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WRITING COVERED CALLS—Why it works

Let us welcome you to February. First, we have a little quiz. Question #1: For years and years Expiration Date for stock options has been the 3rd Friday of the month. Nowadays, many stocks have weekly options—or at least more than once a month. Why was the 3rd Friday selected all those years ago? Question 2: Why did Federal Express choose Memphis as their hub? The answers? Write me at cabdriver22@msn.com. COMMENTARY: To understand this cash-flow process, what we call the ONE-TWO PUNCH—in explaining why Writing Covered Calls work—we need base point of understanding. It’s that we’re buying a fixed-price asset—in this case the stock, and at least if was fixed at the time we bought it though it may go up and down, stocks, in-and-of-themselves, do not expire. Then we sell an option against our position, giving someone the right to buy our stock at a certain price on or before an expiration date. Built into this stock option is all of the speculation and time to expiration. This option is a derivative, and is based to a large extent on the underlying volatility of the stock. Options expire, and if one were playing straight options, time works against them. That is why so many people lose playing straight options. With stocks, and many other forms of investments, time is your friend. Oh, to be sure, time can be an enemy when you have other factors playing into the picture—say wear and tear on rental real estate, and those darn renters. Because of this option expiration date, straight options are risky, and we recommend you practice trade, surround yourself with a good broker, AND only use money you’ve designated as “risk-money.” We love writing Covered Calls. This way we put time to work for us. We don’t buy an option, taking on the right to buy a stock—Oh, no, we’re to wise for that—we sell the option, pocket the cash now, and sell to someone the right to buy our stock at a price we like—and the option expires so we can do it again next month. It’s like rental real estate, sort of. If we actually sell the stock—which rarely happens, because we know the handy buy-back is ready to use, and we can end the obligation to sell at any time the position is still open. So that is what TDT is all about. Many people who read this are looking hard at becoming a member, and using their money more wisely—say it getting the asset to produce cash flow. That is a worthy intention. Oh, how I wish I could have had a service like this when I first started. A service that explains things by people in the know—people with years of experience and thousands of trades under their belt, and most definitely people who love to teach and share. Yes, I would have paid thousands a month. You read that right. Well, in fact, I did pay this many months. It was payment to the college of hard knocks. We love our subscribers and today is no different. So, let’s get on to the trades, and put the One-Two Punch to work for you.

© 2016 Wade B. Cook. Go to wadecook.org and get a Special Money Report: JOB FREE INCOME. This report will explain in detail how to get assets producing income.

Stock MarketWade Cook