Hi Walter,
Thank you for compliments! You asked very valid questions that warrants a straight answer (an opinion). First, Mr. Cook's seminars and/or books attempts to "hype" the products, methods and strategies that their are obviously selling. I enjoyed Cook's book, "The Wallstreet Money Machine" because it matched my investment style. It is more of a long term investment strategy that does provide monthly income in sideways and upward bull stock price markets. Covered call writing also provides a considerable amount of DOWNWARD STOCK PRICE protection for your portfolio if you use it correctly.
Thus, it keeps you in the "GAME" alot longer and shifts more of the risk to your call buyers. That aspect is not clearly covered in the book nor at their seminars according to people that have emailed me! I'm amazed because those individuals paid a pretty stiff price for the workshops.
Now my ROSS STORES case study! I selected ROSS out of the clear blue sky. I was in the store a week before I read about the split announcement. I started to do my homework and I liked what I discovered! THAT IS CRITICAL TO BEING SUCCESSFUL in covered call writing. You don't want to start out with a dog and have to clean up after your new mutt. If you know what I mean?
Walter, when I put all of the stats together about ROSS STORES I was pretty sure (from my experience) that this would turn out in my favor. There was so much going for this company like EPS, timing for the earnings report date, timing for retail sales figures, Ross Stores low P/E, increase dividend, 2-1 split announcement. This company knows exactly what their are doing and I'm putting my money on the ROSS team.
I purchased the options because I'm locked in my other covered calls until the March expirations. I just mailed more money and I will have enough to excercise the four hundred shares for starters. I was going to unload my US Robotics until this 3Com merger came about last week. Now, I'm seriously thinking of holding out because of I will gain 1.75 shares of 3Com for each of my USRX., Combined the two companies will have 3 billions dollars in revenues, both companies have P/E lower than 18 which is fantastic in this day and age. The stock prices are at low points right now.
Now, this would have applied to ROSS. I still have a lower net cost basis in USRX even after a 20 point drop over the past two months. Now, that is what you can do with keen covered call writing. I have not made money with this particular stock. But, I have not lose my shirt off my back. I'm riding this baby bareback!!!! I going to break this mother in and make a profit and prove it to myself. Other stocks are easy compared to this explosive stock.
So Walter, if I'm not intimated by USRX ups, down, and sideways price spasms, ROSS STORES is a wimp in comparison. If I'm going to buy a stock I going to buy something I can understand, can determine it's value, and be willing to ride out the ups and downs. Timing the markets is labor intensive and the MAJORITY OF INVESTORS CAN'T DO IT! Most people lose money in the stock market because they go in and out, over and over again looking for the major score to wipe out all the losses. Me, if I can make 10% per month, or not lose 20% per month, then eventually I'm going to make a profit that will be worth it!
It's like going fishing. If you are uptight about losing a few hooks, sinkers, and bait along the way, you will never catch a good size fish when it happens to come over to your line!
THE RULES FOR COVERED CALL WRITING:
1. Understand the dynamics of covered call options trading!
2. Learn to become a good stock picker! Fundamental vs. Technical Indicators.
3. Use margin wisely and NEVER 100% of your limit! Beginners 25%, Intermediate 40%, Experienced 50%-60%.
4. Always know your net cost basis! KEEP AN EYE ON THE NUT!
5. When stock prices drop excessively, ALWAYS look to cover your calls if you retain 80% of the premiums! Wait for slight price reversal and write out one or two months at a lower strike price (above your new net cost basis).
6. Use the premiums and buy when low stock prices to average down your holdings whenever possible. That will dramatically increase your rate of return and increase your monthly cash flow!
7. Keep it simple and avoid fancy call spreads! Remember, only 20 percent (at best) of options ARE EVER EXERCISED! Stop worrying about being called out! If you are playing the game CORRECTLY that is the least of your worries! THE MONEY IN YOUR POCKET NOW IS REAL AND CREDITED TO YOUR ACCOUNT!
You are playing a cat and mouse game where you are pulling the strings of your call buyers! Why would you want to let them eat your cheese?
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