MEMBERSHIP IS NOW CLOSED
Writing Covered call is one of the oldest and simplest option trading strategy. There are hundreds of websites both paid and free. There are hundreds of screeners (if not thousands). In fact, many funds are being created which utilizes Covered Call strategy and they benchmark performance against BXM (the CBOE’s buywrite index). Based on recent research, total growth for indexes since mid-1986 was 830% for BXM Index, 807% for S&P 500 Index. Albeit, hardly few traders are consistently able to outperform BXM or S&P500.
If you are wondering what covered call is, it is as simple as –
- Buy Stock
- Sell Call
- Wait, watch, Monitor, collect income
- Rinse, repeat the process next month
Though it is easier, you may want to check out my earlier post (Part-1) for do’s and don’ts. I shall be introducing more articles on that in the coming weeks. After waiting for almost 5 years, I am now starting a covered call specific idea newsletter. Why now?
As you may know covered call strategy will outperform buy-n-hold strategy –
- In sideways markets
- In downward markets
- In slowly upward trending markets
Where it doesn’t outperform is the fast and furious rallies like the one we experienced since debt ceiling alignments. Thus IMHO, this is probably one of the worst times to start covered call process because-
- Stock market is bubbling with Euphoria. There is hardly any fear and markets are making all time high, day after day thus there is hardly any value left.
- Implied volatilities are amongst the lowest level thus income yields are amongst the lowest level.
I am taking up this challenge to weave an approach that is aimed at outperforming BXM utilizing a $100,000 model portfolio. Though it is a passive trading approach mostly, I plan to manage it dynamically. So far my passive approach alone has delivered +23% for the year (net after commissions) far outperforming the BXM index and slightly ahead of S&P500. Here are more details about SmartWrite
Objective: Outperform BXM on Annual Basis
Trading Approach: Long term, passive. Yield Enhancement. Investing vs. Trading.
Who is it for:
- Those who are looking to for a simpler strategy to generate additional income yield
- Buy and hold investors who want to generate additional income from their shares
- Those who are looking to learn from a real-time experiment
You will have immediate access to all the trades (started only On Oct 2 2013). It’s ACTIVE LEARNING i.e. hands-on training vs. a traditional class room set-up.
Who is it NOT for:
- Someone who is looking for trading ideas everyday
- Who is looking for get-rich-quick trades
It was only open to OPN Members since Oct 2. Now it is opened to all the OP readers. If you would like to join, pls click at the sign-up button on the right. The seats are limited and will be closed on November 03, 2013. The cost only $49/month [Paid as one time $294 for a six month access].
Here are some generic questions. Should you have more questions, please post in the comments section-
Here are some FAQs-
Question- This will be owning stock in something and selling OTM calls against it, correct?
Yes and some more e.g. protecting it as well based on my directional/non-directional view.
Question- Which instrument will you use?
Multiple but mostly the companies that I would like to own. Basic principle- I am buying stocks and then writing covered call vs buying stocks to write covered call.
Question – What would be your goals (ROI, Learning) for six months?
To outperform BXM, the buywrite index (and stretch target will be to outperform S&P500 as well)
Question- How many trades per month?
I have selected a portfolio of 10 underlying, so at best 10 trades/month (mostly rolling calls) in worst case, probably double roughly.
Question- Are we going to learn how to select underlying and entry/exit criteria?
Yes. That’s the whole point of inviting only a few friends. But it will not be as frequent as OPN. Once we have set-up the trade, we want it to be as boring as possible.
Question- Is the strategy limited to covered calls or will you compare it with other strategies like selling naked calls?
No naked calls. You may compare with naked put selling (as it is same selling covered call) but that’s not really the objective. The idea is to have a portfolio that is designed to generate better yields. It is not a trader’s portfolio. It is more of an investor’s kind of portfolio.
The journey begins now,
Profitable trading, OP