exercised and we sell our 100 shares for $65.00+the premium we got when we sold the call So we sell for a grand total of 6500+272(after commision) Ends up being a profit of $500 in 2 months time just over 8% from your initial investment...Not bad at all here....At this point you either look for reentry into FCX if you still like it, or move your money to a different company and start all over. 2)The stock finishes below the strike price and the call expires worthless. You keep your stock and the 272.26. But let me ask you this, is the guy that bought our option going to exercise the call if the stock closes at $65.00 Don't count on it. Because you have to take into consideration the premium he paid you. He spent a total of $286.99 on the option+commision. So translate that to the stock...he needs the stock to be at $67.86 (premium/shares)to recoup the money he spent on the option. One thing to remember here-most people as individual investors who buy a call will not exercise that call right at the strike price...they have to take into account the premium that they paid to "break even" for buying the call from you. Now lets say for example it is at $69.00 the day of expiration. Here is the downside to covered calls. You have to sell your stocks at $65.00 and your missing out on a grand total of $1.14 of profit/share That is the price of the stock-the premium per share you recieved when you sold the call. The closer you get to the breakeven point for the buyer of the covered call, the less profit you will be missing in the long run. So obviously if the stock price is at $68.00 your missing out a whole whooping $.14/share. Now I am not a fan of writing covered calls for a period that covers more than 2-3 months. I feel [B]TOO MUCH [/B]can happen in say 8 months to a stock that either make or break your year. Look at Mastercard for example.....If you would have sold covered calls in July for 55, you would be kicking yourself in the head right now as MA is hovering around 100. [B]Remember one of the best times to use covered calls is in a consolidating period for a stock. When it appears that it is going sideways....sell covered calls and OUTPERFORM the stock.[/B] This is just a little way to help maximize your potential gains. You must remember the saying that over [I][U]90% of all options ever written(sold) expire worthless.[/U][/I] So the guy who sold the option gets free money 9 out of 10 times...nice isn't it. Ok, well this isn't by any means an end all be all explanation of covered calls. Its late and I probably should not have written it tonight, as I noticed myself substituting I,we, you, ours them.. This is just a general overview and hopefully covered calls seem to make a bit more sense. Any questions, comments-please chime in."

drdan said: "Hanger, Do you have a price range for the stocks that you sell covered calls on? For example a technique I was shown when looking to trade covered calls specifically was to look for stocks between $20 and $30 because the premium you get for selling the option makes for a better % gain in comparisson to the price of the stock. Meaning you get a better %gain when called out of a cheaper stock vs a more expensive one. However for most of the traders getting into options the best reason to use covered calls is exactly what you had said here [Quote=Hanger] Remember one of the best times to use covered calls is in a consolidating period for a stock. When it appears that it is going sideways....sell covered calls and OUTPERFORM the stock.[/quote] I really like this method for when a stock you want to keep is going sideways or even pulling back. Good post.:th_dblthumb2:"

Hanger said: "Dr. Dan- I agree completely with the do it with lower stocks theory. The only reason I used FCX in this post is because I have been doing some homework on it, and have been watching it closely. Normally I try to stay below $40 in a bull market and below $50 in a bear market. Yes % wise its a perfect theory, and but even in my example we got 8% worse case scenario. I will take 8% for 2 months time in my longterm investment account. When I am swingtrading I occasionally will try to double up and sell a covered call for something like Ebay...and ride it for 2 weeks going into expiration week and buyback the call, and sell out of it completely, and take my $2.00/10%profit on the stock+premium-cost of buyback. I have a completely different program that I do to try and supplement my swingtrades, I have found it works pretty well, but didn't want to get too into in this post...it can be a pretty complex plan and one that requires a pretty good knowledge of options and implied volatility. The only downfall I have with it, which is why I am trying to tweak it a bit, is because in this market currently its becoming a pain to find a stock with an expensive call and decent IV. It works perfectly in the bear market though....."

thezster said: "Well done... making it seem simple, even for us "options challenged" folks. I think I'm going to have to read it again... then start studying some options charts.... I know, I keep saying I'm going to get into options... but never move forward... To date, it's seemed much easier to continue my day/swing trading... cause selling covered calls means I need to hold something for more than a couple of days... I probably should re-evaluate a bit..."

Hanger said: "[QUOTE=thezster]Well done... making it seem simple, even for us "options challenged" folks. I think I'm going to have to read it again... then start studying some options charts.... I know, I keep saying I'm going to get into options... but never move forward... To date, it's seemed much easier to continue my day/swing trading... cause selling covered calls means I need to hold something for more than a couple of days... I probably should re-evaluate a bit...[/QUOTE] Thanks- Yes, covered calls requires holding for a bit, which can in itself be a tedious process. For the dividend traders out there, they should all be doing covered calls-atleast on half of a position-if your shares get called, what does it really matter I ask? The dividend-the premium is all your missing out on...but for the times that it does not get called, your supplementing the dividend with a very nice premium. Dr. Dan- In my post above I mentioned the system I am trying to tweak...I guess I should be a little more clear- I am trying to tweak the screener that I use in an attempt to find stocks on a 3day bullish chart-intermediate upward trend, with recent MACD convergence/crossover, with high volitility....So far its becoming a pain to try and get all the right elements in there to get what I want back....So for know i just browse a whole bunch of stocks nightly lol.... To both of you, thanks for the acknowledgement here. I was so worried that the points I was trying to get across would come off as brash or too complicated. Glad to know I somewhat broke it down enough."

Quin said: "This is an excellent post, Hanger. :th_dblthumb2: [QUOTE=Hanger]2) Dont ever sell options where the premium is under 1.00 (1.00x100=1 contract)[/QUOTE]I have a problem with words such as "[I]don't ever[/I]" or "[I]never[/I]". This is a [U]good rule of thumb[/U], but it should not be set in stone. One of the things that I like to do is look around for opportunities during the last week of options expiration. You can sometimes find some quick money to be made in the .25 to .50 cent range. [U]Extreme caution[/U] must be exercised, though. There is usually a reason why you can sell options for this much money with only a couple days of life remaining. [QUOTE=Hanger]So, its Februrary now, and 1 of two things are going to happen.. 1) The stock finishes above the strike price ... 2)The stock finishes below the strike price ...[/QUOTE]This seems like an approriate place to make a comment about position management. You may find yourself in the position of writing calls only to have your stock start a slow and painful decline. Writing the call has afforded you some degree of downside protection. But if the stock continues to decline, don't be afraid to buy back your call and sell your stock. Some folks will chose to just sell the stock, leaving the naked call outstanding. You cannot do this in a retirement account, BTW. This naked call has the same risk characteristics of shorting a stock (ie unlimited risk to the upside). Depending on how far the stock has fallen and how much time is left in the option, this may be an acceptable risk. I guess what I am trying to say -- in a long-winded manner :rolleyes: -- is to have a plan in case things don't go your way. [QUOTE=Hanger]Now lets say for example it is at $69.00 the day of expiration. [B]Here is the downside to covered calls[/B]. You have to sell your stocks at $65.00 and your missing out on a grand total of $1.14 of profit/share That is the price of the stock-the premium per share you recieved when you sold the call.[/QUOTE]The risk that Hanger mentions here is lost opportunity costs. In this example, the $1.14 is minor. But, how many times have you seen a stock gap up after good news? A buy-out offer, maybe? You will not participate in any gaps above the strike price. Doesn't always happen, but it is a horrible feeling when it does. You shouldn't let it disway you from the covered call strategy, but mentally prepare yourself should it happen."

Quin said: "[QUOTE=drdan]Do you have a price range for the stocks that you sell covered calls on? For example a technique I was shown when looking to trade covered calls specifically was to look for stocks between $20 and $30 because the premium you get for selling the option makes for a better % gain in comparisson to the price of the stock. Meaning you get a better %gain when called out of a cheaper stock vs a more expensive one.[/QUOTE]I tend to write calls (and puts) on more expensive stocks. One of the factors in an options pricing model is the price of the underlying. All other factors being equal (IV, time, etc), the more expensive stock will command the higher premium. Take a look at some of the premiums on GOOG and CME with less than a week until expiration. :eek: The cheaper a stock gets, the lower the premium. When the premium gets too low, it just isn't worth the trouble of writing the options. When you get below $20 per share, it gets tougher to find good writing opportunities. Not impossible, though. If the IV gets high enough, you can sometimes find some premium."

FirefighterB said: "Excellent posts, gentleman. Your input is invaluable. I have one question, though. One of the strategies that I read talked about writing covered calls on stocks that you like, however, it focused much more on stocks in the $5-$20 range. The reasoning behind this was that the "average Joe" (ie, myself and many others) would be able to purchase many more shares and sell many more calls. The author used 1000 share examples. However, I've realized a couple things: 1. it can be tough to find a descent stock in this range and 2. it is even harder to find one that actually has an options market. Do you guys have any thoughts on this? Thank you, again, for all of your help. At this point, I have read and liked a few different strategies, but I'm having trouble deciding which one I like the most, feel the most comfortable with, and works the best with the current market, so more input from the masters is ALWAYS a big help."

Quin said: "[QUOTE=FirefighterB]One of the strategies that I read talked about writing covered calls on stocks that you like, however, it focused much more on stocks in the $5-$20 range. The reasoning behind this was that the "average Joe" (ie, myself and many others) would be able to purchase many more shares and sell many more calls. The author used 1000 share examples.[/QUOTE]It sounds like the author is trying to make up for lower premiums with higher volume. Writing a 10 cent call on 1000 shares would give you $100 is his thinking, I guess. For me it is just not worth the trouble. Selling my stock for $5.10 instead of $5 just doesn't seem worth the bother whether I own 100 shares or 1000 shares. I'd just sell the stock and be done with it."

Hanger said: "Quin- Great input, I didnt want to go over leaving a naked call- Risky and felt like going over it would give people the false hope of well, I can just sell the stock and forget about it, but in that rare instance it can come back and leave you scramble to cover your call. I also did not want to go into buying "cheap" options out of the money with little time left or even selling them, because of the risky nature of the trade, and I definately don't recommend it to anyone just beginning with options. And your right, the Don't Ever and Never phrasing that I used was probably came out wrong. I don't do it....and I was taught from reading and experimenting that it is not worthwhile to sell calls under 1.00. On covered calls your selling for 2-3months out. However as you discussed, the week of expiration can be a wonderful time for a double up. But I definately understand your reasoning for saying "A good rule of thumb" thanks for the input definately. This is starting to become a good quality thread for anyone considering covered calls. Your right, I probably did not cover the downside of covered calls should the stock begin a downward spiral....Your post seems pretty good in doing so, thanks for putting it out there. [B]There are risks with covered calls, just like everything else-Don't buy a stock just for the purpose of selling covered calls.[/B] FirefighterB- "However, I've realized a couple things: 1. it can be tough to find a descent stock in this range and 2. it is even harder to find one that actually has an options market. Do you guys have any thoughts on this?" Yes it can be hard to find a decent stock out there in the 5-20 range, but you will find them, just have to stray a bit from the beaten path. But at the same point, you don't have to stay in that price range. You can find a $50 stock that is going sideways, or even just bouncing off the bands and make a pretty good profit riding the 2 weeks up on every bounc off the bottom bollinger band. As far as finding them with option plays-Look for heavier traded stocks-they usually will be accompanied with solid option plays. A good rule of thumb- Good one Quin :cool: If a stock does not have solid option interest, it may be harder to buy back if you so desire. Alot of the time with low volume or open interest you can be subjected to terrible or tremendous prices-just know that it will be harder to buyback if the volume is say 100 contracts."

drdan said: "[QUOTE=FirefighterB]Excellent posts, gentleman. Your input is invaluable. I have one question, though. One of the strategies that I read talked about writing covered calls on stocks that you like, however, it focused much more on stocks in the $5-$20 range. The reasoning behind this was that the "average Joe" (ie, myself and many others) would be able to purchase many more shares and sell many more calls. The author used 1000 share examples. However, I've realized a couple things: 1. it can be tough to find a descent stock in this range and 2. it is even harder to find one that actually has an options market. Do you guys have any thoughts on this? Thank you, again, for all of your help. At this point, I have read and liked a few different strategies, but I'm having trouble deciding which one I like the most, feel the most comfortable with, and works the best with the current market, so more input from the masters is ALWAYS a big help.[/QUOTE] Just going to agree with Quin and Hanger here. It is more difficult but it can be done in the $5 to 20 range. However, not worth my time to find these when they are so readily available above the $20 range. Quin - risk vs reward for the higher $ stock/covered call plays. Plus the need to have 100 shares of GOOG to play it! For one contract you need to have $48,400 worth of GOOG! For aq premium of $400 on the $490 Dec Call or $880 for the $480 call. Maybe not worth the risk considering how volatile GOOG can be, but then again thats $880 in one week!! Now back to risk vs reward the way I am calculating the ROI on using GOOG you get like a 1 to 2% gain while holding a $484 stock! Maybe I am not calculating it correctly???? For me not worth the risk for the reward even if it is only in one week."

FirefighterB said: "[QUOTE=Quin]It sounds like the author is trying to make up for lower premiums with higher volume. Writing a 10 cent call on 1000 shares would give you $100 is his thinking, I guess. For me it is just not worth the trouble. Selling my stock for $5.10 instead of $5 just doesn't seem worth the bother whether I own 100 shares or 1000 shares. I'd just sell the stock and be done with it.[/QUOTE] I agree with you and think I came across wrong in my explanation. I don't have the resource right now but, if I remember correctly, the examples were still selling the covered calls for 1.00. I remember the scenario running for less than $10k (ie, buying 1000 shares of a $9 stock, writing the calls and selling 10 contracts for $100 each receiving a $1000 premium, and depending on what happened with the stock, having the option exercised or expire.) Anyway, I think this resource is older, so perhaps the strategy doesn't still hold true in today's markets. I was just trying to see what you guys thought about a play for us poorer folk that would net more of a premium."

Quin said: "[QUOTE=drdan]Quin - risk vs reward for the higher $ stock/covered call plays. Plus the need to have 100 shares of GOOG to play it! For one contract you need to have $48,400 worth of GOOG! For aq premium of $400 on the $490 Dec Call or $880 for the $480 call. Maybe not worth the risk considering how volatile GOOG can be, but then again thats $880 in one week!! Now back to risk vs reward the way I am calculating the ROI on using GOOG you get like a 1 to 2% gain while holding a $484 stock![/QUOTE]Actually, Dan, I just threw out GOOG and CME as examples of high priced stocks. These stocks command a higher premium, in part, due to the price of the stock. But as far as risk/reward is concerned, I think it depends on the strike/month that you are looking at. You are right, the return of the Dec 480 is only 1% assigned and the Dec 490 is up to a whole whopping 2%. But take a look at the Jan 490: it is up to 5%. The Mar 500 comes close to 10% return if assigned and 5% if it expires! A stock I do play with a lot is SHLD ($175/share). I will write naked puts on it until I get assigned. I then turn around and start writing covered calls until it gets taken away from me. Rinse. Repeat. Been doing this with a good bit of success for the last 18 months with this stock. But, you take a $10 stock like LSI, and the premiums aren't worth the effort it takes to key in the order. [QUOTE=FirefighterB]but, if I remember correctly, the examples were still selling the covered calls for 1.00 ... Anyway, I think this resource is older, so perhaps the strategy doesn't still hold true in today's markets.[/QUOTE]It probably is an older resource. With the lower volatility numbers in today's market, it is pretty hard to get a dollar call for a cheap stock. Unless you start looking at LEAPS (options > 1year). To do a covered call on LSI, for example, you would have to go with the JAN '08 LEAPS to get more than a dollar. The Jul 10 comes close at 90 cents, though. For me personally, I don't like to write calls that far out."

drdan said: "OK, thanks for clearing that up. [QUOTE=Quin]A stock I do play with a lot is SHLD ($175/share). I will write naked puts on it until I get assigned. I then turn around and start writing covered calls until it gets taken away from me. Rinse. Repeat. Been doing this with a good bit of success for the last 18 months with this stock. [/QUOTE] [B]Pay attention here kids...[/B]this description of what Quin does is what a real professional options trader does. One that has a large amount of capital buys stocks from naked puts and then holds them while selling calls until they are called out. This is very professional and in my opinion the way options are truly utilized to their greatest advantage. For example, all of you that wait for a stock to hit a certain level and say OK now it is cheap enough to buy in and you get in. Quin makes money while he waits. He sells a put at a specific strike price, that strike price is the level of where you guys would buy a stock at, if it hits that level and he is put the stock it is OK because he wanted the stock at that price. Now he owns the stock. He owns 100 times the amount of put contracts he sold. Now he turns around and makes more money than the majority of stock holders by selling calls on the same stock. If you have a stock that has a very predictable channel this is by far the best way to make a fortune. Excellent techinique Quin and one that when my capital is high enough I will also be doing."

Hanger said: "[QUOTE=drdan]OK, thanks for clearing that up. [B]Pay attention here kids...[/B]this description of what Quin does is what a real professional options trader does. One that has a large amount of capital buys stocks from naked puts and then holds them while selling calls until they are called out. This is very professional and in my opinion the way options are truly utilized to their greatest advantage. For example, all of you that wait for a stock to hit a certain level and say OK now it is cheap enough to buy in and you get in. Quin makes money while he waits. He sells a put at a specific strike price, that strike price is the level of where you guys would buy a stock at, if it hits that level and he is put the stock it is OK because he wanted the stock at that price. Now he owns the stock. He owns 100 times the amount of put contracts he sold. Now he turns around and makes more money than the majority of stock holders by selling calls on the same stock. If you have a stock that has a very predictable channel this is by far the best way to make a fortune. Excellent techinique Quin and one that when my capital is high enough I will also be doing.[/QUOTE] Ahhh man, to have the free capital to perform this properly....not yet...but definately what I am aiming for in my investment account once I get cleared up next year....waiting to sell out of several key positions for tax purposes in 2007, mainly Mastercard......the biggest problem I had this year, if you can call it a problem was Mastercard, I went long on it in July, and got greedy and instead of taking my 10% like I normally do, tied up my investment account with MA all year lmao..."can you call that a problem" This best thing about the above is that it forces you to wait for your target price during a buying opportunity, instead of going long on XOM during the biggest momo rush of the year lol.....I have to admit, I am guilty of not adhering to the write a put n wait theory. Usually I don't want to be forced to sell some positions if and when it is actually put to me. Dam that capital..."

Quin said: "Thank you for the kind comments, DrDan! [QUOTE=drdan]If you have a stock that has a very predictable channel this is by far the best way to make a fortune.[/QUOTE]That is true. You should be moderately bullish on your stock. Writing naked puts is, after all, a bullish strategy. And you need to feel comfortable with the fundamentals of the company, because you may be a shareholder some day. A couple of other names that I have done this with are VLO, BBY, and ERTS, although not lately. Actually, I had ERTS put to me and decided to keep it. Also keep in mind, you can run up some commissions doing this. You need to check out what your broker charges for assignment fees. When a stock gets put to you (or called away), you will be charged an assignment fee in addition to the commission to buy (or sell) the stock. Make sure you understand what your broker will charge you before you enter the trade! [QUOTE=Hanger]the biggest problem I had this year, if you can call it a problem was Mastercard, I went long on it in July, and got greedy and instead of taking my 10% like I normally do, tied up my investment account with MA all year lmao...[/QUOTE]That old "[i]capital appreciation[/i]" problem rears its ugly head, AGAIN! I [i]hate[/i] when that happens! :laugh: Actually, this is a perfect time to write covered calls. Your stock hits your price target, but you still like the fundamentals of the company and the sector outlook. No pressing need to sell the stock right away, but you'd also be OK with selling it at this level. I say pull up the 'ol option chain and have a look at some OTM covered calls. Pick up a few bucks and eek out a bit more capital appreciation. If you don't go too far out, you can probably have both. Although having said that, it is probably better that you did not write any calls on MA. :laugh: But, writing covered calls is one of the things that I like to evaluate when one of my stocks hits my price target."

Hanger said: "[QUOTE=Quin] Actually, this is a perfect time to write covered calls. Your stock hits your price target, but you still like the fundamentals of the company and the sector outlook. No pressing need to sell the stock right away, but you'd also be OK with selling it at this level. I say pull up the 'ol option chain and have a look at some OTM covered calls. Pick up a few bucks and eek out a bit more capital appreciation. If you don't go too far out, you can probably have both. Although having said that, it is probably better that you did not write any calls on MA. :laugh: But, writing covered calls is one of the things that I like to evaluate when one of my stocks hits my price target.[/QUOTE] I actually wrote a few calls with MA, and not bad....right now I have110 calls for Jan..I got 2.90 for them...I dont actually think it will strike but wont be sad to see them go if they in fact do.... I will be a happy camper to have a good chunk of my $ back. Add that to the fact that I think the gravytrain known as Mastercard is coming to a halt, and I don't want to be stuck holding my shorts. The momentum seems to have fallen out, atleast until their next earnings. I was actually lucky that I did not write November calls.....woulda lost out on the big jump up. I actually did lose 1/4 of my position in October, but wont complain."

JCast3 said: "selling covered calls is by far my favorite investment tool....actually, the bulk of my present investment strategy employs writing covered calls....i generally find a stock from my watch list that i feel would be a good investment over the next few months or so (i generally like to stay relatively short term), buy a few hundred shares, write the calls, and wait till they strike.... my goal is to make between 9-14% on each position when all is said and done....ive been doing this for the better part of the past 2 years and it has worked out better than i thought....i dont see myself shying away from this technique any time soon, if at all.... what i like most about this simple strategy is that it forces me to lock in profit, while at the same time, hedges my investment a few points in the event the stock falls back even more.... if they dont strike, i just sell them all over again...."

holzie said: "Great posts gentlemen, all of them. Two things I have to add. You can write covered calls against a LEAP, which as you know costs way less than 100 shares of the underlying, thus making the % look a little better. Also, I really like Quinns style, which my capital won't allow :( But for us "mortals", writing a covered call on a LEAP one month to expiration is a very good strategy as well. Find your comfort level, and let time decay do the work for you. This is one reason I started trading iron condors...I always hated time decay on my own options with short expirations...so now I sell them and happily watch the options loose their value. One thing I didnt mention previously. I don't hold all the way until expiration if I am less then 1 standard deviation away from either strike legs...I just hate risk at this point. Unfortunately, there is always some risk present. Holz."

Quin said: "[QUOTE=holzie]You can write covered calls against a LEAP, which as you know costs way less than 100 shares of the underlying, thus making the % look a little better[/QUOTE]Just a point of clarification here. The strategy that Holzie is refering to is actually called a [I]spread[/I], and most likely a [I]calendar spread[/I]. The only reason that I bring this up is if you are new to options, then your broker most likely will not allow you to execute a spread order. It probably depends on the broker, I guess. In order to trade options, your broker will require you to fill out some additional paperwork. You will then be approved for a certain options level. Covered calls is at the lowest level, so you should have no problems implementing this strategy. In fact, you can even do covered calls in a retirement account. However, spreads will require a higher level and you cannot do a spread in a retirement account."

drdan said: "[QUOTE=Quin]Just a point of clarification here. The strategy that Holzie is refering to is actually called a [I]spread[/I], and most likely a [I]calendar spread[/I]. The only reason that I bring this up is if you are new to options, then your broker most likely will not allow you to execute a spread order. It probably depends on the broker, I guess. In order to trade options, your broker will require you to fill out some additional paperwork. You will then be approved for a certain options level. Covered calls is at the lowest level, so you should have no problems implementing this strategy. In fact, you can even do covered calls in a retirement account. However, spreads will require a higher level and you cannot do a spread in a retirement account.[/QUOTE] Options Xpress will allow you to do spreads in your retirement account. I have been doing it for at least two years in a retirement account."

Rbreb13 said: "Quick question. Thought I'd resurrect this thread since it fits in here. I sold a covered call on AKS that expired yesterday. I sold the Feb 07 $22.50 @ $0.70. Call is currently at B/A of .15-.25, last sale was .15. The stock closed at $22.72. Will this get excercised? If so, how does that work and when will I see it happen in my account?"

holzie said: "[QUOTE=Rbreb13]Quick question. Thought I'd resurrect this thread since it fits in here. I sold a covered call on AKS that expired yesterday. I sold the Feb 07 $22.50 @ $0.70. Call is currently at B/A of .15-.25, last sale was .15. The stock closed at $22.72. Will this get excercised? If so, how does that work and when will I see it happen in my account?[/QUOTE] Alright, you will get exercised on Monday, pretty much first thing. What broker do you have? What is your base price for the 100 AKS? You got assigned, no biggie, that's part of the game. Basically, your stock wil be sold at 22.50/share and you will pay the assignment commission, which for me is $14. Let me know if you made money, because if you did not, we have to find out where you made a mistake so next time you can make more money. Can you write naked puts by any chance? Do you have a margin account? Let me know. Holzie."

holzie said: "[QUOTE=holzie]Alright, you will get exercised on Monday, pretty much first thing. What broker do you have? What is your base price for the 100 AKS? You got assigned, no biggie, that's part of the game. Basically, your stock wil be sold at 22.50/share and you will pay the assignment commission, which for me is $14. Let me know if you made money, because if you did not, we have to find out where you made a mistake so next time you can make more money. Can you write naked puts by any chance? Do you have a margin account? Let me know. Holzie.[/QUOTE] By the way, the reason I asked for your basis is to calculate your P&L. Right now we know that the actual price you are selling it for is 22.50+0.70 = $23.20/share. Let us know, ole sport."

Rbreb13 said: "I bought AKS at $21.04 w/commission included. So yes I made money. I have Scottrade so $17 assignment fee. $8.26 fee on the option. So....... $2320.00-$17-$8.26-$2104.00= $190.74/2104.00= 9% ROI in 12 trading days. And yes I need to switch to ToS for the better commissions! I like this stock and the sector right now so I will be looking for another entry. It went up quite a bit as expiry day approached. I have a feeling it will give some of that back and should be able to get in around $21.50 or better. I have ST and they only allow me to do covered calls. I can't buy or sell anything else or I'd sell a $22.50 put to get the stock back."

holzie said: "[QUOTE=Rbreb13]I bought AKS at $21.04 w/commission included. So yes I made money. I have Scottrade so $17 assignment fee. $8.26 fee on the option. So....... $2320.00-$17-$8.26-$2104.00= $190.74/2104.00= 9% ROI in 12 trading days. And yes I need to switch to ToS for the better commissions! I like this stock and the sector right now so I will be looking for another entry. It went up quite a bit as expiry day approached. I have a feeling it will give some of that back and should be able to get in around $21.50 or better. I have ST and they only allow me to do covered calls. I can't buy or sell anything else or I'd sell a $22.50 put to get the stock back.[/QUOTE] Oh man, you are becoming a pro in these calculations! I love it. I really enjoy the fact that we all can mutually improve our trading and returns, that's really hard to find in this environment since everybody just roots for himself --- but not here. So great, that is a really nice return, virtually risk free (nothing is really risk free but...)....12% gain is very nice. I tell you what, you made 12% on a much less risk position and I sometimes sweat to get 12% with an iron condor after an adjustment, while risking a whole lot more :) Yes, the next setup would be selling the Mar 22.50 put @ 1.05 --> required margin for that = $437.40 (according to TOS). So, basically you would wait another 26 days to see if you can get the stock back for 22.50 - 1.05 = 21.45/share. You might be lucky and get a pullback and get the stock, if not lucky, you still would make 105/437 = 24% on your tied up capital. However, you can't sell the puts so you will have to wait for a pullback to at least 21.50 or below to make the transaction worth your while. Just make sure that the stock is not a tanker, meaning that it is hanging by its teeth :) Good job, man. Holz."

Rbreb13 said: "[QUOTE]However, you can't sell the puts so you will have to wait for a pullback to at least 21.50 or below to make the transaction worth your while. Just make sure that the stock is not a tanker, meaning that it is hanging by its teeth [/QUOTE]Yup, I'll be waiting and watching. The Iron/Steel sector is hot right now but that could change. Don't want to buy when it goes out of favor. I've got my eyes on a few other things too. The main thing like you've said before is to buy a stock that you want to own. You don't want to buy something just to sell covered calls on. I'm particularly staying away from the Pharma/Drug/Oil sectors because of the volatility. I'll be working on getting a ToS account as soon as its feasible. I might keep my ST account too though. They just updated thier site and the new screener and charts are pretty nice. I was playing around with the screener last night and its got a lot of nice features. I wish I could find one that tracks insider buying! I like stocks that have insider confidence."

Rbreb13 said: "Just checked my account. The call was exercised so time for plan B."

holzie said: "You're doing good man, just take it easy and don't rush so quick into selling a call like HAL. Now, your AKS play was really good. You bought it low enough and sold a call for a decent premium, that's how it should be. It's too bad you can't sell the naked puts to get the stock back that way, it really makes a difference, mainly because most of the times, you actually end up without a stock :) I have a Scottrade account still with 1 share of preferred stock of some insurance company...just to have it open. I really should close it. I let it stay open because when I was with Optionsxpress my stock commission was 9.95 and Scottrade was $7. When you switch to TOS, you can still have your other accounts open to use some of their features...Your stock commission will be $5 for stock and I can hook you up with a flat per contract fee of $1.50 per option. You can actually use the TOS platform for free for 30 days without having an account open. It would be a good idea to practice the platform, watch the training videos etc etc and use the platform to paper trade. The sooner you get familiar with it the better. It's no Scottrade so the learning curve might be quite steep at first. The commission structure at TOS will be great for what you want to do and they actually know what they are doing when it comes to options so all the stupid restrictions go out of the window. This broker is not good for someone that day trades the Q's (cubes) though as you will still pay $1.50. Holzie."

Rbreb13 said: "Don't worry holzie. I'm one of those over analyze types that doesn't usually rush into anything. I plan meticulously every trade before I get in. If I don't get the entry I want I find something else. I'm currently creating a list of stocks that have good options prices/volume. Then by using the charts and news I can plan out a trade. I'll keep my ST account when I switch because I sometimes play the pennies and the commish at ToS would kill me. I'm currently not in a good financial position to switch (unemployed) so it will be a little while. When I do I'll surely let you hook me up. Thx."

jason said: "I haven't read every post so forgive me if you've discussed this already, but one of my favorite strategies in writing covered calls is to purchase stock with the intention of writining covered calls on the stock, also with the intention of getting called out. I like to look for a return on the premium of 5% give or take a point, and I look for stocks in the lower 20% of an uptrendin price channel. Going in the money will allow me to get called out for pre-determined profit and when combined with my uncalled return easily generates 6-12%. I can do this monthly on a boatload of stocks with nice range. Once you find a basket of stocks that you get to know, you can really smack some out of the park! :-)"

holzie said: "Yo, Z! Is this one a slickster or what? They keep getting better.....and better."

thezster said: "Enough to make you appreciate a good scam artist..... Which is why Newman/Redford in "The Sting" are my all time favorites....."

thezster said: "[QUOTE=jason]I haven't read every post so forgive me if you've discussed this already, but one of my favorite strategies in writing covered calls is to purchase stock with the intention of writining covered calls on the stock, also with the intention of getting called out. I like to look for a return on the premium of 5% give or take a point, and I look for stocks in the lower 20% of an uptrendin price channel. Going in the money will allow me to get called out for pre-determined profit and when combined with my uncalled return easily generates 6-12%. I can do this monthly on a boatload of stocks with nice range. Once you find a basket of stocks that you get to know, you can really smack some out of the park! :-)[/QUOTE] Geeezzzzzzzzzz.... that's fascinating... can I too generate 6-12% profits monthly by simply following your advice???? [SIZE="1"]Suck my wanker.....[/SIZE]"

thezster said: "It's not only a SPAM filled website... but an amateurish quality SPAM filled website...."

jason said: "No Z, your probably to much of a dumb ass to pull it off.. It requires some skill.."

thezster said: "[QUOTE=jason]No Z, your probably to much of a dumb ass to pull it off.. It requires some skill..[/QUOTE] Your probably right.... besides.. I couldn't afford the reduced returns............ :flipoff:"

holzie said: "[QUOTE=thezster]Your probably right.... besides.. I couldn't afford the reduced returns............ :flipoff:[/QUOTE] Oops. Owned?"

thezster said: "[QUOTE=jason]No Z, your probably to much of a dumb ass to pull it off.. It requires some skill..[/QUOTE] I guess the real point is that... if you could do it... you would... rather than try to make a buck promoting it on other forum websites.... If you can consistently pull in 6% - 12%/month.... on your "boatload of stocks".... you'd be reasonably well off by now - and wouldn't need to pander to the trade...."