Daily Stock Market Equity and Options Trading Commentary

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Sunday, May 3, 2009

Protect Your Portfolio with these Covered Call Option Strategies

"The times are tough now, just getting tougher
This old world is rough, its just getting rougher
Cover me, come on baby, cover me"
- Bruce Springsteen

The Boss may have said it best in 1984 when he wrote the song Cover Me. Of course this song was not about writing covered calls to provide some protection on the downside, but we can certainly interpret it that way in today's market. If you are unfamiliar with covered calls check out my E-Book, guaranteed to teach you how to write a covered call, and will make more than your money back by writing your first covered call option.

Covered calls are a great way to create income and wealth off your current portfolio, all you need is at least 100 shares of any stock that has options available on it. If you have 100 shares or more of any of the current stocks below you are in great shape to start! And of course you have "options", so you may want to chose a different time period or strike price on any given security.

Below is a look at some of the best rated covered call option strategies for June. The list is the current "S&P Best 10", all of which are covered call option strategies. Note that the net debit is the price the underlying stock must be at in order to break even from writing the covered call.

1. Buy BCR
Sell BCR Jun 09 $70.00
Net Debit $67.93

2. Buy CVX
Sell CVX Jun 09 $65.00
Net Debit $62.80

3. Buy EOG
Sell EOG Jun 09 $60.00
Net Debit $56.88

4. Buy ESRX
Sell Jun 09 $60.00
Net Debit $57.77

5. Buy FLS
Sell Jun 09 $65.00
Net Debit $61.40

6. Buy IBM
Sell Jun 09 $100.00
Net Debit $97.01

7. Buy ODFL
Sell Jul 09 $22.50
Net Debit $21.65

8. Buy RIG
Sell Jun 09 $65.00
Net Debit $61.68

9. Buy SPG
Sell Jun 09 $47.00
Net Debit $44.00

10. Buy XOM
Sell Jun 09 $65.00
Net Debit $63.07

I am a writer of covered calls, and being an active writer has certainly helped me significantly outperform the market over the past 5 years. Many people write covered calls in or very close to the money, but I do not like to write covered calls too close to the money. My strategy for writing covered calls on stocks I am bullish on, is to write them out with about 14-17 days left until expiration, and have a 75% chance or greater of expiring dead. This way I can keep the stocks in my portfolio, and receive the premiums month after month creating a nice income. Occasionally I write in the money covered calls on stocks which have experienced significant runs, and this has helped me hedge myself against the downside risk.

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