Part 5: 22 Reasons

Part 5: 22 Reasons to Write Covered Calls 1. KNOW RETURNS.  You can ascertain your exact profits before you put one dollar into an actual trade. You can chart and track stocks and weigh alternatives.

2. NO OVERHEAD. There is no overhead.  The traditional costs of business do not exist. You only have expenses (commissions) once you enter an investment or trade.

3. PAPER TRADE.  You can develop skills and build confidence with real, but simulated trades.  You can “paper trade” to get good at the basics, and use these trades to stay sharp when fully invested, or when the market (or your stock) change

4. FINE TUNE.  Every endeavor is definable—you can get better at application—including the use of tools, i.e., set orders, alerts, trigger points, charts and leveraging brokers. You can refine the process.DOUBLE DIPPING.  Selling a call generates income as it creates an obligation to sell the underlying stock.  If the stock dips (and option price lessens), or after time has elapsed, we can buy back the call option and free up the stock to sell the call option on the next rise, or sell the next month out.  EXAMPLE:  We sold the next month out $10 call in our previous example for 80¢, or $800. After a few weeks, the stock is at $9.40, but time has elapsed.  It’s the week before expiration.  We buy back the option for, say 30¢, or $300.  Our net is now $500 instead of $800.  Then, let’s say the stock runs up and we sell the same month $10 call option for 75¢ or $750.  Or, we sell the next month further out $10 calls for $1.30—taking in $1,300 more—this makes our total profits $1,800 ($500 + $1,300), and we still own the stock.

  1. USE THE “BUY BACK.”  If our $9.00 stock runs up to $12, we do not participate in anything over $10.  However, the buy-back (as described above) allows us to regain the upside and double-dip, even triple-dip.  The buy-back also allows us to keep our stock for months.
  2. PROTECT DOWNSIDE. We can use stop-loss orders or lower priced puts to get out of bad stocks.
  3. JUMPING BOARD. Basic covered call writing allows an easy way to move to certain spreads:  The Bull Call Spread (using long options instead of stock) and my favorite spread—The Bull Put Spread. Herein you have more cash flow and limited risk.
  4. REASON FOR HUGE PROFITS.  People often ask, “How can so much money be made?” Answer: We’re buying a fixed price stock and selling a fluffy option.  The option provides time, implied volatility and the speculative value.  We pocket the cash.
  5. REDUCE PRICE OF STOCKS. Generating cash into the account allows the stock market to pay for our stocks. The $1,800 made in #16 above puts our cost of $9,000 worth of stocks at $7,200.
  6. WADE COOK IS ON YOUR TEAM! Wade and our staff are in the trenches. We do what we teach and teach what we do. You benefit by learning actual trades. “We’ll stick with you until you make it.”

 

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