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More covered calls

August 30th, 2010 at 05:49 pm

This month's stock market has been tough. My stocks have slipped rather substantially at this point, so I guess it's good timing to make some income off of them.

With the market slip, I bought some more stock and sold more covered calls, pocketing another $380. I think the total of contract premiums I've made is up to... almost $800? They're all set to expire on September 18th, so I can sell another round of contracts then.

I've also been fine-tuning the strategy, to focus more on earning the premiums over trying to win the market somehow. Less speculation and more guaranteed income.

While covered calls still have the same downside risk as regular stocks, at least you're also propped up a bit with the contract income. The real downside, I think, is giving up on the upside potential. However, I don't see how this is a problem because, again, I'm trying to reduce speculation, and exchanging it for guaranteed income. Despite that, even covered calls have the ability to return 10% to 30% in annual gains, depending on your trading abilities and market conditions. Good enough for me.

I'm also reading up on cash-covered shorted puts. It's the cousin of covered calls where you sell put contracts (to buy their stocks at a set price), again, for a fee premium. But in theory, I could do absolutely nothing more than covered calls, and still do just fine. But adding more and more of these strategies ultimately gives me more trading flexibility, regardless of the market direction.

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