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Here is a recent Covered Call Alert:
Cut
your research time in half or more!
As a member of our Covered Call Service, you have access 5 covered call
tables. The 5 tables are loaded
with information to help you find covered call opportunities. We save you time and help you make money
by putting our powerful tools to work for you in scanning the entire market and
selected indices and identifying the top 10 (or more) covered call options plays
in 5 top groups as follows:
- Entire
Market Top 10 Covered Calls
- Nasdaq
100 Top 10 Covered Calls
- Index
ETFs Top 10 Covered Calls
- Russell
2000 Top 10 Covered Calls
- S&P500
Top 10 Covered Calls
Each
list is sorted by the Return Rate to Expiration. As you can see, some covered calls can
produce a potential annualized return rate of 75 to over 100% - so you can see
why this is such a lucrative endeavor!
Second consideration is the probability of a profit.
Here
is a summary on how you can put covered calls to work for
you.
Covered
Calls
The
basic covered call is a relatively simple strategy. The owner of a security
sells the right to have their security purchased at a predetermined price in the
future in return for money now. If the security price does not fall over the
life of the option, the call writer will keep the premium collected when the
call was sold. The call writer's profit is limited in exchange for the
premium.
Strategies
for covered call writing depend on the objective.
·
Supplement
Return
Covered
call writers interested in supplementing the return of existing holding will
tend to sell covered calls out of the money. The expectation is not that the
security price will rise, but that it will not fall. The seller of out of the
money calls often expects to continue holding the security, but hopes to reap
some extra return from the proceeds of selling the call.
·
Hedge
Against Loss
Covered
call writers can protect against downside price movement by selling in the money
calls. This is commonly done after a rise in a security that is already held, to
protect some of the gains that were already made. Although less time premium is
collected on the call, the risk of loss is lessened by the amount that the call
is in the money.
·
Speculative
Strategies
There
are strategies that set objectives such as Doubling in 2 Years, or earning 10% a
Month. A portfolio can be doubled in two years by successively selling covered
calls that return 50% time premium for a term that last approximately 1 year. It
is also possible to sell covered calls that return 10% in approximately one
month. Both of these strategies require that the underlying stock price is at or
above the strike price at expiration, and that this goal can be achieved
repeatedly. Theoretically, a stock will lose some value 50% of the
time.
·
Risks
of Covered Call Writing
Writing
covered calls is generally considered a conservative option strategy. This only
holds true if covered calls are written on conservative stocks. The covered call
writer will suffer losses if the underlying security price drops. The most
significant measure of this risk is the volatility. Writing covered calls on
stocks with low volatility is conservative. Writing covered calls on highly
volatile stocks is inherently more risky.
·
Effect
of Dividends on Calls
When
a stock pays a dividend, the price of the stock is reduced by the amount of the
dividend. For example, if Frontline (FRO) closes at 41.50 and pays a $2.00
dividend, the open price will be adjusted downward prior to the open to $39.50.
There may appear to be an advantage to the call writer, since it is known that
the price of the stock will drop. Why not sell the $40 call when it is known
that the stock will drop $2? The short answer is that the call is discounted to
reflect the impending drop in the stock price.
Regards,
Covered
Call Alert
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