Posts Tagged ‘Covered Calls’

Option Strategy Workshop: Rolling Contracts

 OptionSage submits: 

Markets can remain irrational longer than you can remain solvent” – John Maynard Keynes

Much like Newton was inspired to understand gravity as the Apple fell on his head (or maybe not according to this article!) so too Phil was inspired by nature in his profound work which I affectionately label “Phil’s Market Wave Theory”.  With this week’s move in the markets, it seems a particularly appropriate time to recall what Phil said:  

At the beach, many people stake out spots near the water but, as the day goes on, the tide gets higher and the people move to higher ground.  Some people go much higher and some people move just a little but there’s a certain point where the water crests up onto the beach and sends everyone scurrying for higher ground in a mad dash.

Then it goes the other way!

Just when it seems that the water is going to go higher than it ever went before (and, thanks to global warming it does!) and just when you start to think the next wave will wash over the top and soak everyone, it suddenly stops and an hour later you can’t believe you ever thought the water would get that high as it seems so impossible as you watch it pull away from the beach, exposing sand that hadn’t been seen since the morning .

“The markets are like that.  Frothy highs and "impossible" lows and lots of investors scurrying back an forth trying to guess where the next wave will stop (day traders) while others stake out medium-term positions (deck chair people) and still others make substantial long-term plays (beach house owners) and are willing to ride out even the harshest storms.  While I have fun playing in the waves I guess I have to think of myself as a shell collector, looking for the opportunities that are uncovered once all the excitement dies down.  Let the other people get soaked trying to guess the waves – we can do very well renting deck chairs in any market!

Rolling Options to Ride the Waves

In the stock market, renting deck chairs is akin to selling options (in this case call options).  Always a buyer is on the prowl for the next
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September Expiration Results

I took a conservative approach for September and wrote only deep in-the-money calls on stocks that had the edge I was looking for at entry.  Here are the percentage gains for my five trades that are called out today:

TSL –     3.68% 

WFR  -  3.31%

VMW  - 3.10%

CCJ  -   2.67%

CMI  -   2.2%

Total Average Gain = 2.99%

Since I was not fully invested for September, my actual virtual portfolio gained about 1.2%.  I took early positions for October as I found good entry points that worked for my strategy.  I am tracking my virtual portfolio compared to the SPY, which moved from 107.53 at August close to 107.88 yesterday, which is a .32% move upward. So even partially invested I beat the S&P 500 by nearly 1 percent.   

At some point I will calculate how much I would have made if I had bought the stocks outright and I’m guessing it would have been a very nice number since they all went up and every stock but CCJ was up more than 5 percent.  My checkpoints should make for a great stock picking system for straight stock purchases to hold for 3 to 6 weeks.  So why don’t I do that instead?  My trading style is very cautious.  I hate to lose money.  I have tried other systems and found myself vulnerable to buying high and selling low, or getting too nervous and shaken out of positions early, when I could have made a profit with patience.  This month I would have had a hard time fighting off all the negativity in the market to even enter positions unless I had a hedged entry with a covered call.  Since I have a master’s in psychology, my world view is that trading success has as much to do with psychology and emotions as it does fundamental and technical analysis.  I have confidence in my system and feel more secure investing when I know I am hedged and can roll into the next month.  I feel like I have taken back control from the market manipulators by selling options to give myself flexibility and a cushion against whatever crazy thing happens out there.

(Click on my user id to go to the website for complete trade updates.  I monitor comments more closely at the site as well.)

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Always Trade with Your Edge

Always Trade with Your Edge

Courtesy of Rev Todd

As I near the first option expiration next Friday during my one year plot to make 3% a month for a year, I know I won’t make 3% the first month and I am OK with that.  I did not fully invest right away and phased in investments as I found stock patterns that fit my philosophy.  After three weeks I am still not fully invested.  I will probably make up ground by October because I have put in a number of positions already that will make more than 3%, so I’m not going to go crazy trying to hit my target every month.  While I want to make money, I’m going to meet that goal by not losing money and not taking unnecessary risk.  I believe I will still meet my overall goal without 3 percent this month by following this simple advice:

Always trade with an edge. 

What is the trading edge when writing monthly covered calls?  I am trying to take advantage of one of the three certainties in life – death, taxes and premium decay on options.  I don’t know what the stock market or the company I invest in will do. I do know with certainty that when I sell an option I will get paid and the premium will drain to zero by the third Friday of the next month.  I sell monthly options because the premium is compressed to a greater degree than LEAPS (long-term) options.  My first edge is very simple, sell premium that allows for 3 percent in profit per month.  Since my current bias is that the market is ranging, I’m playing it safe and writing in-the-money calls that allow for a 5 to 10 percent downside protection, which seems reasonably safe for now.

I never write a covered call on a stock just because of a compelling premium.  My goal is to make a stable income on the stock every month, not to speculate.  High premiums are a sign of high volatility in the stock, which makes the investment more speculative.  I want a high degree of certainty, so I follow some basic rules, which you can see in every trade alert I post.…
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7 Steps to Consitently Making 30-40% Annual Returns

Option Sage Submits:

Just a couple of decades ago it would have been almost unfathomable for the retail investor to consider generating consistent returns above 20% per year.  Indeed, those who competed in arguably the most competitive financial market place, the stock market, were considered gurus when they beat the S&P 500 year in and year out

Others, such as Jerome Kohlberg, Henry Kravis and George Roberts made a name for themselves in private equity as did Peter Peterson and Stephen Schwarzman with the Blackstone Group.  Gains in the stock market for Joe Public were subjected to a limiting factor – the inability to leverage substantially.  Joe Public was also limited in participating in private equity investments; they were the domain of the rich – the insiders.  These days, private equity still remains the domain of the rich, but leveraging is possible through the purchase of equity derivatives.  And the sale of those same equity derivatives can be highly profitable too.

Whereas it would have been unthinkable years ago to consider making big profits year in and year out on a stock that doesn’t move much – because the only source of income, dividends, tended to be in the low single digits in percentage terms - these days options afford us the opportunity to sit tight and profit while holding stock positions.  This can easily be achieved through the sale of short call options against stock holdings, otherwise known as the Covered Call strategy.  While the Covered Call strategy may appear straightforward when first encountered, many applications may be employed.  In this article, we will consider the application that Market Tamer labels: 7 Steps to 40% per year!

Step 1:  Wait for a selloff

Ok, so you want to skip this step and move on to Step 2.  Wait! 

One of the great quotes in investing comes from Jesse Livermore and pertains to this concept of patience.  In Reminiscences of a Stock Operator, it is stated: 

"It never was my thinking that made the big money for me. It always was my sitting.  Got that?  My sitting tight!  It is no trick at all to be right on the market.  You always find lots of early bulls in bull markets and early bears in bear markets.  I’ve known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very


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7 Steps to Consistently Making 30-40% Annual Returns

Option Sage Submits:

Just a couple of decades ago it would have been almost unfathomable for the retail investor to consider generating consistent returns above 20% per year.  Indeed, those who competed in arguably the most competitive financial market place, the stock market, were considered gurus when they beat the S&P 500 year in and year out

Others, such as Jerome Kohlberg, Henry Kravis and George Roberts made a name for themselves in private equity as did Peter Peterson and Stephen Schwarzman with the Blackstone Group.  Gains in the stock market for Joe Public were subjected to a limiting factor – the inability to leverage substantially.  Joe Public was also limited in participating in private equity investments; they were the domain of the rich – the insiders.  These days, private equity still remains the domain of the rich, but leveraging is possible through the purchase of equity derivatives.  And the sale of those same equity derivatives can be highly profitable too.

Whereas it would have been unthinkable years ago to consider making big profits year in and year out on a stock that doesn't move much – because the only source of income, dividends, tended to be in the low single digits in percentage terms - these days options afford us the opportunity to sit tight and profit while holding stock positions.  This can easily be achieved through the sale of short call options against stock holdings, otherwise known as the Covered Call strategy.  While the Covered Call strategy may appear straightforward when first encountered, many applications may be employed.  In this article, we will consider the application that Stock and Option Trades labels: 7 Steps to 40% per year!

Step 1:  Wait for a selloff

Ok, so you want to skip this step and move on to Step 2.  Wait! 

One of the great quotes in investing comes from Jesse Livermore and pertains to this concept of patience.  In Reminiscences of a Stock Operator, it is stated: 

"It never was my thinking that made the big money for me. It always was my sitting.  Got that?  My sitting tight!  It is no trick at all to be right on the market.  You always find lots of early bulls in bull markets and early bears


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How to Make Profits in Your Spare Time

 

Option Sage submits:

I saw an infomercial from Fisher Investments where Ken Fisher mentioned 3 attributes that he believes are keys to successful investing which can be crudely summarized as follows:

[1]  Focus on long-term investing

[2]  Expect surprises

[3]  Stay ahead of the crowd by knowing what others don’t

The first point is certainly critical and weeds out the greedy ‘get-rich-quick’ traders from the patient traders.  Our policy here is that of ‘play-to-win’.  We like to be aggressive in seeking profits with short-term plays but we also recognize that if those trades don’t work out that we can still rely on longer term plays to end up profitable in the end. 

The second point regarding expecting surprises asks the trader the question “Are you managing risk well and do you have contingency plans in mind each time you enter a trade?”  While the second part of the sentence is important, the first is paramount!  No matter what you do, never violate risk management rules which we have discussed here in the past.

The third point is a luxury in my view.  Of course, it would be nice to know what others don’t but it’s not critical.  By definition only a small number can have information that the rest of the crowd does not have so if you are not trading full-time you have to find another way of making money without relying on staying ahead of the crowd.

As I was scanning for trades over the weekend, I came across one trade which might in fact fall into the category of offering relatively attractive profits by relying on options rather than additional information.  In fact, I know many of our members find it hard to focus on the daily trades and would like to construct virtual portfolios with the longer-term in mind.  As Phil mentioned in his classic "James Bond Investing" article, playing short-term positions requires constant vigilance and you need to ready to turn on a dime with…
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Zero Hedge

F.I.R.E. - Ignited By The Bull, Extinguished By The Bear

Courtesy of ZeroHedge. View original post here.

Authored by Lance Roberts via RealInvestmentAdvice.com,

Do you remember this commercial?

The Etrade commercial aired during Super Bowl XLI in 2007. The following year, the financial crisis set in, markets plunged, and investors lost 50%, or more, of their wealth.

However, this wasn’t the first time it happened.

The same thing happened in late 1999. This commercial was aired 2-months shy of the beginning of the “Dot.com” bust as investors ...



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Kimble Charting Solutions

Is Crude Oil Sending a Bearish Message to the Stock Market?

Courtesy of Chris Kimble.

Crude Oil (NYSEARCA: USO) and the S&P 500 Index (INDEXSP: .INX) have peaked and bottomed together several times in the past 9 months. See points (1) and (2) on the chart above.

In summary, the correlation between Oil and the stock market has been quite interesting and demands investors attention.

Crude Oil has been creating lower highs of late and is breaking price support at (3).

If the correlation remains the same, Crude Oil may very well be sending a bearish message to stocks.

Tricky spot for active investors – careful here.

...

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Phil's Favorites

Central Planning and "Team Human." Are we able to steer the ship, while letting markets do their creative thing?

 

Scientist, tech consultant, best-selling author and futurist David Brin discusses central planning vs. market forces and the problems at either extreme. (Visit the CONTRARY BRIN blog to read David's latest posts. For his books and short stories, visit his website.)

 

Central Planning and “Team Human.” Are we able to steer the ship, while letting markets do their ...

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Insider Scoop

Benzinga's Top Upgrades, Downgrades For July 19, 2019

Courtesy of Benzinga.

Upgrades
  • For American International Group Inc (NYSE: AIG), William Blair upgraded the previous rating of Market Perform to the current rating Outperform. American International Gr earned $1.58 in the first quarter, compared to $1.04 in the year-ago quarter. American International Gr's market-cap stands at $48,358,299,270. At the moment, the stock has a 52-week-high of $56.49 and a 52-week-low of $36.16. American International Gr c...


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Chart School

RTT Plus Chart Book (Sneak Peak)

Courtesy of Read the Ticker.

The magic of support and resistance channel lines and how they direct price. Here are some chart disclosed to members via the RTT Plus service. All charts are a few weeks old. 


XAU bound by parallel channel lines.


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Newmont Mining support from Gann Angles.



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US Dollar index (DXY) dominate cycle ...

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Digital Currencies

Cryptos Suddenly Panic-Bid, Bitcoin Back Above $10k

Courtesy of ZeroHedge. View original post here.

Following further selling pressure overnight, someone (or more than one) has decided to buy-the-dip in cryptos this morning, sending Bitcoin (and most of the altcoins) soaring...

A sea of green...

Source: Coin360

Bitcoin surged back above $10,000...

Ethereum bounced off suppo...



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Biotech

DNA testing companies offer telomere testing - but what does it tell you about aging and disease risk?

Reminder: We're is available to chat with Members, comments are found below each post.

 

DNA testing companies offer telomere testing – but what does it tell you about aging and disease risk?

A telomere age test kit from Telomere Diagnostics Inc. and saliva. collection kit from 23andMe. Anna Hoychuk/Shutterstock.com

Courtesy of Patricia Opresko, University of Pittsburgh and Elise Fouquerel, ...



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ValueWalk

Professor Shubha Ghosh On The Current State Of Gene Editing

 

Professor Shubha Ghosh On The Current State Of Gene Editing

Courtesy of Jacob Wolinsky, ValueWalk

ValueWalk’s Q&A session with Professor Shubha Ghosh, a professor of law and the director of the Syracuse Intellectual Property Law Institute. In this interview, Professor Ghosh discusses his background, the Human Genome Project, the current state of gene editing, 3D printing for organ operations, and gene editing regulation.

...

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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Mapping The Market

It's Not Capitalism, it's Crony Capitalism

A good start from :

It's Not Capitalism, it's Crony Capitalism

Excerpt:

The threat to America is this: we have abandoned our core philosophy. Our first principle of this nation as a meritocracy, a free-market economy, where competition drives economic decision-making. In its place, we have allowed a malignancy to fester, a virulent pus-filled bastardized form of economics so corrosive in nature, so dangerously pestilent, that it presents an extinction-level threat to America – both the actual nation and the “idea” of America.

This all-encompassing mutant corruption saps men’s souls, crushes opportunities, and destroys economic mobility. Its a Smash & Grab system of ill-gotten re...



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OpTrader

Swing trading portfolio - week of September 11th, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

·       How 2017 Will Affect Oil, the US Dollar and the European Union

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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