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You get income from dividends on shares in a super fund. You can get extra income, like an extra dividend, by writing a covered call option(s) over shares you already own. Click the Smart Report, to the right, and see BHP option return for next month; likely to be 2% or greater. So if you own BHP and currently receive about 7.5% in dividend income (Feb 2022); you could also write (covered call) options over those stocks and earn say and extra 2% each time you write an option. If you are concerned about being Exercised* then write the option further Out of The Money (OTM) reducing the likelihood of being exercised. Also, if you look like being Exercised you can buy the option back, retaining your shares. Option contracts mostly expire worthless. This means you the option seller get paid a Premium for writing the option and get to keep your shares. You also get any dividends due during the contract period because you own the stock.
You can use the My Covered Calls reports to see the option returns available on shares you already own. You can use ProWriter software to plan option trades to see the actual returns before you commit to any trade.
*[Exercised: is when the option buyer, who has the right to buy your shares, chooses to do so; usually when the share price rises above the Strike price].
Self-managed super funds looking to boost their income potential and protect their portfolios from volatile share markets are increasingly turning to derivative strategies.
A covered call, for instance, involves the SMSF using a derivative in the form of a call option over a stock it already owns. The strategy involves holding the stock and writing a call option with a higher strike price – and receiving a premium for doing so.
Why use a Covered Call option - see Fidelity.com Fidelity sum this up pretty well.
Did You Know:
Out of the assets of the 460,000 SMSFs in operation, about $730 million was invested in derivatives (options) as of the June 2011 quarter – nearly 10 per cent more than the $665 million the year before, according to the Australian Taxation Office’s statistics.
Listed shares were by far the most popular asset choice among SMSFs, with $139 billion invested as of the June quarter [2011].
The Buy Write is an options investment strategy in which an investor simultaneously buys shares and writes a call option contract over an equivalent number of shares. If the shares are already held from a previous purchase, it is commonly referred to as covered call writing. Buy Write is the most basic and widely used options investment strategy, combining the flexibility of listed options with share ownership.
The strategy of buying shares and writing options is eligible within Self Managed Superannuation Funds (SMSFs), provided it is allowed for in the Fund’s investment strategy.*
History tells us that writing covered calls over shares that you hold out performs just holding shares alone.*
If you already own shares then arguably your risk does not change if you write an option over those shares. Only two outcomes can happen:
My Covered Calls and ProWriter software shows you which options have the best returns. Other information in the reports includes:
The above information is regularly updated in the reports during market hours. The reports are accessible 24/7The information is used to develop a trading plan showing you the outcomes of every option trade
My Covered Calls is like having a covered call calculator that has a direct feed of live data from the ASX. The reports are automatically updated and the % profit calculated and instantly displayed for exercised or not exercised outcomes. This lets you to easily identify those options with 2.5% or better returns exercised or not-exercised. See for yourself.
Click to see live BHP, BSL & TLS sample smart report showing Not-Exercised and Exercise Returns. All Companies available in Members Area.
Tony Osborn - Team of One
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