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Fear & Greed Trader
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INDEPENDENT Financial Advisor / Professional Investor- with over 30 years of navigating the Stock market's "fear and greed" cycles that challenge the average investor. Investment strategies that combine Theory, Practice and Experience to produce Portfolios focused on achieving positive... More
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  • Call Writing Strategy Part 21- Staying With eBay & NUAN 8 comments
    Apr 21, 2014 3:20 PM | about stocks: EBAY, NUAN, FCX, MU

    The April option series expired last week, and with that the (NASDAQ:EBAY) & (NASDAQ:NUAN) options that were sold earlier, expired worthless.

    Today, I sold the Mar 30 Weekly (EBAY) 56.5 strike options today for $1.25 . Also sold the June (NUAN) 18 calls for $.35.

    Ebay continue to be a cash cow as I have now taken in $2,845 since 12/23/13. That works out to be a 10% gain on the initial $27,390 investment in 5 months. If the shares are called @ $56.50 that will add another $1,475 , for a combined 15.7% gain.

    I finally was able to dig my way out of the NUAN position which had floundered right after the initial purchase. Now with the latest sale of the June 18 calls the income on that position is $2,060. An 11% yield on the initial investment in a 9 month timeframe..

    The (NYSE:FCX) position remains below the purchase price but with the 5% dividend yield, It will allow me to exercise patience and wait for shares to rebound before i sell another call against those shares.

    (NASDAQ:MU) options expire this week and the shares are now above the strike price and my be called away -- I'll update after expiration day.

    (click to enlarge)

    From the accompanying table the total income since inception on June 5, 2013 is now $21,769. That equates to a 21.7% increase form the original 100,000 investment, compared to the S & P performance of 16.2% in the same timeframe..

    This is an actual portfolio. At no time did the total amount invested exceed $100,000. All trades are documented in real time in this blog..

    Best of Luck to all !

    Disclosure: I am long MU, NUAN, FCX, EBAY.

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Comments (8)
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  • Fear & Greed Trader
    , contributor
    Comments (6574) | Send Message
     
    Author’s reply » The first part of this example was to show how a retiree (or anyone else for that matter) can take a $100,000 portfolio and enhance their monthly income while outperforming the major averages..

     

    Do not lose sight of the fact that this strategy produces CASH FLOW. As compared to the same investor with $100,000 invested in a mutual fund or an index fund who then has his/her investment in these funds completely "tied up".

     

    The only way for the "index investor" to unlock that cash flow is to sell off assets along the way, and that will be tricky, if downright impossible to achieve the same cash flow as the call writing technique has shown, given the recent market volatility .

     

    The call writing strategy produced a nice stream of income and allowed the investor access to his /her funds as many of the stocks were in fact "called away " during the last 10 months. For some that is also a huge advantage.. Review the transactions and take a look at how that is a huge advantage ..

     

    In the coming days/weeks . I will now start to use the gains that have been generated to show how the compounding effect can really enhance the overall yield on this type of strategy.
    21 Apr 2014, 06:43 PM Reply Like
  • UncleSam187
    , contributor
    Comments (214) | Send Message
     
    What criteria do you use to determine the OTM price? Do you roll? For example, on the NUAN position, if it rallies to >18 by June will you let it be called away with an adjusted cost of 16.95?
    21 Apr 2014, 09:50 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (6574) | Send Message
     
    Author’s reply » Uncle,

     

    I will let the shares go , when i initiate the position , i will usually go out one month and select the strike price just above the purchase price .. I like to turn over the positions and keep good cash flow .

     

    U can view the history of all of the trade here in the instablog.

     

    U wil see that during this time - i have had shares called away then gone right back into them if they dip back to original purchase prices..

     

    I have a few metrics i use on stock selection,, but the most important message to investors is to pick a stock u wont mind owning if the position goes against u and u are "stuck" with the shares --

     

    the one that fits that criteria now in my portfolio is FCX
    22 Apr 2014, 09:21 AM Reply Like
  • fredo5697
    , contributor
    Comments (46) | Send Message
     
    This is exactly what I need. Thank you! What are your thoughts on PM or DIS for this strategy? Also, I own some NUAN but it is down considerably from when I bought it over a year ago. Would you write calls in this scenario? I don't mind holding it but I would like some income while I wait.
    9 May 2014, 09:22 AM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (6574) | Send Message
     
    Author’s reply » fredo,

     

    As u can see from this portfolio - NUAN has been a struggle for me also.. As i am trying to dig my way out..

     

    Yes i would recommend selling calls on NUAN even if you get 1-2% every couple of months - that adds up after a year..

     

    U can use PM & DIS for this strategy -

     

    With PM u are getting a nice div. so the premiums aren't as good - u will have to go out in time to get a better premium
    i.e. the sept 90 is around 1.00 .. so u have to weigh if u want to do that on a high yield position -- right now I do like the chart there..

     

    DIS- a better candidate - more choices -- the June 27 (weeklys) 84 strike is 1.10 the 83 strike is 1.50

     

    not a bad return for 7 weeks

     

    On these type of core positions --- I use relative strength numbers to indicate when a stock is a bit overbought - and that's when i write the call -

     

    DIS is a tad high on the rel. strength meter and could be a good time to do that. ...
    9 May 2014, 09:49 AM Reply Like
  • fredo5697
    , contributor
    Comments (46) | Send Message
     
    Agreed on DIS and already have a nice gain with PM after a month after buying at 80 so having the shares assigned at a higher price than current is not the end of the world. Where do you find relative strength numbers?
    Thank you for your input.
    9 May 2014, 10:59 AM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (6574) | Send Message
     
    Author’s reply » u can use freestockcharts.com

     

    it will display the stock chart for u

     

    i use the "daily" time frame chart for these signals

     

    u will see an "add indicator" button just to the right of the stock name being displayed

     

    scroll down that list and add stochastics

     

    that wil be displayed below the price chart - for DIS that is being displayed @ 73 this morning - i usually will write the call when i see a number around 85 90(above the green line)

     

    its not perfect - no tech analysis is... but as u can see u get a good visual on price & strength and the peaks and valleys in the shares.

     

    I also use the lower numbers 10 or so (below the red line) to pick entry points for stocks i have followed and done my Due diligence - as that shows they are oversold at the moment ..
    lots of other good features with the chart website - & no subscription req'd

     

    Good Luck !
    9 May 2014, 11:56 AM Reply Like
  • fredo5697
    , contributor
    Comments (46) | Send Message
     
    Thank you very much.
    9 May 2014, 12:19 PM Reply Like
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