Our fearless, intrepid investor has been following the six habits that we recommend and also writing (selling) covered calls on each Monday, expiry date Friday of the same week, using SPY as the underlying security. She often selected a strike price a few dollars out-of-the-money to take advantage of any growth if it occurred.
Last Monday, May 29 was a stock market holiday, so she wrote the covered calls on Tuesday, May 30, expiry date last Friday, June 2nd, strike price $4.00 above market price.
Both SPY and KO rose above her strike price, she was assigned on both and was entirely in cash.
She made a decent amount of money safely but would have made more had she simply held SPY and KO without writing covered calls on them.
Two points here.
One, in rising markets, investors do better holding a security than they would do writing covered calls on it.
And two, there will always be better investments than the ones you have.
What will she do when the market opens today? YOU NEED TO LOGIN TO VIEW THE REST OF THE CONTENT OR LEAVE A COMMENT. Please Login. Not a Member? You can now sign up for $12 for a one-year membership. Join Us
Yesterday, Memorial Day, was a stock market holiday in the U.S.. We encourage our members to invest in the New York Stock Exchange which has had the best performance over many decades. It is open today.
Our fearless, intrepid investor has been following the six habits that we recommend and writing covered calls on each Monday, expiry date Friday on the same week using SPY and SCHB as the underlying security.
The results have been decent and safe but the investing has been boring – exactly as it should be according to Paul Samuelson who stated: “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”
YOU NEED TO LOGIN TO VIEW THE REST OF THE CONTENT OR LEAVE A COMMENT. Please Login. Not a Member? You can now sign up for $12 for a one-year membership. Join Us
Today, Victoria Day, is a stock market holiday in Canada. We encourage our members to invest in the New York Stock Exchange which has had the best performance over many decades. It is open today.
Our fearless, intrepid investor took a long weekend holiday with no market activity last week. She held covered call positions on SPY and SCHB (SCHWAB US BROAD MRKT-ETF) in three tax-advantaged portfolios and one margin account.
The market rose during the week. Covered call positions don’t work as well in a rising market as simply holding the underlying security does. In a rising market, investors would be assigned, and their underlying security would be called away from them requiring them to sell it below market price.
In such cases, investors get into cash and are in a position to sell cash-covered puts, the ideal situation. American investors can do so in their tax-advantaged portfolios. Canadian investors are not allowed to sell cash-covered puts in their tax-advantaged portfolios; therefore our fearless, intrepid investor maintains a margin account where she can do that.
So she sold just in-of-the-money, cash-covered puts on SCHB in that account.
SCHB trades just below $50 a share, allowing investors to purchase board lots under $5,000 each.
Trading at just under $420 a share, investors need to commit about $42,000 to buy a board lot of SPY.
She holds SPY and three tax-advantaged accounts.
So, how did she make out last week, and what will she do today when the market opens?
YOU NEED TO LOGIN TO VIEW THE REST OF THE CONTENT OR LEAVE A COMMENT. Please Login. Not a Member? You can now sign up for $12 for a one-year membership. Join Us
Having lost $US10,990.00 in her “fun” portfolio in one year writing (selling) covered calls, our fearless intrepid investor got five takeaways from the experience.
Only a write (sell) and never buy covered calls and cash secured puts.
Do so on the first trading day of the week (usually a Monday).
The expiry date of choice is the last trading day of the week (usually a Friday).
The ideal underlying security is an exchange-traded fund (ETF) that tracks the S&P 500. SPY is the number one choice.
If assigned in a tax-advantaged portfolio, American investors should write (sell) cash-secured puts just in-the-money. Canadian investors are not allowed to write (sell) cash-secured puts in a tax-advantaged portfolio so they need to buy board lots of SPY to allow them to write (sell) just out-of-the-money covered calls on SPY.
How did she make out last week, and what will she do today when the market opens today?
YOU NEED TO LOGIN TO VIEW THE REST OF THE CONTENT OR LEAVE A COMMENT. Please Login. Not a Member? You can now sign up for $12 for a one-year membership. Join Us
“In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal,” wrote Buffett in Berkshire Hathaway’s (BRK-A, BRK-B) 2002 annual letter. Today, more than 20 years later, nothing has changed.
Our fearless, intrepid investor lost $US10,990.00 in her “fun” portfolio in one year writing (selling) covered calls. She bought Novavax (NVAX) to write (sell) covered calls on and as the stock declined, she lost much more than she received in premium income.
To a large extent, due to its derivatives involvement, twenty-five years ago, Orange County, California became the largest municipality in U.S. history ever to file for bankruptcy.
There is a safe way to deal with derivatives, however.
Only sell and never buy covered calls and cash-secured puts on SPY, which is an exchange-traded fund tracking the S&P 500.
How did she make out last week, and what will she do today when the market opens?
YOU NEED TO LOGIN TO VIEW THE REST OF THE CONTENT OR LEAVE A COMMENT. Please Login. Not a Member? You can now sign up for $12 for a one-year membership. Join Us
To a large extent, due to its derivatives involvement, twenty-five years ago, Orange County California became the largest municipality in U.S. history ever to file for bankruptcy. Warren Buffett’s partner Charlie Munger stated that saying that accounting for derivatives in America is a sewer is an insult to sewage.
We have previously mentioned that the most important thing to learn from our fearless, intrepid investor’s loss of $US10,990.00 in her “fun” portfolio over a year is not to write covered calls on individual securities. She bought Novavax (NVAX) to write covered calls on and as the stock declined, she lost much more than she received in premium income.
What will she do today?
YOU NEED TO LOGIN TO VIEW THE REST OF THE CONTENT OR LEAVE A COMMENT. Please Login. Not a Member? You can now sign up for $12 for a one-year membership. Join Us
