Hi Dealer! Haven't stepped on the Porch for a while. Anybody seen the Beano family? Is anyone still trying to sell CCs for living?
I've dabbled at selling CCs and naked puts off and on for a few years.
But now, I'm working on developing a strategy of writing CCs for income. Really working the low stress thing.
Two issues/concerns: The Greed factor, and the Loss of Capital factor.
I'll outline how I'm planning to deal with both, and then I'd love to get feedback from the Porchie, and even some of the trolls who may be living under the Porch! (You know who you are!!!!)
I plan to write CCs on front month calls either ATM or one strike OTM on gorrila type stocks with a goal to achieve a 2% per month yield on the premium.
I feel the 2% is reasonable and achievable. If I can get more than 2%, fine, but I'm not going to try to chase the really high yields. To that end, I'll be choosing stocks with some, but not really high volatility.
So, with a limit on the Greed factor, we can hopefully choose stocks with a limited downside. However, there will be losses, so let's plan for those:
I'll try to write 1 strike OTM calls. If I get called out, the capital gain will be retained as captial, not treated as income. Also, any "excess premium", that is, premiums that exceed 2%, will be added to capital, and not be treated as income.
"Income" for the purpose of this discussion, is money that will be taken from the portfolio to support my meager lifestyle. I will have to pay taxes on the entire amount of Call premiums, and short term capital gains.
Now, the S&P 500 goes up at an annual rate of approximately 12% per year. Assuming that by selling calls I lose 1/2 of the appreciation, I should still be able to achieve a 6% growth in capital. (Ignoring the 'excess premiums' I may or may not get.) And by getting a 2% premium every month, I should be able to get a disposable income as well as modest portfolio growth.
Seems too easy, doesn't it? Where's the flaw in my reasoning? Why isn't everyone doing this?
Comments, please.
Adairm |
