To all:
I just read Steve's post 488, and I think you make some valid points and present an interesting strategy. I too have three companies I know and follow very well for trading. With my covered calls, I buy stocks monthly solely to capture premiums. I got bit when I first started by simply going for the stocks with the highest premium, ie IOM at 35 etc.
Now I am much more selective. My goal is to realize a 10% monthly return through a combination of premium and movement to strike price. Ideally I purchase a stock with 5% premium and 5% growth potential, on margin this is 10% and 20% respectively. However, I always will go for the full 10% in premium if it is available, ie the other day bought MEDA at 12 3/8 sold Feb 12 1/2 at 1 3/8 instead of the Feb 15 at 7/16 with much higher growth potential.
Patience is indeed the key to any covered call program, and impatience is the most harmful thing. You can't worry that your stock went 3 points above your strike price if you realized your desired return through the cc strategy.
A couple of weeks ago a buddy of mine did a cc play on PPD and the price moved $2 above his strike price. He wanted to buy his call back at a loss and ride the stock higher. We discussed it, and he realized he already had his 20% for that month. He held tight, and sure enough the stock came back down a few days later. If he had bought the call back and the stock come back down he would have lost all of his profit. Sorry to be so long winded, but I truly believe that cc's are an excellent steady money maker, and I know for a fact that you can realize 10-20% per month by doing some homework. I also recommend using a disount broker, so commisions don't eat all of your profits.
Rgds. BDodd |
