Good morning Sam,
First, never put yourself down for the size of your portfolio. I'd bet that ALL of us are trading/investing with a lot less money than we were a year or two ago. I know I am.
Buying a solid stock and writing a covered call on it, keeping in mind that you could get called, is an eminently reasonable play. I'm not a big fan of writing LEAPs calls on stock because it's less lucrative than writing them closer in. Here's an example:
Buy CSCO at $19.50
Sell the 2002 20-strike LEAP @ $4.80
In this scenario, you're sitting on a relatively bearish play on CSCO, essentially saying that you don't think it will be much above $20 in seven months. You'll make about 25%.
Scenario #2:
Buy CSCO at $20 (current price this morning)
Write the June $22.50 call (CYQFX) @ $1.30 (a 6.5% return)
If you did this, writing a close-to-the-money covered call every two months, you'd make a bigger profit over the long term, but it would involve more "work" on your part.
I like your thinking on this, Sam, particularly since I've repeatedly read that we're likely to see new lows this fall. |
