Covered Call Trading: Strategies for Enhanced Investing Profits

Covered Call Trading: Strategies for Enhanced Investing Profits
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The ITM writer should concentrate on large-cap, high quality stocks as thereis never a reason to trade poor quality stocks regardless of your strategywith ITM calls. The one item of note is that this strategy is not the best in arising bull market unless you have high risk avoidance to a potential tradeloss. A variation of this trade is to use it when volatility is high such as in theGet Get Rich Investments. The high volatility will increase the amount ofpremium and return. You can use this strategy when there is a pendingevent such as an earnings release but not as a speculation trade. The key isto use this strategy with large-cap, high quality stocks. As we know, when volatility is high you get morepremium from selling calls against your stock.

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This will increase your returnon investment for covered writes. Then, if not called out, you can rewrite the call month after month until youare called away. This strategy will minimize the amount of time used inselecting stocks and managing trades.

Generate Monthly Income with Covered Call Options Part 1

This will also lower the stressinvolved with covered call trading. The use of high quality stocks will lessen the number of potential stocksbecause you have preselected a stock list. The high quality stocks aregenerally blue-chip stocks that pay a dividend. I am not a fan of buy andhold investing but this strategy is an effective way to maximize monthlyincome from investments. The high quality stocks or blue-chips tend to move less in price compared tosmaller cap stocks.

These high quality stocks tend to outperform duringperiods of uncertainty in the markets. This is why we use these stocks in thisstrategy as they can weather the market downturns and rise during a bullmarket.

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Covered Call Trading: Strategies for Enhanced Investing Profits - Kindle edition by Steven Place. Download it once and read it on your Kindle device, PC. trader through stock options. Specifically, it's about covered calls and how you can make the most from this trading strategy. I hate finance textbooks. They either .

When you are anticipation a market upturn such as a bounce up oryour stock is in a prolonged uptrend, this strategy may work for this type ofsituation. The legging in strategy is to buy the stock and then wait for theprice to increase before selling OTM calls. The legging in is related to the buythe stock one leg before you sell the calls second leg at a later date tocomplete the covered call trade. This strategy can significantly increase your returns when the stock pricemoves up rapidly.

Then, you have a decision to make about when to sell thecall. Some traders decide that the stock will continue to rise so they do notsell the call. Others may decide the stock is out of gas to move higher sothey will sell an OTM call for additional income. The current month At this time, the The leg in trader would sell the This would create an assignedreturn of 5. The return percentage doubled while both trades were at thesame strike price This could be even better if the trader moves theircall strike price to 55 to let a stock continue to run up to a higher price.

So what is the trade off for the additional return?

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Legging-in is a littlespeculative because it leaves the investor without a premium for a shortGet Get Rich Investments. Additionally, the traderdoes not have the downside protection while owning only the stock withoutselling the call. Lastly, the investor could be wrong and the stock neverincreases in price.

The bottom-line is that the trader must have a solid reason for why thestock will increase in price in the short-term. The moment this rationale isproven wrong, the trader must make a decision on how to proceed with thestock they own. Covered Calls on Market Down-DaysOne strategy to deal with the current market turmoil is called down-daycovered writing.

This is based on looking for stocks that are down on a daythat the market is down. This strategy assumes the rubber band reaction ofthe stock bouncing back up when the market move up. This gives the writerthe advantage of buying the stock at a cheaper price than on a market up-day.

Covered Calls For Income -

On a day with a big pullback, you are trading a lower premium for thepotential capital gain of the bounce back price. The key to this strategy is making sure the stock is trading with the market. Use a chart service such asbigcharts to create a chart with your stock. You should notice that the stock and SPX have avery similar pattern. If yes, the two are moving in lockstep together and thisis a good candidate for this strategy. This strategy is not about the technical movement of the charts but aboutthe potential snap back movement of the stock.

This serves as an exampleGet Get Rich Investments. Covered Calls at ExpirationThere are many variations of the covered call trade. The classic covered callis to select the trade, buy the stock and sell the ATM call. In addition, thereare a number of strategies that are variations of the classic call based ondifferent trading ideas.

One variation is expiration writing. The investor will scan for short-term writes in the last two weeks of thecurrent option cycle. The trader is looking for stocks with high premium andhigh return on funds invested. To get high returns over such a short timeperiod usually indicates a high implied volatility and increased risk. When IVis higher than actual volatility, then there is usually a pending event so youmust research these trades very thoroughly.

One safer way to do this is to find a stock with higher volatility due to anevent planned in advance. Examine the stock to see when the event date isscheduled. If the event will occur after the current expiration date, then youcan trade in the current month calls. The reason for this is that eventvolatility may increase premiums across both the current month and thenext month option cycles.

This is a cool trick that most covered call writershad not heard of before. This is not a risk free trade but it works if you are right about the timing ofthe event expiration being after the current month. The key is to actuallyconfirm the event date and not speculating about when it will occur. Since Netflix reports earnings on Oct. At the time of writing this, a nine-day in-the-money call option nets you an eight-per-cent return. The company could miss estimates and fall sharply, but you at least have an eight-per-cent cushion on the drop, and you can always sell more options if that occurs.

You can get options premiums on some companies of three or four per cent or more in a very short period. Some stocks will swing wildly, of course, but stocks on average do not move that much in a month. We have found that using one-month options works best. If you set up a diversified portfolio, most of the time you will just collect premiums, which will enhance your income.

Most investors find options confusing, but they really are not.

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And the possibility of significantly enhanced income makes it worthwhile for investors to at least understand the opportunity that exists. Postmedia is pleased to bring you a new commenting experience. We are committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles.

We ask you to keep your comments relevant and respectful. Visit our community guidelines for more information. Peter Hodson. Equity index implied volatility as measured by the CBOE VIX Index has historically traded at a large premium to the subsequent realized volatility of the underlying stocks. This market inefficiency, known as the volatility risk premium, is sustained by ingrained behavioral biases, such as aversion to loss, which cause investors to consistently overpay for ETF and index options to hedge their portfolios.

Fedex Corp (FDX) Q1 2020 Earnings Call Transcript

Volatility risk premiums exist across the market for index and ETF options and vary month-to-month as market conditions change. We believe that an actively managed, dynamic approach to covered call investing is the most effective way to capture the volatility risk premium over time, reduce risk and increase the returns of an equity allocation.

Each month, we seek to identify the most attractive volatility risk premiums among ETF and index options, targeting:. Prior to Guggenheim, Mr. Previously Mr. Flowers holds a B. For six years prior to joining Guggenheim, he was a research analyst covering equity and volatility derivatives at Merrill Lynch and Morgan Stanley.

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Contact Guggenheim Investments for more information about this strategy or to learn more about our capabilities. Past performance is not a guarantee of future results. Investing involves risk, including the possible loss of principal. There is no guarantee that any investment strategy will achieve its investment objectives or is suitable for all investors. Diversification does not ensure profit nor protect against loss.

Every asset class is subject to various risks that affect their performance in different market cycles.