Can This Run Be Sustained?

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2 Responses

  1. Hey,
    I’ve noticed there are a few websites boasting the attributes of selling covered calls.
    My understanding is that a person has a portfolio of shares and then sells a covered call to gain income from the portfolio in addition to dividends.
    If the price stays below the strike that’s okay. But if the price moves significantly and rapidly beyond the strike then the trader will have to sell the shares for less than their real worth (when the option is exercised). In these circumstances the covered call strategy is detrimental. The shortfall in price may be larger than the premium received.
    Surely the correct strategy would be to sell puts. That way the portfolio risk is protected, and the trader lets the profits run.

    1. Hey Geraldine, There are a lot of things to consider. Overall, data show that covered calls (and cash-secured puts) outperform the buy and hold in the long run. But, yes. You are correct that if the stock rises through the strike and you do nothing and lose the stock, you don’t get the dividends or participate in further price appreciation. Our methodology takes into account 1st the trader’s objective (does the trader want to keep the stock or are they using it as a way to intentionally exit it?). Secondly, we have adjustment strategies that when used properly can usually help avoid that unwanted assignment.

      We have a starter video that introduces our system here and at the end, give you a chance to move forward with using the complete system. Take a look and see how it works.

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