A Solid Covered Call Writing Strategy
Protects You in a Flash Crash or Market Meltdown, AND Let's You Earn 3% to 5%
a Month Even When there is Blood in the
Hello and Welcome,
Covered call writing and covered call option strategies are passions for me
and helping others to learn how to safely generate returns of 3% to 5% per month is a mission!
If you are wringing your hands during this crazy up and down market, then
take a deep breath and relax because you are in the right place.
First, download your Free 50-page
Expert Covered Call Strategies Report. It's packed with vital information to help you get started
Covered Call Definition
A covered call is when an investor who owns a long position on a stock sells
(writes) a call option on that same stock to generate income. This is also called a "buy/write." They say it's
"covered" since the investor owns the underlying stock.
For those who are new to options and or investing, see
the Trading Terminology
FAQ for a better explanation of option terms.
Why bother with Covered Call
Covered call writing works in up markets, down markets and
There are strategies for selling covered calls in any market; giving you the
rock-solid peace of mind that comes from creating spendable income month after month no matter what happens to your
job, social security or the world for that matter.
I don’t know about you; that makes me feel pretty good!
With anything, knowedge is power. If you are serious about generating monthly
income, then keep reading so you become familiar with the concept. If you are an experienced investor, then maybe
skip to the Call Strategies pages.
A real covered call example: 3% on Microsoft in less than
At a dinner with friends who were wringing their hands about the market, I
launched into a story about a simple trade that everyone at the table could do with one phone call.
During this particular dinner, just about everyone owned some Microsoft (
MSFT). At the time MSFT was trading about $26 or $27 and just trending along. I asked if
they thought the stock was going to go up in the next 4 weeks, down or just stay the same. The consensus was pretty
much the same trend; no earnings in sight and no news.
So I said that you could sell the next month $28 call and get maybe $.80
in premium (this was around 2005 and
volatility was high if I remember correctly.).
If you bought the stock at $27 and then sold the front-month call for $.80, you
earned almost 3% in less than 4 weeks!
And, if MSFT went up to $28 at expiration, you banked another $1.00 on top of that
for a total return of 6.6% (remember - less than four weeks). The risk; well MSFT could go down. In that case,
since you collected $.80 in premium, you own the stock at $26.20. That offers good protection and after all, it is
Microsoft! (Don't worry! There are more covered call examples and call strategies to completely protect you if
the stock totally tanks in other sections)
Rule #1: The Best Covered Calls are on Solid
Select solid stocks that have a decent
premium, pick your strike price depending on the market cycle, and plan to be assigned if you are not a long
term holder of the stock. This means that the person (the "other side" of the trade) who sold you the calls
exercises their right to purchase the shares at the option strike price; with you keeping the
If the stock is below the strike price you get to keep the stock and the premium.
You now have a choice, sell more calls for the next month or sell the stock, assuming that it is close enough to
the strike price and what is lost on the stock is made up in the premium. There are some
great covered call screener to
help you with this.
Rule #2: Do Not Get Seduced by Fat
Do not be seduced by fat, juicy premiums. This happens a lot
to novice call writers. Stocks like Rambus that are very volatile offer very enticing premiums.
Danger! You could find yourself down $5.00 or more on the stock in a heartbeat
based on sector news that may have nothing to do with the company. Don’t get me wrong, this is not a statement on
Rambus; it’s a statement on peace of mind. Part of the education to become a terrific covered call writer is being
able to understand stock cycles and become familiar with a stock's movement. After a while, they become
And for those who just were freaked out about the example above of a stock like
Rambus tanking, you'll get great peace of mind on the Covered Call Option Repair Strategies page!
Writing Covered Call Options IS NOT Time
The total time spent doing these trades is only a few hours a month, if that. Once
you get down the road on a few trades, you will probably be like me and have your list of stocks and keep going
The more you understand how a certain stock’s moves, the more comfort you
Don't Worry: Be
Happy (Generating Lots of Cash!)
Please don’t worry if this is your
first time exploring covered calls and some of what I have written sounds foreign to you.
Check out the Trading Terminology page and spend some time on the other pages
where there is more detail, or email me with your questions.
My hope is that I have stirred some emotions in you! If you want the peace of mind
of dependable monthly income, then covered call writing
can be very lucrative.
Have fun exploring!
If you have any questions, please don’t hesitate to email me