looks like a good thing I made a killing two weeks ago as that covered me last week.
Remember this is options expiration week this week, so the SPX will be trading like the RUT this week with the Friday morning settlement.
I will definitely be trading this week, so when I have the trade I will post it here. Hope you all had a great last week!!!
QUESTION
Why don't you trade in covered calls? This would seem to be a very safe trading strategy with a couple of ways to make money.
Ok, great question. I don't trade covered calls in my trading account for a few reasons.
First, I can make more money with pretty much the same risk level trading the weekly options market.
Second, covered calls require a substantial capital investment on an ongoing basis. Trading covered calls means that you have to have 100 shares of stock for every 1 call you sell - so for a $10 stock that is a $1,000 investment in the stock for each call you write. Now there are some websites and newsletters that claim they can fond you great premium on "cheap" (meaning priced $12-$15 and under) stocks, but I have yet to hear any long term great reviews for those sites and newsletters (BTW if you do subscribe to a great site or newsletter - tell me your story - and if I can verify I will gladly print the details here).
Third, covered call writing really isn't designed to be an income strategy, it is designed to be a supplemental income strategy. There is a BIG difference. An income strategy is one where you could use the strategy to live off - like I do with my weekly options strategy. The covered call strategy isn't geared for that until you have MASSIVE amounts of stock. when I am writing this, LNG (Cheniere Energy) is @ $15.87 and trading in the March expiration for $40 per call sold ( a 2.5% ROI) and $135 for the April expiration at the $15 strike price ( a 8.5% ROI FOR THE MONTH!). So to make a good income, not great, just good you would need 15 blocks of 100 shares to make $2,025 for the month of April. That would mean that you would have to tie up $15.87 X 1500 shares or $23,805. using the weekly options using historical returns this year of 5.025% per week I could make $5,224 on that same $23,000 until April expiration. That is more than double. Also at the end of April expiration I would still have my $23,000. Getting the good premium at the $15 strike price means that the stock would be called away at a potentially lower price than the market. Plus what if the market in LNG tanks and the price goes to $10 or lower. Then I am really screwed over!!!
I trade weekly options because when the analysis is done well and I follow my rules I can make more money safer than with covered calls.
Now I am not ripping on this strategy saying never use it. If you have stock in a self directed IRA account and plan to hold it for a long time than you cna use the covered call strategy to gain some extra income. I will tell you I do use this strategy for part of a Roth IRA that I want to hold long term in stocks. The dividend plus the premium of the calls does a good job in boosting the yield. Granted this is a small part of my Roth. Most of my Roth is put to use in weekly options so I can grab the much higher return. But I do like a little island of calm and slow and steady boring growth.
Keep the questions flowing! They are great!
DISCLAIMER: Hashley Capital Management, LLC; as well as myself are not giving any trading advice. All data is historical in nature and is intended for use as an educational tool. Trading in options is risky and can result in loss of capital. There is no attempt to sell any brokerage services or act as a broker or dealer by Hashley Capital Management, LLC. Any forward looking comments on this blog are not attempts to solicit business for Hashley Capital Management, LLC. If you choose to follow the same path and invest in the strategies and trades used by Hashley Capital Management, LLC after doing your own due diligence than that is your decision and yours alone.
TTFN
Ash
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