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Selling Covered Calls - Is Now a Good Time?

On principle, I dislike selling covered calls anywhere in the vicinity of a market bottom. After doing the work to locate good prospects, why give away the upside?  Or, if I'm underwater on the situation, why sell calls at a strike that guarantees a loss if called away? 

Nevertheless, after revising my expectations for the rest of the year downward, I started on a program of selling covered calls over most of my portfolio.  This post goes over the thinking and tactics involved.

If the S&P 500, currently in the 1,200 area, were to go to 1,450 by January options expiration, that would be an increase of 20%, and enough to give me a fine result on the year. So, if I can sell calls that are 20% above the current price level, after adjusting for beta, I'm selling at prices above anything I think the market can realistically be expected to do.

As an example, if a stock has a beta of 1.5, I would look to sell calls at 30% above the current price. In many cases, it's possible to get attractive premiums for January expirations on that basis.

WIth the VIX at 34.34 as I type this, volatility is high enough to support good premiums for any but the most defensive stocks. There are two ways of thinking about selling covered calls: one would focus on volatility, the other on price level. My normal approach is to attempt to sell covered calls near market tops, even though premiums may not be that generous.  However, selling when volatility is high will also generate a profit.

If the market, or any individual stocks, do make these large, unexpected upward moves, the dilemma is a pleasant one - whether to take the money and run, or roll the covered call up and out, collecting more time premium and chasing the market higher. And those decisions can be made with more information - the outcome of the Greek debt crisis, evidence of constructive dialogue on the US budget deficit, continued growth by China, etc. 

My portfolio is experimental, with most positions taken by means of LEAPS. The original trade is usually a diagonal call spread, long deep in the money LEAPS and short out of the money calls with a nearer expiration. Time values are matched at the time the position is initiated. After the short leg expires worthless, I'm holding a LEAPS position with the time premium already covered.

I completed about half the project today, and plan to do the rest within the next week to ten days. When complete, the time premiums received will be enough to fund my draw from the account through the end of January. By that time, there will be a lot more clarity about the trajectory of the global economy, and with it, US share prices. If in the meantime, the S&P 500 goes as high as 1,450, I'll be happy enough to have everything called away.