Quote from artes:
SELLING CALLS AGAINST STOCKS
With selling Covered Calls, You transform the "buy price" in a more comfortable position, every and each months. Yous sell short 33 contracts! and more, and more contracts.
For ex : sell 33 IBKR Dec 2007 25.0000 call (QBOLE.X) for $: 2.80
You receive 9,240$
Buy Back the call at $: 1.40 [or let exercise]
After that , Sell short again the next month [January] contract
Buy back again for the half of the price!
With the money flow in the account, increase the number of shares, sell more contracts ... [1contract by hundred shares]
Easy
more secure
No aldrenaline
You will Love [May be Warren do that, [that is: writing covered calls] check on google]
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By doing that each and every month , you will have f.ex :
$: 524,353.00 in FIVE years by receiving 3% each month with this method
Verify by the link http://www.moneychimp.com/calculator/compound_interest_calculator.htm (89.000$ by 5 years, 36% /year paid 12 time)
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See the image, link below
Here is scenario in action in case if stock declines.
1) Assume there is $82,500 on account.
2) Bought 3300 shares at $25, and paid $82,500 (excluding commissions). Acct liquid. value (cash + stock) = $82,500.
3) Sold 33 Dec contracts at $2.68 and collected $8,844. Acct liquid. value is $91,344.
4) Assume stock will steadily decline to $20 towards Dec. The acct liquid. value will reduce by 3300*$(5.00)=$(16,500)to $74,844
5) Assume buying 33 Dec contracts back for half price at $1.34 for 33*100*$1.34=$4,422, so acct liquid. value will be $70,422.
6) The result is loss $(12,078) or about 15% of starting capital. Stock itself declined 20%, so this scenario saved about 5% of starting capital.
Let see what happens if stock advances.
1) Assume there is $82,500 on account.
2) Bought 3300 shares at $25, and paid $82,500 (excluding commissions). Acct value (cash + stock) = $82,500.
3) Sold 33 Dec contracts at $2.68 and collected $8,844. Acct value is $91,344.
4) Assume stock will steady advance to $30 towards Dec and broker will not call this stock because he is dummy. The acct value will increase by 3300*$5.00=$16,500 to $107,844.
5) Assume buying 33 Dec contracts back for double price at $5.36 for 33*100*$5.36=$17688, so acct value will be $90,156.
6) The result is gain of $7,656 or about 9% of starting capital. Stock itself advanced 20%. This scenario gained 9% of starting capital, and did not realize about 11% of gains.
7) In reality this account most likely will get a call to deliver 3,300 shares at 25 as promised. As a result the acct value will be reduced by $(16,500) to $73,656, and no need to buy contracts back.
8) The loss is $82,500 - $73,656 = $8,844 or about 11% of starting capital, and 31% of unrealized gains.
Please explain what I'm missing.
