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Bought more SNDK

August 25th, 2010 at 01:25 pm

Today's market started out rather low, and I decided to buy more SNDK, and then make some more covered calls with it.

You know, I really like this covered calls option. This way, you're not entirely at the mercy of the stock market. You make decent (immediate) income selling contracts that although locks you into a price you are obligated to sell, you are nevertheless selling at a profit. And you can also adjust how much passive income versus market volatility you want to depend on for your money.

For example, I just made an additional $200 (for a total of $300) just for selling contracts that, even if it's exercised, would allow me to sell my stocks at a pretty substantial profit (15%+).

Now you're probably saying, "Wait, where's the downside?" The downside is that you're still at the mercy of the stock market, and there is still a risk of losing money. There is also the "risk" of capping your gains, but I'm not greedy, and it's 15%+ profit. The real risk is that your stocks can still lose a lot of value, to a point that it erases both the market value as well as contract premiums that you make.

But hey, nobody said this was a free lunch. I mean if I want a lot more guarantee, then I might as well buy bonds instead.

Believe it or not, but covered calls actually cushions me from a straight up stock trade. Geez, I don't know why I haven't done this sooner.

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