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The Simple Strategy that Can Yield 3% to 5% Monthly in Both Bull and Bear Markets While Limiting and Defining Risk
Hello, Thank you for visiting MyCoveredCallWriter and downloading your free report! This is about to get really exciting! You now possess the critical information to GO FOR IT and start creating your own paychecks; earning 3% to 5% a month from writing covered calls. During my educational journey, I paid almost $200 buying books from Amazon and other sites and didnt get all the information that is contained in this report! And its yours FREE. When I decided to publish a site about my passion, covered call writing, I started to compile pages and pages of notes on past trades and what I learned so I could write my own comprehensive report. It was tedious and I was looking for more in-depth information. It was staring me in the face! One of the best resources I use for education and trade selection is a website called www.callwriter.com. John Brasher, Call Writer founder and master trader, offered me use of his special 50-page report for my subscribers. What a gift! This concrete report tackles all the concepts and strategies delivering rocksolid information to you faster than I could have written myself. Johns site has been up for 13 years and he and his staff are experts. One note; as you digest this report you will notice that General Motors and Lehman are used many times as examples. This report was written before the crash and those stocks were bell weathers at the time. If you were writing covered calls on them back then and used a collar trade or Johns Super Put Strategy, when these stocks when to low and zero, you would have made a boatload of cash! There are covered call strategies for all markets. Welcome aboard. If you have questions, please feel free to email me at tim@mycoveredcallwriter.com Cheers
Tim Leary
Special R eport - I n c o m e I n v e s t i n g w i t h C o v e r e d C a l l s
The Simple Strategy that Can Yield 3% to 5% Monthly in Both Bull and Bear Markets While Limiting and Defining Risk
Here a just a few of the things you'll learn in this Special Report:
Learn what covered calls and SuperPuts are and how you can use them profitably. Find out how covered writers can make 3% to 5% a month consistently. See how this strategy works even with a dropping stock and even in dropping markets. Learn techniques to limit trade risk to a few percent of the funds invested. Read about simple, easy-to-use strategies that generate a consistent income. See undeniable statistical proof that covered call writing is better than stock investing. How CallWriter tools cover you all the way through the trade:
Finding the highest-returning trades; Picking the best, most conservative trades; Tools for managing your trades for maximum profit.
You'll see how different and powerful our legendary tools really are. Read actual stories of ordinary people experiencing extraordinary success. Learn why CallWriter truly is different from other websites for traders. Learn why the CallWriter Method is one of the lowest-risk strategies of all. Watch us manage a covered call trade using our amazing TM Calculator. See how you can generate wealth without relying on or paying anyone else. Read how our methods are based only on conservative investments. Find out why CallWriter is the world's premier covered call website.
Special R eport - I n c o m e I n v e s t i n g w i t h C o v e r e d C a l l s
Special R eport - I n c o m e I n v e s t i n g w i t h C o v e r e d C a l l s
Say, t here are al ways financ ial advisers... and of c ourse, t hose great broker's t ips.
Just kidding - broker tips don't work, since brokers are not trained stock analysts, and a surprising number of them were selling cars or insurance a year ago. Worse, brokers frequently are peddling "house" stocks or have another hidden agenda. If you want to lose money very fast, buy the stocks your broker is recommending. Financial consultants and advisers can be knowledgeable about choosing good investments, but many aren't. Probably most aren't. It's not as though they have to demonstrate real investing acumen to become licensed. The problem is that brokers and financial advisers get paid commissions when you buy the funds and other products they recommend. They make money when you do, and they make money when you don't. Maybe their recommendations are honest and competent, but how will you know until it's too late? Unlike CallWriter, they certainly do not give you the data and training to pick good income-producing investments for yourself, manage them properly and limit your risk, if you choose.
T he t ex t book "safe invest ment s" just pic k your poc ket s.
The returns from bank savings accounts or certificates of deposit, from U.S. Treasury notes and bills, tax-advantaged municipal bonds and similar instruments, are terribly low. Things like corporate bonds pay a higher return, but offer a much lower degree of safety. What a Hobbesian choice - a safe, horrible return, or a slightly better but riskier return. The dollar (falling and at a 15-year low as I write) and inflation are wiping out those miniscule returns, anyway. The government's core inflation measurement does not include food and energy, so if it seems the old paycheck doesn't go as far as it used to, it doesn't. Bad enough dollar devaluation and price inflation steal your paycheck, but your investment returns, too? I would never argue with anyone who believes these investments are the way to go. But they can do no more than protect your nest egg, and that's IF the nest egg outruns inflation and the dollar fall. They will not build wealth.
I f you have not had c onsist ent suc c ess: why not?
Here's an answer that makes a lot of sense: the deck is stacked against the retail investor and trader. Do you have the skill to pick the stocks that will gain in value in a few years, a few months, a few days? Few do. The good news is that about 10,000 different magazines, web sites and television pundits all know just which stocks you should buy today. The bad news is that none of them pick the same stocks. Good luck picking the right one to follow. Do you have that rare skill to time stocks like the successful day traders and swing traders, and can you sit in front of a computer monitor all day waiting to catch the moves? If you haven't had consistent success with your investing, there might be several very good reasons why not. Here are a few of the most common culprits:
1. You relied on stock tips from brokers, advisers, pundits or friends. 2. overwhelmed the good trades.
You've tried a strategy that worked sometimes, but sometimes not, and losses
You subscribed to a picks service, and the picks were bad, uneven or only
Special R eport - I n c o m e I n v e s t i n g w i t h C o v e r e d C a l l s
4. results - or losses.
You keep flitting from one strategy to another, but they all produce uneven You've tried buy-and-hold investing and your account just doesn't grow because You've been to seminars that didn't help (mine do, by the way), because they didn't show you how to make money, and mostly wanted to upsell you to other products. Or maybe, just maybe, you've never deployed a strategy that can work
7. consistently in different markets, because you just didn't know there was one...
Let me raise my hand here and say that I have done ALL of the above, so I'm not talking theory here! But even if you are doing something that is working, consider the possibility of devoting unused corners of your account to a conservative, income-producing strategy.
I t 's al l about c ash fl ow, not invest ment savvy or st oc k- pic king.
What do guys like Warren Buffett and Donald Trump have in common? The answer: cash flow. Business is measured by its cash flow and the quality of its earnings. Investors and the market all breathlessly await the earnings report, not the asset report or book value report. Cash flow: business lives and dies by it. Thus, how odd is it that American investors are constantly exhorted to simply buy and hold unproductive investments - something that no captain of industry or businessman ever has done or ever will do? It really is simple. Your money should be working for you - conservatively, regularly generating income.
T he al t ernat ive: inc ome invest ing using t he Covered Cal l st rat egy.
Does the idea of using an income investing strategy to generate 3% to 5% a month on your funds appeal to you? That's 36% to 60% annually, without any compounding of returns. Do you like the idea of confining your investing to only high-quality, conservative stocks, the kind that competent financial advisers would recommend if they didn't live primarily on commissions on the products they actually recommend? How about using a simple strategy to limit your risk in each trade to only a few percent of the amount invested?
Note: According to the Chicago Board Options Exchange (CBOE), the world's largest, writing covered calls is more conservative than just owning stocks without getting income from them - which I think of as naked stock.
Below you will see statistical proof that covered call writing outperforms a stock buy-and-hold strategy. But now let's take a look now at the covered call, a conservative income investing strategy whose popularity is growing in leaps and bounds...
Special R eport - I n c o m e I n v e s t i n g w i t h C o v e r e d C a l l s
1. You buy the stock, or already own it; 2. You sell call options against the stock; 3. You pocket the call premium; 4. You sell the shares, locking in your profit; then do it again! 5. If you want, you can limit risk to a few percent of the funds employed.
Now, how difficult does that sound? It isn't difficult, and it is very easy to learn. The hard part, as in all investing, is to exercise patience and discipline. But first we must be clear what call options are...
Special R eport - I n c o m e I n v e s t i n g w i t h C o v e r e d C a l l s
A standard option contract covers 100 shares of stock, so for example to write calls on 500 shares, you would have to write 5 contracts (5 x 100). Even though options are contracts, they are not like a loan or purchase agreement - there is no physical contract. The Options Clearing Corporation (OCC) sets the terms of all equity (stock) options. In fact, all equity call options are identical except for: 1) the st ri k e p ri c e (ex: $35); 2) the e x p i rat i o n m o n t h (January, February, etc.) 3) the u n de rl y i n g st o c k subject to the option (ex: General Motors) This is why selling an option is referred to as writing a contract. But you don't literally "write" anything, nor is there any paper contract to negotiate or prepare. You just buy or sell options, pretty much like stock, by entering an order with your broker (very simple, and I'll show you how). Stocks are simply bought or sold (or can be sold short). But you initiate a purchase or sale of options by buying or selling to open. You close the position by then selling or buying to close - that is, the opposite order.
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= =
10% 90%
But what DOES work is to sell call options to the speculators and hedgers, who will pay whatever they have to! In fact, the technique that works like a charm is to sell call options that offer fat premium on very high-quality stocks. This generates huge returns. I talk further on about what a "high-quality" stock is, and isn't.
Special R eport - I n c o m e I n v e s t i n g w i t h C o v e r e d C a l l s
Covered Call
Suppose we bought 100 shares of GM for $35 a share and simultaneously wrote the $35 call against those shares for a $ 1.7 0 premium. This would bring in $ 17 0 of premium ($1.70 x 100 shares). Writing the calls lowered our cost basis in the shares to $33.30 (35.00 - 1.70), slightly reducing our risk from a price drop. If we sell the shares for $35 or more after the calls expire, we keep the entire $1.70 in call premium. In the normal case, we would be in this trade for 30 days or less. This $1.70 premium would represent a 5 .1% return (1.70 33.30 cost) for a one-month trade. I'm not exaggerating, a 5.1% return on your money for one month on a very conservative stock. Of course, you can write a new covered call every single month. Here's how the trade looks if we write an at-the-money call, meaning that the exercise price of the calls sold is the same as the stock's price:
Amount
-$ 35.00 +$ 1.70
Cost Basis
$35.00 $33.30 $0
+$ 35.00
+$ 1 .7 0
That's not bad for a trade of 30 days or less! That's more than your "uncle" in Washington pays in interest on T-Bills for an entire year! A 5.1% return for one month roughly equates to a 6 1.2 % annual return, without even compounding returns (more on that later). Now, that should get your motor running! This is why we write covered calls. If GM's price is above $35 when the option expires (they expire on the Saturday after the 3rd Friday of each month), then the stock will be called away - you will have to sell it. But that is no problem: you simply buy it and write it again, or buy a stock you like better and write calls on it!
Note: The price of General Motors could of course be down when the option expires, but we will see a little further on how to handle that situation and profit from it.
Now let's look at a similar example in which we expect the stock to go up and we sell a higher-strike out-of-the-money $40 call (instead of the $35 call) for a $ 0 .6 5 premium, or $ 6 5 in total premium. This call write lowers our cost basis to $34.35. If we are called out at the higher $40 strike price, our profit will be $ 5 .6 5 per share ($565) a whopping 16 .4 % for one month, an eye-popping 19 6 .8% annualized!
Special R eport - I n c o m e I n v e s t i n g w i t h C o v e r e d C a l l s
General Motors (GM) Out-of-the-Money $40 Calls Written Action Amount Cost Basis
Bought GM shares Sold GM Dec. 40 Call Sold GM shares when called -$ 35.00 +$ 0.65 +$ 40.00 $35.00 $34.35 0
+$ 5.65
Why was this return so huge? The reason is that we received the $0.65 premium when the trade was placed, and then we made an additional profit of $5.00 per share when we sold them at the $40 exercise price. Had the GM shares not made the hoped-for move, we still would have pocketed the $0.65 premium for a return of 1.89 % ; not a great return at all, but it still annualizes to a 2 2 .7 % return. A return of 1.9% a month will still add up to a great annual return. So even when you don't do that well at covered writing, you can still do pretty darn well. But wait a minute, what would happen if GM's price rose, but not all the way to $40? Suppose it only rose to $37? The answer is that the stock would not be called away (no one would exercise a call to buy it at $40 when it is trading at $37), and we could sell it at $ 3 7 . This would still bring in an extra $200 per share profit - total return on the trade in that case would be $ 2 .6 5 , or 7 .7 % (2.65 34.35 cost), which is only 9 2 .4 % annualized; only!
Special R eport - I n c o m e I n v e s t i n g w i t h C o v e r e d C a l l s
Note the swings in price over 3.5 years of trading. From the original high of $54, GM has oscillated up and down, making numerous swing highs and lows. The decline from $54 to the very brief low of $19 took almost two years. GM has been somewhat volatile over time (for a blue-chip), but it's still a giant company that due precisely to that same volatility has thrown off great premium most of the time. Take a look at the following weekly chart of GM. Ugly, right? Not for a covered call writer:
Assume that the average price of GM during the period of February 2004 through October 2007 (42 months) was only $30. It was actually closer to $35, but lets use $30 to be conservative. The next table shows realistic assumptions of how a covered call writer would have done by writing calls every month during this period of 42 months on GM:
If we had bought and held GM every month at an average cost of $30, while writing calls on the stock at an average premium return of 4% per expiration month, we would have netted an average return per month of $ 1.2 0 . That would be a total premium stream for the 42-month period of $ 5 0 .4 0 (30 x 4% x 42). Had we owned and written 1,000 shares, the return before commission costs would have been $ 5 0 ,4 0 0 . Since we paid $54 for GM in this hypothetical example, our return was 93.3% for the entire 42 months, approximately 25% annually. This return includes no compounding of income generated, nor does it assume buying more shares when GM was cheaper. Even at an average of 3% per month, which is lower than actual historical premium levels, writing GM for this period would have yielded $ 3 7 .80 per share in income, or $ 3 7 ,80 0 on 1,000 shares. Yet actual premium levels on General Motors probably averaged closer to 5% monthly!
Special R eport - I n c o m e I n v e s t i n g w i t h C o v e r e d C a l l s
GM as I write this is trading at $38. The net effect would have been to pull in over $ 5 0 of premium income before trade costs, and we would still own a stock worth $38 - that still is throwing off excellent call premium. How did we do? This is covered call writing, conservatively done. As GM's price dropped, we simply would have kept writing the shares, and if called out at a lower price, we would have bought the shares again and kept writing. Note: This technique of writing a stock that is down for continuing income assumes that you confine call writing to large, established and profitable companies - the best companies. Writing unprofitable companies should be restricted only to giant companies such as General Motors.
I 've heard t hat peopl e c an l ose money wit h c overed c al l s. I s t his t rue?
Of course it is. Any time there is a chance to make money, there is risk - although my SuperPut covered call strategy comes about as close to riskless as possible. But over a decade of writing covered calls and watching what hundreds of CallWriter members have done, it is quite clear where the losses come from: poor stock selection (writing small, unprofitable or overvalued companies, primarily) and in the case where good stocks were written, from panicking over ordinary price movements - instead of creaming the stock for more premium. In other words, most losses in covered call writing are needless and come from thinking like swing traders instead of income investors. The General Motors example above furnishes a perfect example. Many people would have panicked and sold GM shares, taking a needless loss, as the stock declined from its $54 entry point. The patient and disciplined call writer would have realized that stocks can move around and would have reveled in the high levels of premium and income stream GM yielded, instead of panicking over the stock price. Keep your trade selection frosty (I teach you how), and use patience and discipline. This will keep your account raking in a fine income stream. We've now looked at what a covered call is and how it works to produce income. Now let's take a look at how covered call writes do depending on how the underlying stock performs.
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1. 2. 3. 4. 5.
Go up a lot in price. Go up slightly in price. Stay about the same price. Go down slightly in price. Go down a lot in price.
Stock goes up a lot in price. Stock goes up slightly in price. Stock stays about the same price. Stock goes down slightly in price. Stock goes down a lot in price.
*We might or might not take a loss on a stock that drops a lot. There are techniques
to protect against loss on a dropping stock and even profit from it.
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What ot her st rat egy provides t his fl ex ibil it y and profit abil it y?
To be brutally honest, I can't think of a one. Almost all trading strategies either rely on the stock moving, or in the case of certain types of option spreads, on the stock not moving. But covered calls can win in a wide range of circumstances, because they generate income - cash flow. That is WHY we are covered call writers in the first place. Covered call writing is not perfect; there is no perfect strategy. But the CallWriter approach wrings high levels of income out of the best companies. And our SuperPut strategy allows the same high-income generation with very limited risk. But I promised statistical proof about covered call writing. Here it comes -
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Statistical Proof:
Cov ered call income inv esting performs better than buy-and-hold stock inv esting
Writing covered calls is more conservative than just owning stock. Chicago Board Options Exchange
15.5 23.0
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For the total 15-year period examined, the average annualized return from covered call writing was 12.4%, versus 12.2% for buy-and-hold investing. That is, covered call writing beat the buy-and-hold stock investing strategy! The margin of victory was not huge, but remember: the BXM strategy duplicated the results of writing every S&P 500 stock, even the weak, unprofitable ones - which a covered call writer never would have done. True, an investor would not have bought every S&P 500 stock, either. But in good years or bad, would you have bought the right stocks? And the straight investor would have had no income from them. Take note, however, that in certain years, the S&P 500 only netted a paltry return of 3.1% (1990), 7.6% ((1992) and 1.3% (1994). On the other hand, note the market returns for 2000-2002, which were 9 .1% , -11.1% and -2 2 .1% . Great Scott! But here's the fun part: since you cannot buy every S&P 100 stock, you would not have gotten the great returns in the best years unless you bought the right stocks! Yet a covered call writer should be making 3 0 % + every year, by focusing on the very best stocks with acceptable call-writing returns. And you get to decide what is acceptable. On the other hand, the volatility experienced when writing covered calls is significantly lower than simply buying stocks. The standard deviation (calculated monthly) of covered call writing over the 15 years was 9 .9 % compared to 14 .7 % for buy-and-hold investing, which means that covered call returns showed only two-thirds as much volatility as buying and holding S&P 500 stocks.
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For example, if you bought stock at $36 and the stock is now $80, you could purchase an $80-strike put with an expiration date as far out in time as 2.5 years. The put gives you the right anytime during its life to sell the stock at $80, which guarantees you that price. But what if the stock collapses back to, say, $47, you could just sell the protective put for about a $ 3 3 p ro fi t ($80 put strike - $47 stock price). The put will have gained this much in value as the stock fell (just as calls gain in value as the stock rises). Interestingly, some educators charge high prices for seminars to teach this technique, which I just gave you. Does it make you wonder how much power is available on CallWriter? Read on
T he fundament al s rul e.
Fundamental information (earnings, dividends, etc.) is important, and we rely heavily on it in writing covered calls - and you should, too. The savvy call writer looks for the best stocks in the best industries in the best sectors. We use fundamentals to choose potential candidates - meaning that no matter how great the stock chart is, we won't write stocks with weak fundamentals; it is better to also avoid even those stocks with just so-so fundamentals. But assuming the fundamentals meet your criteria, they don't tell you when to get in - or when to avoid - a stock.
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Select v ery high quality stocks (ones you'd be willing to own); T hat offer high call premium; and Are not expecting major news. Deploy the Superput, if risk limitation is desired.
Well get to the details in a moment, but notice how these concepts work together. Why would any investor want anything other than high-quality stocks? And why would anyone seek low call premium (unless writing calls on a stock you happen to already own)? Who is looking for less income? And we avoid stocks with potentially catastrophic news coming, as well as those that are obviously failing or about to fail, as evidenced by the chart. This is just common sense CallWriter sense.
FUNDAMENTALS:
1. Y ou must be willing to own the stock.
This is a good litmus test of whether you really believe in your fundamental analysis.
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6. Stock Volume:
The average daily volume should be at least 1,000,000. More is better.
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EARNINGS:
You must be careful if earnings will be reported before expiration. If the stock has run up in price on anticipation, it might sell off, no matter what earnings are. And if negative guidance is issued for future quarters, good earnings for this quarter will be ignored as the stock sells off (and lowered guidance dims the fundamental quality of the company). Look for earnings preannouncements to see if the company has hinted good news is coming. Also look back at a couple of years worth of charts and see how the stock typically reacts at earnings. Safest bet: a great company growing earnings consistently, and its industry is strong.
N E WS:
When premium is sky-high, it is important to look for news, since something is driving premium so high. High implied volatility (the amount of potential price volatility that the option premiums imply) indicates either that the stock is highly volatile or that the market expects coming stock price volatility. Wouldn't you want to know what's up? Be especially wary of a pharmaceutical or biotechnology company. On these, it is imperative to check for pending news. These types of companies can suffer catastrophic sell-offs on bad news, such as failure to get FDA approval or poor clinical trials results.
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Th e W r a p - u p :
Some believe that this process is too cumbersome, too slow, too much. But our members have had great success with it over quite a few years, in every kind of market. And it does an exquisite job of keeping you out of bad trades and troubled trades. Just eliminating the small, flaky stocks will in and of itself remove a third or more of troubled trades! With a bit of experience, the process and time involved can be cut considerably short. One sterling CallWriter advantage is the fact that much of the needed fundamental information can be eyeballed right on the CallWriter lists themselves. But with just a bit of practice, you will develop the ability to ruthlessly and quickly winnow through lists of trades, discarding the pretenders and time-wasters, and focusing on the ones that matter the quality, conservative trades. In fact, CallWriter makes it easy and fast to research this information, because all the information you need to make fundamental and technical assessments on the stock are integrated into our famed Research Page, which opens right from the Real Time ListsTM.
I also promised to show you how to invest with covered calls while covering your backside (downside risk), limiting the total risk in the trade no matter what happens to 10% or less; sometimes much less. Get ready to meet a major CallWriter innovation in the art and science of income investing with covered call writing: the Su p e rPu t trade.
Because the covered call involves a long stock position, the danger posed to the writer is a sell-off in the stock. The best protective measure to define and limit risk in a covered call trade is to buy a longterm protective put when the trade is placed (known as a married put when the put is bought at inception), which I refer to as a SuperPut trade. The SuperPut position looks like this:
Covered Call
Recall that a put option gives the right but not the obligation, to sell the stock at a fixed price for a specified period of time. Thus even if the stock price collapses, the call writer who has purchased a protective put will be able, for the life of the put, to sell the stock at the put's strike price. In the CallWriter SuperPut trade, the long puts shown on the list will have an expiration that is six to eight months out in time and the puts are extremely cheap in comparison to current-month call premium. Why do I call it the SuperPut? Because the trade involves a long put that does a super job of protecting the underlying stock against a sell-off. These trades really are SuperPuts. We also refer to them as Protected Buy-Write (PBW) trades.
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A S a m p l e S u p e r Pu t T r a d e
Our goal in the following illustrative L e h m an Bro s. Ho l di n g s (L E H) SuperPut trade is to generate a good income stream from the sequential writing of calls, month after month, after recouping the put cost. LEH has been volatile heretofore, as have all the big brokers in the summer of 2007. This volatility is likely to continue, due to concerns that the brokers will suffer major asset write-downs and hits to income as the housing market dries up sales of financial products, among other woes. The continuing volatility means that 1) premium is likely to stay high, and 2) movement in the stock price will create opportunities to trade the calls for additional profit. This trade appeared on CallWriter's SuperPut lists. While we cannot know what the stream of call premium will be, we have fixed put protection cost going in. Using actual LEH option prices, we can construct a potential SuperPut trade of eight months' maximum duration and examine it closely for income potential. The projections of $2.00 per month in call premium are just that - projections - but the table below assumes a conservative level of call premium for succeeding months. There is good reason to think that high premium levels will continue in brokers such as LEH for some time, until the problems besetting them resolve.
Maximum Risk
Notice first of all that the 8-month protective put costs barely more than twice the amount of currentmonth premium received. While anyone can buy a long-term put to protect a covered call trade, our lists of SuperPut trades only find those with good call returns and extremely cheap long-term puts! We could have written the OTM SEP 60 Calls for a $1.30 premium instead of the ATM 55 Calls for $3.20. Doing so would have produced far less premium income, though it would have produced a huge additional profit of $5.00 per share if the stock were called out. But this is your choice to make; you get to decide how much premium to pull in and how much upside you want in the position.
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1.
Call-Writing I ncome:
Write calls for income, month in and month out.
2.
3.
T he Stock is P rotected:
Isnt this what every investor wants, protection against a sell-off?
4.
5.
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6.
7.
8.
9.
Real Dividends
Writing calls on high-quality companies is much like forcing the stocks to pay a monthly dividend. However, great companies pay real cash dividends, which realistically can range from 1.5 % to 5 % annually. This may not sound like much, but when stocks are held for the requisite period under the tax laws, dividends are taxable - as I write this - at a tax rate of only 15%. Holding stocks for months, as in our SuperPut strategy, can result in extra, tax-advantaged returns from dividends on your stocks.
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1 2 3 4 5 6 7 8 9
10
8 6 7 ,7 7 4 .6 8
7 9 0 ,0 3 4 .1 8
1,735,549.36 1,580,068.36
Wow! Imagine being able, in only 10 years, to turn $25,000 into nearly $900,000, or $50,000 into over $1.7 million! But that is the power of consistent compounding. While the results in Table 1 above assume that you only started with either $25,000 or $50,000, many people put far more money into covered call writing. Also, Table 1 above assumes only an average return of 3% monthly, and many CallWriter members do far better than this over time.
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Table 2 below shows the much greater results from averaging a 4% monthly return and then compounding investment profits, again starting with only $25,000 or $50,000:
1 2 3 4 5 6 7 8 9
10 2,766,564.02 2,454,991.13
5,533,128.04 4,909,982.26
Great Scott! We're talking about turning $25,000 into $2.7 million, and $50,000 into $5.5 million. You don't have to be genius like Albert Einstein to see the magic of compounding. Though it seems improbable, the numbers don't lie. Look at the level of returns possible in just 10 years of simple, repeatable monthly income investing. No one can promise you that you will achieve these returns. However, many of our CallWriter members advise us that they have been realizing consistent monthly returns of 4 % and 5 % over the years. The consistency of your returns will depend on the consistency of your decisions. But the returns are there to be had, in up markets and down. The compounding tables above do not include trade commissions, which will vary based upon the commission levels you pay and the number of contracts you write. However, the tables also do not include di v i de n ds, which are taxed at only 15% as this is written, provided the holding period is met. The tables also assume that every penny in the account is being traded at all times, which will not always be possible. Obviously, compounding grows wealth faster if investing is done within an IRA or other taxadvantaged or tax-deferred account. But even after giving approximately 30% of your investing income annually to your "uncle" in Washington, covered call writing can produce re al w e al t h .
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If we run the trade exactly at market prices, we would pay a net of $18.50 per share (19.75 1.25). The best way to enter the order, therefore, is to place it as a n e t de b i t o rde r. This is a type of limit order, meaning that we are instructing the broker that the net debit amount specified is the most we will pay to place the trade our price limit. If we place the order for 500 shares (5 contracts), our maximum debit to enter the position will be $9,250 (500 x 18.50).
B u y -W r i t e O r d e r - C S C O
Buy No. of Shares Asked Price: Sell to Open: No. of Contracts: Bid Price: Net Debit Quoted: Order Type: Duration:
Opening
CSCO shares 500 19.75 CYQED May 20 C 5 (500 shares) 1.25 18. 50 Net Debit Day
We might be able to do even better than this. So why not try entering the order at $18.45 or even $18.40 in order to pay a little less? After all, those nickels and dimes add up. Now lets use the order form to place the trade, using an order entry form specifically designed for covered call trades, which many online brokers (e.g., optionsXpress.com) now offer. We will place the order at $18.40 instead of $18.50, and well enter the order as a day order, meaning that it is only good for the same day it is placed:
Action
[x] Buy [ ] Sell
Option Symbol
[ CYQED ]
Action
[x] Sell to Open [ ] Buy to Close [ ] Market [ ] Limit Net Credit [x] Limit Net Debit
Quantity
[ 5 ]
[$ ] [$ 18.40 ]
[x] Day Order [ ] Good Until Canceled [x] None [ ] Contingent Order
Notice that our order balances: we specified a buy of 500 shares and sold 5 call contracts. We specified a net debit limit of $18.40. We sold the call contracts to open; if we owned the call contracts and were selling them, an order would be placed to sell them to close. Once the order is filled (executed), we will be long the CSCO stock, and short the CSCO May-$20 Calls. Assuming the order is filled, our total net debit in the position is $ 9 ,2 0 0 (500 x 18.40), which saved us $50 compared to a fill at $18.50.
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B u y -W r i t e O r d e r - C S C O
Sell No. of Shares Bid Price: Buy to Close: No. of Contracts: Asked Price: Net Credit Quoted: Order Type: Duration:
CLOSI NG
CSCO shares 500 19.85 CYQED May 20 C 5 (500 shares) 0.65 19. 20 Net Credit Day
In order to pick up a little extra on the trade, lets enter it at $ 19 .2 5 instead of $19.20. Remember that our debit in this hypothetical trade is $ 18.4 0 , so our final profit will be that amount subtracted from the net credit we receive. We specify in the order form that we are selling the 500 shares and buying back the call contracts to close, and we enter the $ 19 .2 5 credit amount; we enter the trade as a day order again.
Action
[ ] Buy [x] Sell
Option Symbol
[ CYQED ]
Action
[ ] Sell to Open [x] Buy to Close [ ] Market [x] Limit Net Credit [ ] Limit Net Debit
Quantity
[ 5 ]
Price
[$ 19.25 ] [$ ]
[x] Day Order [ ] Good Until Canceled [x] None [ ] Contingent Order
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Once this order is processed and filled, we will have closed this position and sold the CSCO shares for the net amount of $ 19 .2 5 (or $ 9 ,5 2 5 .0 0 ). Because we paid a net of $ 18.4 0 on trade entry ($9,200.00), our net profit is $ 0 .85 per share (19.25 18.40), for a $ 5 2 5 .0 0 profit for a week. This is a return of 4.6% for a week. This is a classic buy-write: we buy the stock and write calls against it. This is also a classic, and fairly common, way to close trades early for a nice profit with plenty of time left to find another trade before the option month's expiration. This was a nice return, indeed. But notice how $ 0 .15 of that return came not from market price quotations but from simply leaning up the entry order and slightly fattening up the closing order. While $0.15 may not seem like much, it was a meaningful percentage of the eventual $0.85 profit.
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Making t he Al l oc at ion
First, d etermine the total cash to be deployed for investing, whether in covered calls, bonds, Treasuries, bank deposits and such. Then determine the amount to be allocated to covered call writing. There are no guidelines for this, and only you can decide what percentage it must be.
Then decide on allocation per trade: this will be your maximum trade size. The per-trade dollar allocation determines the number of trades you can buy and write against in each position. Where you are only allocating for a few trades, the more conservative and liquid the stock must be. I personally find more than 10 covered call trades at a time unmanageable.
Managing Risk
In case I have not said it enough, use conservative stock selection procedures. Diversify into different sectors to reduce your exposure to a sector that goes into rotation (sells off). Plan each trade to take advantage of what the stock is showing you. For example, don't write an out-of-themoney call unless bullish on the stock. Always write the current-month or next-month calls in order to maximize premium income per month, unless you have a strong reason for writing a longer-term call. Pay attention and manage trades advantageously, but don't day-trade options. If you are unable to monitor the trade (on safari, whatever), either close the trade or buy a protective put. Speaking of which don't hesitate to buy a protective put when stock begins to slide. It's better to buy a multi-month protective put than to figure out how to repair a trade gone wrong.
More I nfo:
Read the CallWriter Story, and see how it came to be. Also, FAQ answered here.
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TM
Cover ed Callll Liists - 5 Expiirattiion Montths Cover ed Ca L sts - 5 Exp ra on Mon hs Conser vative Lists (3) All-M ar kets Lists (4) Deep Str ikes (4) Phar maceuticals (1) Low Volume Stocks (1) Exchange-T r aded Funds (1) Speciiallty Liists - 2 Expiirattiion Montths Spec a ty L sts - 2 Exp ra on Mon hs Naked Put Lists Super Put Lists
Some of our lists feature large, high-quality stocks, such as those comprising the S&P 100, S&P 500 and Nasdaq 100 indices. Here is an illustration of our $20 to $40 Stock returns:
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The Real Time Covered Call ListsTM provide the following information on each trade at a glance, all prices given as of the time the list was generated: Stock name, symbol and price Call symbol Call strike used to calculate the returns Call premium (at the time our list was generated) for each return presented Flat return (the return if the stock price does not change) If-called return (the return if the stock is called away) Net debit (the trade's net cost, or breakeven) Percentage of downside protection the premium provides Open interest of the call series (the number of contracts outstanding) P/E Ratio (stock price to earnings ratio Average daily stock volume ADV, our proprietary volume momentum indicator MADI (moving average directional indicator), a moving average oscillator which shows the 14and 50-day simple moving averages in relation to the current stock price Industry - the industry in which the company operates
This presents much of the data that a conservative covered call writer needs in order to size up a trade. And what is not presented here is presented in our proprietary Research Page, discussed later.
Top 30
The S&P 100 includes some of the strongest, most stable companies on earth - and some of the lowest historical volatilities. Their premiums are not always as high as plays on the other lists, but they tend to be less volatile. The S&P 500 is a leading indicator of U.S. equities, designed to reflect the risk/return characteristics of the large-cap stock universe. The average 500 company is smaller and slightly more volatile than the average S&P 100 company, but tends to offer higher premiums. Returns often are comparable to the Nasdaq 100. These are the largest domestic and international non-financial companies listed on Nasdaq, based on market capitalization. More technology-oriented and frequently more volatile than the S&P 100, they tend to offer higher premiums. These are more conservative writes than smaller Nasdaq-listed companies. Exchange-Traded Funds (ETFs) are the so-called "tracking stocks" that track market and sector indices, such as the QQQQ (Nasdaq 100) and Diamonds (Dow Jones Industrial Averages). While their volatility can be lower than for individual stocks, returns tend to be significantly lower than options on individual stocks. They also are a good source for bear call and bull put spreads.
Top 30
Nasdaq 100
5 Expiration Months Top 30
Ex change-Traded Funds
5 Expiration Months
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High-Returns Lists
Our High Returns lists present covered call trades in Pharmaceuticals/Biotechnology and in low-volume stocks. Historical volatility can be but is not always high.
Top 30
Pharmaceuticals
5 Expiration Months Top 30
These lists present only stocks in the biotechnology and drug industries, including biotechnology, drug delivery, diagnostic substances, drugs and major drugs. Caution is advisable when the company is facing major news such as an FDA ruling or clinical trials results, but the plays on this list do quite well as a whole. These are stocks in which there is either low average daily stock volume or low open interest in the call contracts, thus they tend to be smaller, less-conservative companies. The historical volatility of stocks on this list can be high. While good plays can be found here, approach them with caution.
Low Volume
5 Expiration Months
All-Markets Lists
Our All Markets lists are divided by stock price, which is a considerable time saver for call writers looking for trades in a particular price range.
Top 30
$40 and Up
5 Expiration Months Top 30
Stocks $40 and up from all U.S. stock markets. These frequently are larger and better known companies.
$20 to $40
5 Expiration Months Top 30
Stocks priced at $20 to $40 from all U.S. stock markets. These tend to be some of our members favorite lists, since the stocks are more affordable. Stocks priced at $10 to $20 from all U.S. stock markets. This list is also highly popular with CallWriter members, due to lower stock prices. Stocks under $10 from all U.S. stock markets. Sometimes more volatile than higher-priced stocks, these lists remain popular due to the low prices, which allow traders with smaller accounts to get in the game.
$10 to $20
5 Expiration Months Top 30
Under $10
5 Expiration Months
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Top 30
These lists present only returns on calls that are at least 10% in the money (lower than the stock's price). These stocks frequently offer enough downside protection that they can be written even in a dropping market. And yes, we actually do that.
These lists present only returns on calls that are at least 10% out of the money (higher than the stock's price). These stocks are great for writing in an uptrending market or on stocks that are bouncing off support. Our members also use them for naked calls and bear call (credit) spreads.
These lists provide only returns that are deeply (at least 10%) in or out of the money on biotechnology and pharmaceutical stocks. The above comments regarding our Pharmaceuticals lists likewise apply to these deep in and out of the money specialty lists.
These lists are the deep-in and -out of the money version of the Low Volume lists. They provide only returns that are deeply (at least 10%) in or out of the money on stocks in which there is either low average daily stock volume or in which the open interest in the call contracts is quite low. The comments on the Low Volume lists likewise apply to these.
But as many trades as can be found on our covered call lists, this is only the beginning of the trades that CallWriter shows you every minute of every trading day. We also offer lists of Naked Put trades for those who want to add a little spice to their trading, who dont want to incur the cost of buying the stock. Finally, we offer our amazing new SuperPut lists, which are not only proprietary but absolutely unique in the covered call industry!
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The following illustration shows the top 10 plays on CallWriters August 2007 OTM (out of the money) Naked Put list:
The Real Time Naked Put Lists provide prices as of the time the lists were generated include the information noted below: Stock name, symbol and price Put symbol Put strike Put premium Flat return (the return if the stock price does not change) Return Not Assigned (assumes the put writer is not assigned) Maximum risk (put strike less put premium) Open interest of the put series (the number of contracts outstanding) P/E Ratio (stock price to earnings ratio Average daily stock volume ADV, our proprietary volume momentum indicator MADI (moving average directional indicator), a moving average oscillator which shows the 14and 50-day simple moving averages in relation to the current stock price Industry - the industry in which the company operates
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Top 90
S&P 100
2 Expiration Months Top 90
Naked put premiums on stocks comprising the S&P 100 index (OEX).
S&P 500
2 Expiration Months Top 90
Naked put premiums on stocks comprising the S&P 500 index (SPX).
Nasdaq 100
2 Expiration Months Top 90
ATM Puts
2 Expiration Months Top 90
Naked put premiums on puts that are close to the money and may be slightly ITM or OTM.
OTM Puts
2 Expiration Months
Naked put premiums on puts that are at least 5% out of the money.
SuperPut List s
In what is definitely an industry first, CallWriter presents several very powerful lists of Su p e rPu t trades that feature high covered call returns, each coupled with a very inexpensive long-term protective put with an expiration date 6 to 8 months out in time. The protective put, as described above, allows you to pull in a stream of call premium, while the extremely cheap long put protects the stocks downside (your backside). Following is an illustration of our OTM SuperPut list from August 2007:
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The SuperPut list shows the net debit to create the trade and shows the returns from the covered call write, both not called and called. Uniquely, they also present the risk from both a downside and upside move in the stock. Because the maximum risk in the trade is limited and defined, these trades allow a new level of confidence in covered call writing. The Real Time SuperPut ListsTM provide the following information on each trade at a glance, all prices given as of the time the list was generated: Stock name, symbol and price Call symbol Call strike used to calculate the returns Call premium (at the time our list was generated) for each return presented Long Put symbol Long Put strike Long Put cost Return Not Called Return If Called Net debit (the trade's net cost, or breakeven) Downside risk and risk percentage (risk from a downside move in the stock) Upside risk and risk percentage (risk from an upside move in the stock) Open interest of the call series (the number of contracts outstanding) P/E Ratio (stock price to earnings ratio Average daily stock volume ADVI, our proprietary volume momentum indicator MADI (moving average directional indicator), a moving average oscillator which shows the 14and 50-day simple moving averages in relation to the current stock price Industry - the industry in which the company operates Following is a description of our SuperPut Real Time ListsTM:
SuperPut Lists
A CallWriter innovation, these are high-returning covered call trades in which a longer-term (6 months or more) put is purchased for protection. The puts are inexpensive in comparison to the cost of currentmonth options. Each trade features sale of the call for the current or next expiration month, plus the purchase of a longer-term put. Maximum risk in the trade is limited to 10% of the trade's net debit upon entry. The put allows the generation of a stream of call-writing income for six months or more, if the trade is not closed earlier.
Top 90
ATM-ITM Puts
2 Expiration Months
The calls are close to the money for maximum time value premium; the long puts are either close to the money or one strike in the money.
Top 90
OTM Puts
2 Expiration Months
The calls are close to the money for maximum time value premium; the long puts are always out of the money, which reduces put cost.
By the time you read this report, it is likely that other SuperPut lists will have been added, showing more high-quality trades. The presentation of thousands of trades makes it possible to find acceptable trades by simply going to the list that suits your risk tolerance and experience level.
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The same research capability exists to look at Put, Call & Put, Collar and other chains from OptionsXpress. Other desirable data inputs, such as news, key developments, earnings, MSN StockScouter rank, analyst views, insider trading volumes and much more are available in an instant. Stocks not appearing on the lists are easily researched, as well. Once the Research Page is opened, simply switch the symbol to the new symbol desired and click GO. Our SuperPut and Naked Put lists open up different option chains, which likewise can be quickly changed to other expiration months (or to show all available months) and chain types.
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However, closing the trade would have yielded less of a profit than simply letting the shares be called out at the $55 strike price for a 6.53% return as shown in the First Row. The illustration below compares the results of letting the trade go to expiration versus closing it immediately.
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So in the Fourth Row, let's take a look at a further possible roll down and out to the Nov-$55 call (LESKK), which would bring in $ 7 .6 0 of premium. But if we are called out at the $55 strike price, we will suffer a small loss of $ 0 .2 6 per share, a loss of less than half a percent. On the positive side, this roll would reduce our cost basis in the shares to $55.26, which might be advantageous if we were concerned that LEH will continue its price slide. The following TM Calculator illustration shows the above transactions:
This is the power of effective trade management, and our amazing TM Calculator! Is it necessary to manage every trade, like the one above? No. The LEH Oct-$65 calls could have been allowed to expire worthless and new calls could have been written for November. But isn't it nice to see your options clearly laid out for you?
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Though I haven't gone much beyond the basics (well, trade management is a bit beyond the basics), I can honestly say that I have bought covered call e-books over the web for $100 that teach less than this Special Report. I trust you have found it useful and intriguing.
I f t he Spec ial Report is t his good, what s t he Cal l Writ er websit e l ike?
I've shown you statistical proof that covered call writing beats stock investing and provides a great income, and you've seen the power of compounding your investment profits. Youve also learned the secrets of conservative call writing and limiting your risk to a few percent of each investment. I want you to think about one thing: if CallWriter gives this much valuable, usable information away for FREE, how powerful is the education that is available right on the CallWriter website for all our members? The answer is it is i n c re di b l y p o w e rfu l . However, nothing I say can really convey the p o w e r, the u t i l i t y and the p ro fi t ab i l i t y of the CallWriter members' website. You simply must see it for yourself But enough palavering, as they used to say in the old cowboy movies (where did they go?), lets get down to cases. I have a powerful offer for you and some very valuable - and very cool - free gifts for trying CallWriter.
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Special R eport - I n c o m e I n v e s t i n g w i t h C o v e r e d C a l l s
Why CallWriter?
Here's What You'l l Get Wit h Cal l Writ er Membership:
But nothing can really convey the power, the u t i l i t y and the p ro fi t ab i l i t y of the CallWriter members' website. Again, here is what you get 24/7 online access to as a CallWriter member, with no extra fees or add-ons: A l l t h e Re al T i m e C o v e re d C al l L i st sT M Ou r Nak e d Pu t an d Su p e rPu t L i st s Un l i m i t e d u s e o f o u r T r a d e M a n a g e m e n t C a l c u l a t o r T M A w e al t h o f fre e e du c at i o n al m at e ri al s Fre e i n v e s t i n g T e l e L ab c al l s an d p re s e n t at i o n s Fre e E x c e l t rad i n g s p re ad s h e e t s t o d o w n l o ad
If CallWriter sounds like your cup of tea, I've made it very easy to give my website a try, and I'll throw in some absolutely smashing bonuses to make it even more worth your while! 44
Special R eport - I n c o m e I n v e s t i n g w i t h C o v e r e d C a l l s
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Special R eport - I n c o m e I n v e s t i n g w i t h C o v e r e d C a l l s
The Free Bonus #1 and #2 are not included with the Free Trial offer, nor is the free month of CallWriter service.
Special R eport - I n c o m e I n v e s t i n g w i t h C o v e r e d C a l l s
Legal Stuff
Disc l aimer:
This Special Report is published by LogiCapital Corporation (LogiCapital), which operates the famed CallWriter (www.CallWriter.com) website and publishes the Money Newsletter. Neither the author, LogiCapital, CallWriter nor any person associated with them is a broker or investment adviser, nor is any of them a professional securities analyst; and none of them recommends the purchase, sale or holding of any security. Your use of any information or strategy appearing in this book, in the MONEY newsLETTER or on CallWriter is solely at your own risk. We urge you to do all requisite analysis and properly plan each trade prior to placing any trade and to manage each open trade effectively. More about John Brasher Trading stocks and stock options involves risks, and no strategy can eliminate them entirely. Moreover, poor trading decisions, frequently the result of greed or panic, are responsible for many losses in covered call writing, and only you can prevent them. Neither the author, LogiCapital, CallWriter nor any person associated with them will be liable to any person for any losses or damages, whatsoever, monetary or otherwise, alleged to arise from the content of CallWriter, this Special Report or the use of any strategy or information discussed on CallWriter. This book includes illustrations or content from other websites, notably the Chicago Board Options Exchange. Our usage of such content is not meant to imply and should not be taken as an endorsement or recommendation by them of CallWriter or this report.