Videx Blog

What Time is the Economic Clock

The economic or investment clock is still ticking.  Interest rates are low and share prices are rising.  What time is it and what does this mean to Covered Call traders...

Google economic clock or look at http://www.boursecommunications.com.au/clock/ 

Analysists put the time at 8PM.  This means rising share prices.

Covered call traders may want to write options a bit out of the money or be happy to be exercised and take their Premium profit each month? 

Jan 2014

What happened after the Crash with Covered Call Traders

hen the GFC hit My Covered Calls paused almost overnight.  The majority of the Members, like many people, stopped trading.  Many of us were caught with shares that had fallen in price.  Even with stock prices were falling, some Members kept writing covered call options each month until the stock price turned around.  In some cases this may have been some time; many months or even a couple of years.

What we learned is that if you kept writing covered calls each month, on a falling stock prices, then you kept earning income each month even though the share price was falling.  This meant you were not likly to be exercised.  Writing Covered Calls earns income from the Premium regardless of share price.

When the share price did eventually rise and the option may have been exercised; then by immediately buying the same stock, the underlying share price value remained about the same albeit a little higher.

Call options could then be written out of the money leading the share price rise until the original (or revised) buy in price was reached. 

 

My Covered Calls the Beginning

Back in 2006 my business partner at the time told me about covered call options.  You can buy shares and sell an option (contract) to someone else to buy your shares in say a months time and they will pay you a premium.  To trade covered call options I needed data so wrote an algorithm that caculated the returns on each option.

PS I really did have a job!

After the GFC?

What If We Get Another Financial Crisis?

When the GFC hit My Covered Calls paused almost overnight.  The majority of the Members, like many people, 

stopped trading.  Many of us were caught with shares that had fallen in price.  Given that stock prices were

falling, some Members kept writing covered call options each month until the stock turned.  

By writing a covered call as the stocks were falling, meant that the likelyhood of being Exercised was miniminal. 

So buy continuing to write contracts, continued to generate cash.  When the market turned, options were written

out of the money, leading the shares prices. 

Got Shares. Sell Calls. Earn Income.

Earn Extra Income From Shares You Already Own

This is nuts.  If you already own shares then have a look at the return available right now if you were to write a

covered call option.  Lets say you own BSL you bought on 17/2/14 @$5.90 You can write an option @$6 Strike

and make 3.7% to 5.4% by 27/4/14.  See the real factual data shown below. Extract from ProWriter software

17/3/14

Cash In Your Pocket In 24 Hours

Cash In Your Pocket In 24 Hours

Using a buy-write strategy generates income from your capital in 24 hours.Writing covered calls is the best

business.

Your capital is secured by the shares you own, there are always a bunch of customers to buy your product

[options contract] and you get paid [the Premium] the next day.  Fantastic cashflow. You can trade stocks

on-line for next to nothing.  Some trading sites are advertising under $15 per trade.  Options trades are also

relatively inexpensive. 

So now you can start with a smaller amount of capital and your profit will not be eroded by fees.Buy-Writes

can be done on-line or with an advisor.  All of your costs may be a tax deduction. 

Think about it. If you are running a business on the side, home based etc, and making money; then every

cost associated with that business may be taxdeductable.  Just like having a rental property.All of your costs

from maintaining your home office, computer, internet etc; and trading and data software could be legitmite

tax deductions. 

Also you could register for GST and get the GST component of business purchases back.  There is GST of

brokerage and data, but no GST on shares.  This means you could trade shares, write options and get paid

GST free money but when you buy something for your business you get the GST back.  Like getting 10% off.

 

Free Access to Mycc
ToolBox resources

  • 5 Steps to Covered Call Trading
  • FREE Trading Plan Caculator (Download)
  • Covered Calls Tutorial (with Trading Plan)
  • How to Generate More Income from Your SMSF
  • Seven Must Know Rules Before You Trade

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Tony Osborn Director

Kamella - Administration
CMTECH
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