Some Monday morning members are selling derivatives profitably using the Monday Morning approach. (See Chapter 8 in Monday Morning Millionaire.) Call me if you want to discuss this. (705-441-4566)
For instance, one of our members recently told me that he made $800,000 last year selling covered calls and cash-secured puts on SPY. (We interviewed him recently. He has an eight-digit portfolio. That allows this level of derivatives premium income.)
Personally, on June 22, I wrote covered calls on SPY, strike price $308.00 expiry date December 18, which gave me an immediate 7% return for the six months.
That is an example of Aesop’s bird in the hand.
What constitutes Aesop’s two birds in the bush?
By December 18, the market could do better than 7%, my SPY shares would be called away from me and I could not participate in any of the rise of SPY above $308.00.
A guaranteed 7% semi-annual return? What are the risks involved?
There are two risk categories — short-term and long-term.
The short-term risk is that SPY will decline to an extent greater than the premium income received for writing the covered calls and overall, there would be a loss on the investment.
The long-term risk is as close to zero as possible. It would require the failure of the American empire. Empires have 100% failure rate. The failure of the American empire is nowhere in sight.
Generally, it is not a good idea to write options with an expiry date so far into the future. Near-term expiry dates produce greater annualized returns.
Using an ETF which tracks the S&P 500, write covered calls or cash-secured puts on a Monday morning, expiry date Friday of the same week.
That has been what we usually do and what we usually recommend.
An interesting aside is that over a decade or so, investors regularly writing covered calls and cash-secured puts on SPY will not do as well as simply buying and holding SPY. However, they will have a lot more fun!
Investors doing their due diligence will find occasional times when writing covered calls and secured-puts outperforms.
Buying and holding SPY will produce a slightly better return. Slightly better! Some Monday Morning members invest only that way.
They don’t write covered-calls or cash-secured puts.
The Monday Morning Millionaire Program was designed to offer compressed investment opinions. Over the last two decades, these have outperformed over 90% of portfolios, including professionally managed ones.
The program does not provide any investment advice or endorsements.
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