Comments on: Learn How To Do Covered Calls With Collars

By: dan

dan — Sun, 31 May 2009 09:33:16 +0000

Hi Karen

As long as you protect your shares (ie buy puts) you can not lose with writing covered calls. Just make sure you sell the call for more than you buy the put. It is slow but with the effects of compounding before long your base capital has more than quadrupled in 5yrs!! and that is fair dinkum
Cheers Dan

By: karen shakespeare

karen shakespeare — Wed, 21 Jan 2009 13:37:31 +0000

l keep all your emails.
l am new to trading. l have been made redundant. Had to sell my apartment so have some cash to buy in.
Looking at covered calls. Doing virtual trading at the moment & seeing 5% returns a month! lf it is that easy why isnt everyone doing it?!
Can you tell me the pitfalls of covered calls?
Would really appreciate some advice.
Karen shakespeare

By: Bullhunter

Bullhunter — Sun, 07 Dec 2008 01:46:34 +0000

Hi Daniel

Your point is valid. I did mention that I do more than this, such as ‘doubling up on the Put options’. This enables me to be covered against the share price drop (no loss on the shareprice) AND make a profit on the other Put Options.

When the share price goes “up”, I cash in the ‘Bought’ Call Option (it goes up in price when the share price rises = profit). I also get exercized on the ‘Sold’ Call Option (the covered call) IF the share price is above the strike price on expirydate.

Also keep in mind, I do this with a share that I am very familiar with i.e. the price ranges and channels are fairly predictable. 90% of the time I seem to get it right. I have not, to date, been exercized on this share.

When the share price drops, I cash in the PUT, normally the price turns and goes up again. The same normally happens when the price goes up: it turns at a certain level.

I use the Volume, RSI, C-Stats & Stochastic + watch the bollinger bands to see if the share price is likely to turn.

This strategy can go wrong, like any other, but I have found a system that really works for me and stick to it.

By: Daniel

Daniel — Sat, 06 Dec 2008 12:18:37 +0000

Hi Sean, There’s something wrong with steps 5 and 6 above.
#5 If the share price drops, I buy back the covered call at a discount (I make a profit) and cash in the Put option (the insurance) at a premium (another profit).
- You fail to mention the loss on the shares. You mention you like to write out of the money (OTM) options - typically this would be about 2-3% of the share price however in this volatile market you may get better premiums. If the stock drops, and you say you have bought a put option at strike price of around 80-90%, the worse case scenario is you have to exercise the put option then you would be sitting on a loss of 10%-20% on the shares.

# If the share price goes up, I cash in the bought Call option ( a profit) and if I get exercized on the Covered Call (renting shares), I actually make a profit because I rented them at more than I bought them for.
- do you mean you cash in the bought put option? It wouldn’t be at a profit as put options only go up in value when the stock goes down in price.

Thanks Sean,
hope you can clarify these things.
Daniel.