Options: Income calls

• 12 July 2010

• #1

BrightGreenGlow

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Hey guys, just wondering....

1. Who here writes covered calls monthly as a source of income?

2. What stock/s do you use?

3. When do you normally try to sell in the month?


I have been for the last few months with stock such as BHP, ANZ and TLS. I dont really want to touch TLS at the moment due to the NBN agreement coming around the corner. So I've been sticking with 2 ANZ options a month netting around $250+ a month. Furthermore, I believe this is a great way to create more cash with minimal effort and not a big downside. Thoughts?

 

• 12 July 2010

• #2

wayneL

VIVA LA LIBERTAD, CARAJO!

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Re: Options: Income calls.

There are pros and cons.

 

• 12 July 2010

• #3

sails

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This has been discussed on several occasions previously as ASF. The summary of those discussions are pretty much as follows:

If the stock is owned anyway as part of an existing portfolio, then selling far OTM calls can be a good way to bring in a little extra income. Of course, the sold calls can cap the upside in a fast move and, if assigned, could incur capital gains tax depending whether trader or investor status with the ATO. There is no further downside risk on the stock than the risk already assumed when holding the stock in the portfolio.

However, if the stock has been purchased specifically for the purpose of writing calls, it becomes a whole different animal. The downside risk of the stock needs to be carefully weighed. Even more so if this strategy is set up using margin loans.

 

• 19 July 2010

• #4

cutz

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BrightGreenGlow said:

1. Who here writes covered calls monthly as a source of income?

2. What stock/s do you use?

3. When do you normally try to sell in the month?

Click to expand...

1. Yes but modified covered calls.

2. Big 4 plus a few other top 20 , > $20 face value underlyings.

3. Anytime/Anywhere.

 

• 19 July 2010

• #5

M

malachii

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cutz,

Sorry for my ignorance but what is a modified covered call?

malachii

 

• 20 July 2010

• #6

mazzatelli

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malachii said:

Sorry for my ignorance but what is a modified covered call?

Click to expand...

I smell a backspread somewhere.....

 

• 20 July 2010

• #7

cutz

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Hi Guys,

Yeah,

Something like a backspread, short calls + long stock + long calls further out.

If the underlying moves quickly at least there is a chance of fixing the position by buying back the shorts and selling twice the longs (calls) turning it into a pure covered call at a higher strike.

Well that’s one method anyhow, the possibilities are endless.

FWIW, buying stock purely with the intent of setting up covered calls is poor form, if you want to own or are already married to a stock, covered calls are handy (modified covered calls in my case).

 

• 18 May 2011

• #8

J

jaystar86

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Here I go bringing back up an old thread that I'm sure the experienced on these forums are sick of talking about...

Where can I get more information on the above strategy? It makes a lot of sense to my strategic brain.

regards,

J

 

• 18 May 2011

• #9

V

village idiot

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for the basics of it, you could have a look at the ASX website and read this; http://www.asx.com.au/documents/resources/UnderstandingOptions.pdf

or just google it and you will find lots on it. read a few of them.

then there are numerous threads on here on the subject; for starters you should find a random selection listed at the bottom of this page . read them all.

for a definitive view then get hold of "Options as a strategic investment' by Lawrence McMillan, and read the chapter on covered calls. heck, read the whole book.