My purpose of creating this thread is to develop an income strategy utilizing covered calls. Nothing new, but my strategy is a post retirement strategy which is not for a few years. One problem I recognize is that if you're invested in top stocks you're not necessarily generating income if those investments don't pay dividends.
1st I am a Point and Figure follower. I subscribe to the Dorsey Wright web site:
dorseywright.com
Dorsey has developed trading strategies based on Relative Strength
Throughout the day, DWA does a market sweeps to find attractive covered call scenarios. Usually 4-6 months out, and have an annualized return greater than 20%.
These trades will be loosely rules based but follow this general basis:
- Trades to develop these strategies will be paper trades but from time to time I may also make the trade for my own purposes in my actual accounts
- The starting account position will be $500,000 cash
- The intent will be to hold ~ $100,000 in any one month expiration position
- Positions will be made by buying equities from the top 5 ranked sectors in DWA based on relative strength
- Positions will be generated on a real (current) market value. I'll not look and say: "oh I could have made that trade" after the moment has past. I've done buying the equity and concurrently selling the call in this manner, so this is real.
- I will generate trades based my review of point and figure charts for those top sectors.
- The stock must be in a positive trend
- The stock is assumed to have been called away if the call ends in the money on the expiration date
- At this time I haven't determined what I will do with an equity that hasn't been called
- Trading reviews will begin after January 1st 2015.
- As on-line trading is so inexpensive, I won't account for the cost of trades
- I care less about the fundamentals of stocks, I trade solely based on a great Point and Figure patterns
(so if you're a fundamental trader, you might not get anything from this thread. I'm not here to argue merits of one vs the other, P&F works for me and that's all I need)
The top 5 ranked sectors (of 40 total) by RS are (Date 12/30/14):
Biomedical
Aerospace
Drug
Textile
Healthcare
- Writing Covered Calls is a bullish strategy.
Questions, critiques, participation are welcome.
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A recent trade I made (late October) as an example of this strategy:
I purchased NLNK for $39.35
I was able to sell the April 40 call for 15.18
I am currently down on the equity trade less than 1% (as of 12/30)
I am currently up on the covered call ~24%
At the time of this trade, a called trade produces an annualized return greater than 90%. It is not usual to see this great of a return. but sometime they occur.
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