If you've been selling covered calls on CHK for 3 months and most recently near your costs, presumably you have outperformed shares during that period.
My question is what kind of ROI do you typically like to see for a stock (including dividends, premiums) and is CHK a core holding, or just a plaything?
If it is a core holding and your 3 months of premiums have essentially erased any paper losses, I would sell an out of the money call, such as the $21 for an additional 0.9% premium, plus the chance for an extra $2.90/share appreciation.
However, if your goal was to move on accepting assignment in exchange for a heftier premium, I would consider the $18 June 22, 2012 with a net $0.48 premium or a July 21, 2012 $18 call with a net $1.19 premium.
Obviously, any of those potential plays would have to be done within the context of what is an acceptable overall rate of return on an investment or in comparison to the index of your preference
I use E*Trade and have been very happy with price and execution. They do, however, charge the closing fee upon assignment.
I have had one follower tell me that Interactive Brokers does not charge a fee in the event of assignment, and he indicated that he was very happy with their execution and trading interface.
I hate taking losses, so much so that my stubbornness sometimes gets the better of me. I do not follow the Bernard Baruch rule of cutting losses at 10% (See "Bernard Baruch Who? : http://seekingalpha.co... )
If I believe that the stock isn't broken, I practice a technique I call "Having a Child to Save a Life" http://seekingalpha.co... ) In essence, I buy new shares and will sell in the money or near the money calls on the new shares, specifically to help offset the paper loss on the original shares. I may also sell calls on the original shares at their cost basis level, even if only to eke a few extra cents out of them. I also sometimes use a technique of collecting crumbs, but that is risky, as a sudden upward move can result in assignment, with a loss being realized on shares ( http://seekingalpha.co... )
I rarely write for longer term, but occasionally will write for a monthly contract even when a weekly is available if my shares are below water, hoping to increase premium and minimize the effects of gathering suitable premiums on the weekly options in the event of further price drops.
Yes. They are short term gains even when using a LEAP. You are taxed based upon receipt of the premium.
Although no one likes to pay taxes, your comment reminds me of what I would tell my kids when they received their first paychecks and saw the size of the bites removed. I always told them that the more they paid, the better it was, just as a reflection of the fact that they had to have made that much more money to pay those higher taxes.
If the marginal income derived from selling options still increases your net return, what's wrong with paying a higher rate of tax? You still end up with a net gain.
As far as picking the right strike and expiration, it's really a measure of your own temperament. I like to trade with frequency and rely mostly on dividends and option premium, especially during down or meandering markets. FOr that reason I use weeklies and monthlies and stick with strike prices very close to the purchase price.
However, in an upwardly moving market, I focus on capital gains from shares, therefore selling calls at higher strike prices.
If you're not thrilled about constant turnover in your portfolio, you'd be more likely to be happy with the longer term options while also seeking to achieve some capital gains from shares and accumulate dividends.
I still love it that so many continue to spout the axiom that "the market discounts future events by 6 months."
I suppose that could be true as long as the market flips and flops between 100 point gains and losses on a string of successive days on a regular basis 6 months from now.
Thanks. It's much easier to get a title than it is to find something of substance to write about. So far, not many have really noticed the deficit in the latter.,
I relish assignments, although occasionally it occurs at a big opportunity cost. When shares are assigned you can rotate the money into other stocks/sectors that haven't fared as well. If you recognize that there is cyclicality in stocks, as well as sectors, there is always an opportunity.
I rely mostly on weekly options for my own, very actively traded accounts. However, there is much less assignment during the course of a long term option contract. Instead, speculators will be trading the underlying option contracts, rather than pouring their unleveraged money into the shares. Of course, as you approach the expiration (particularly if a dividend is at hand), the likelihood of assignment increases.
When using the shorter term instruments, I'm often able to repurchase shares very shortly thereafter and at a lower price than where they had been assigned. Obviously, that's not always the case, but often enough that what I lose on a Friday may very well reappear on a Monday or Tuesday.
In the case of longer term call options (or LEAPS) you are freed the need to continually re-write call options, as for the shorter term. For many, that is a pragmatic benefit.
As a general rule, I will only close out an option position if it is in profit. I won't do so just to maintain a "core holding." However, there are often opportunities (such as this past Friday June 15, 2012) going into expiration, a stock may be up strongly, but still below its strike price right before expiration. I will often look to close those positions, often for just a few cents and roll the sale of calls over to the next cycle, which offers an enhanced premium due to the strength in the shares. I just did that for Cheasapeake and Deere, but missed opportunities to do so on some others. See "Go on the Attack by Playing Possum" http://seekingalpha.co...
Not only are you the best looking of all, but back in the early 80's, I had a Smurf figurine crazy glued to the dashboard of my 1980 Pontiac Phoenix (of course, out of morbid curiosity, I may have to check Ben Stein's. Wonder if they make an easily available Ben Stein Bobble Head for my Vespa?)
Thanks, but when it comes to world events, as they say "you can't make this stuff up"
Thanks. I have a similar article for those a bit more inclined to trading and hedging specifically geared toward retirement http://seekingalpha.co...
As you can probably tell, I'm not much of a fan of annuities. If you have a comfort level in investing in dividend paying stocks and can sell call options on them to either increase yield or decrease risk, that is a very reasonable and proactive alternative.
I refer to my wife as "Sugar Momma" in much of my writing, as she has dutifully worked the past four years, while I trade.
I have tried to get her interested in investing, but to no avail. She thought that my book was too difficult to read.
I do appreciate your advice. This particular article was written in response to a couple of my subscribers asking if there was a way to apply the Option to Profit investing strategy but not have to be so intimately tied to the computer or ticker.
There are so many ways to approach investing based upon your temperament. For my personal portfolios I spice things up with some volatile positions, but not everyone wants to accept the risk.
I've actually had a couple of people ask me to write NLY or AGNC articles, as they have a very fervent following. I owned Annaly for a brief period about 5 years ago, but not since and haven't owned AGNC. Neither of them offer much in the way of option premiums. I know that their dividend yields are great, but I always need that little bit extra.
Filling The Silos With Feta [View article]
My question is what kind of ROI do you typically like to see for a stock (including dividends, premiums) and is CHK a core holding, or just a plaything?
If it is a core holding and your 3 months of premiums have essentially erased any paper losses, I would sell an out of the money call, such as the $21 for an additional 0.9% premium, plus the chance for an extra $2.90/share appreciation.
However, if your goal was to move on accepting assignment in exchange for a heftier premium, I would consider the $18 June 22, 2012 with a net $0.48 premium or a July 21, 2012 $18 call with a net $1.19 premium.
Obviously, any of those potential plays would have to be done within the context of what is an acceptable overall rate of return on an investment or in comparison to the index of your preference
Annuitize This [View article]
I have had one follower tell me that Interactive Brokers does not charge a fee in the event of assignment, and he indicated that he was very happy with their execution and trading interface.
Annuitize This [View article]
Works great as long as the stock isn't broken and you have faith.
Annuitize This [View article]
If I believe that the stock isn't broken, I practice a technique I call "Having a Child to Save a Life" http://seekingalpha.co... )
In essence, I buy new shares and will sell in the money or near the money calls on the new shares, specifically to help offset the paper loss on the original shares. I may also sell calls on the original shares at their cost basis level, even if only to eke a few extra cents out of them. I also sometimes use a technique of collecting crumbs, but that is risky, as a sudden upward move can result in assignment, with a loss being realized on shares ( http://seekingalpha.co... )
I rarely write for longer term, but occasionally will write for a monthly contract even when a weekly is available if my shares are below water, hoping to increase premium and minimize the effects of gathering suitable premiums on the weekly options in the event of further price drops.
Annuitize This [View article]
Although no one likes to pay taxes, your comment reminds me of what I would tell my kids when they received their first paychecks and saw the size of the bites removed. I always told them that the more they paid, the better it was, just as a reflection of the fact that they had to have made that much more money to pay those higher taxes.
If the marginal income derived from selling options still increases your net return, what's wrong with paying a higher rate of tax? You still end up with a net gain.
As far as picking the right strike and expiration, it's really a measure of your own temperament. I like to trade with frequency and rely mostly on dividends and option premium, especially during down or meandering markets. FOr that reason I use weeklies and monthlies and stick with strike prices very close to the purchase price.
However, in an upwardly moving market, I focus on capital gains from shares, therefore selling calls at higher strike prices.
If you're not thrilled about constant turnover in your portfolio, you'd be more likely to be happy with the longer term options while also seeking to achieve some capital gains from shares and accumulate dividends.
Filling The Silos With Feta [View article]
I suppose that could be true as long as the market flips and flops between 100 point gains and losses on a string of successive days on a regular basis 6 months from now.
Filling The Silos With Feta [View article]
Turn The Key On This Retirement Strategy [View article]
Filling The Silos With Feta [View article]
Annuitize This [View article]
Annuitize This [View article]
I rely mostly on weekly options for my own, very actively traded accounts. However, there is much less assignment during the course of a long term option contract. Instead, speculators will be trading the underlying option contracts, rather than pouring their unleveraged money into the shares. Of course, as you approach the expiration (particularly if a dividend is at hand), the likelihood of assignment increases.
When using the shorter term instruments, I'm often able to repurchase shares very shortly thereafter and at a lower price than where they had been assigned. Obviously, that's not always the case, but often enough that what I lose on a Friday may very well reappear on a Monday or Tuesday.
In the case of longer term call options (or LEAPS) you are freed the need to continually re-write call options, as for the shorter term. For many, that is a pragmatic benefit.
As a general rule, I will only close out an option position if it is in profit. I won't do so just to maintain a "core holding." However, there are often opportunities (such as this past Friday June 15, 2012) going into expiration, a stock may be up strongly, but still below its strike price right before expiration. I will often look to close those positions, often for just a few cents and roll the sale of calls over to the next cycle, which offers an enhanced premium due to the strength in the shares. I just did that for Cheasapeake and Deere, but missed opportunities to do so on some others. See "Go on the Attack by Playing Possum" http://seekingalpha.co...
Annuitize This [View article]
Filling The Silos With Feta [View article]
Thanks, but when it comes to world events, as they say "you can't make this stuff up"
Annuitize This [View article]
As you can probably tell, I'm not much of a fan of annuities. If you have a comfort level in investing in dividend paying stocks and can sell call options on them to either increase yield or decrease risk, that is a very reasonable and proactive alternative.
Annuitize This [View article]
I have tried to get her interested in investing, but to no avail. She thought that my book was too difficult to read.
I do appreciate your advice. This particular article was written in response to a couple of my subscribers asking if there was a way to apply the Option to Profit investing strategy but not have to be so intimately tied to the computer or ticker.
There are so many ways to approach investing based upon your temperament. For my personal portfolios I spice things up with some volatile positions, but not everyone wants to accept the risk.
I've actually had a couple of people ask me to write NLY or AGNC articles, as they have a very fervent following. I owned Annaly for a brief period about 5 years ago, but not since and haven't owned AGNC. Neither of them offer much in the way of option premiums. I know that their dividend yields are great, but I always need that little bit extra.