PapaGeek
Contributing Member
Cash: $ 8.80
Posts: 41
Joined: 17 Jul 2014
Location: Maryland
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| Short Term Covered Calls |
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Would anyone like to talk about short term covered calls?
The following illustration shows how the demand for options created by the option traders artificially inflates the time value of options which of course must drop to zero on the option expiration date.
If you are careful in the stocks you write covered calls on and use the proper timing for the options, you can basically steal this time value each month.
PS: On edit, I forgot to mention that covered calls are the only type of option play you can make in an IRA account, and they are nowhere as complex as the types of “butterfly” and “condor” schemes that the fulltime option traders use.
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Sun Oct 19, 2014 8:40 pm |
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oldguy
Senior Member
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Joined: 21 May 2006
Location: arizona
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Yes, they can be fun. I did that maybe 25 yrs ago, MOT and DIS. I wrote calls on them several times, my stock would be called about 1 time in 4. And usually I would buy the shares back. I was more comfortable with the 'sell' side than with buying puts.
I was a trader long ago - options (buy and write), corn futures, option on corn, penny stocks, charting, trending, sectors, ETFs, and several others. But only after I quit trading and started investing did I become wealthy. Actually, it was liberating to finally grasp that timing cannot work and that the future cannot be predicted.[/b]
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Sun Oct 19, 2014 11:54 pm |
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blixet
Preferred Member
Cash: $ 32.55
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Joined: 28 Apr 2013
Location: Southern California
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quote:
Originally posted by oldguy
I was a trader long ago - options (buy and write), corn futures, option on corn, penny stocks, charting, trending, sectors, ETFs, and several others. But only after I quit trading and started investing did I become wealthy. Actually, it was liberating to finally grasp that timing cannot work and that the future cannot be predicted.
I am convinced that this is a realization that is best/only achieved through experience.
"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design." - Friedrich Hayek
Information is more valuable sold than used – Fischer Black
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Mon Oct 20, 2014 1:30 am |
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PapaGeek
Contributing Member
Cash: $ 8.80
Posts: 41
Joined: 17 Jul 2014
Location: Maryland
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I started my stock trading back in 2006 when I attended the Investools seminar. I did fairly well then decided to get into options and found out that the only option I was allowed to get into in my IRAs was the covered call. I looked on line and found, of all web site names, the “Covered Call Cowboy”, some guy from Texas who did teach me all I needed to know about covered call. The only problem was his choice of stock was based on which call gave the best return. It has been said many times on this site that the highest return indicates the highest risk, and that was the case.
I then found a book called “Rule #1” by Phil Town and used his system for choosing excellent companies at a bargain prices. I then started writing covered calls on stocks that I wanted to own and started making money on just about every call option. I started the combined strategy in early 2008 but got too cocky and did not follow all of the signals I learned in the Investools seminar. All the money I earned in 2008 was lost in December 2008 and January 2009.
I took a job with a hedge fund in February 2009 were it was too risky to buy and sell individual stocks because I could be blocked from buying and selling individual companies with no notice.
I retired in September and am now free to start trading the covered calls again. My target return back in 2008 was a 3% to 5% monthly return. I need to do a lot of preliminary work before I start up again, but hope that rate will be available again soon!
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Mon Oct 20, 2014 5:17 am |
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