Elmer,
For that matter, you could write July at the money 27.50's, for $1.65, or 6%, for less than one month. Theoretically, if you sell at the money calls with a 6% premium and get called out each month, your compounded return would be 90% at the end of one year (minus commissions and short term cap gains tax).
There are two downsides to writting calls as an ongoing strategy. The first is the opportunity cost if the stock goes up a lot. The second is if the stock goes down a lot, yes you collect the premium, but the next month when you go to sell calls, you may be selling at 6%, but it is 6% of a much smaller gross dollar amount. And the stock can continue down. When you eventually get called out, it's usually on a strong rebound in the stock, and you get called out at a much lower price, and never recover your original investment. (I know, I've been there) Selling CC is a better strategy if can use some common sense stock price timing, and the time premium erosion gives you a bunch of wiggle room that a pure stock trader doesn't enjoy.
Selling covered calls is a good conservative strategy, but not without risk. Just as owning stock isn't without risk, as we all know too well.
John |
