Daal, let's make this easy. Pick a stock....any stock. Let's look at real numbers. I'll start. JNJ. Good as any other stock. Solid company, good cash flows, favorite among widows and orphans. Stock closed at 113.44. The Nov 120 calls are trading at .11 bid. Zero protection. Let's move down. The Nov 115 calls are .97 bid. So basically your only choice here is to go with the Nov 115 calls for .97. But the stock dropped Friday 1.43! It lost in one day 40% more then the entire monthly call premium. And you had to sell the call one point out of the money! Come on, who we kidding here. The calls didn't even protect you from a one day drop none the less a 50% crash. LOL. I just picked the first stock that popped in my head. Go ahead, show me a better one. Let the math speak for itself.
Is covered call writing on dividend stocks the holy grail for the semi risk averse investor?
- Thread starter Daal
- Start date
Daal, let's make this easy. Pick a stock....any stock. Let's look at real numbers. I'll start. JNJ. Good as any other stock. Solid company, good cash flows, favorite among widows and orphans. Stock closed at 113.44. The Nov 120 calls are trading at .11 bid. Zero protection. Let's move down. The Nov 115 calls are .97 bid. So basically your only choice here is to go with the Nov 115 calls for .97. But the stock dropped Friday 1.43! It lost in one day 40% more then the entire monthly call premium. And you had to sell the call one point out of the money! Come on, who we kidding here. The calls didn't even protect you from a one day drop none the less a 50% crash. LOL. I just picked the first stock that popped in my head. Go ahead, show me a better one. Let the math speak for itself.
love it when historical data is used to prove a point. Gaze into the future and try again, what's your call?
Well, the math did speak for itself. You said div stocks ARE the SPY and that the SPY was a good example of a good div payer. And as I showed, a buy write strategy offered a fair amount of protection in the last big drop on SPY (which then you proceed to not address).
And if these calls are so cheap as you seem to imply, then, there must be a sure edge in being a buyer of them
JNJ was not a fair pick! Kinda like receiving a balanced view of Hillary from Fox news, or a balanced view of the Donald from Anderson Cooper. (I agree with your end game, but you threw tainted tomatoes)
JNJ dropped due to Pfizer announcing a competing product (Remicade) to market in Nov.
oh: This addressed to Maverick74 (the excess of alcohol is impeding my typing ability)
JNJ dropped due to Pfizer announcing a competing product (Remicade) to market in Nov.
oh: This addressed to Maverick74 (the excess of alcohol is impeding my typing ability)
Daal, the calls are not cheap because they are underpriced, they are cheap because the dividend payment has to get backed out of them! LOL.
OK Daal, I'm quoting your first post on this thread because you are starting to shift the goal posts on me. You did not make the argument that its better to buy the buy/write index over SPY, this is what you said word for word:
"But if the person buys good dividend paying stocks and supplements that income through call writing, now all the sudden the person finds that through that extra income (say 5-6% a year of div+premiums) then that person can pacify that tendency to want to sell during market drops, specially as that person accumulates dividends and premiums over time, it gives them the sense that the stock is a "cash cow" and its not a big deal to see a temporary drop."
So I ask you now, show me these wonderful stock candidates that generate a decent call premium to "comfort" our poor retail mom and pop types from "panicking".
Well, I wouldn't say it is Holy Grail, and I wouldn't say it is real easy to do, cause it is more sitting on hands so you don't get out. You have to spend HUGE time studying Extremes of price and do it on weeklies/monthly charts. You have heard cliché of buying low like early 2009, I was accumulating my core position and has exited in spring and fall 2008, saw divergence and tight patterns at the highs of stock market, PLUS new president often times means market going to go other way, way too many people were flipping houses at the highs and when next door neighbor is telling ME how to make money flipping houses is a que to get out. Best to build core of stocks after huge drop in all stock prices, then when you see sideways action, or divergence of breaking of lows by little amount like on highs, start slowly buying stocks, but not all at once, better to buy 10% each month in case market has further to go down. and since market has dropped, chances are so will economy, so buy stocks you use in the home, as other folks will use as well and cause stocks much lower, dividends will forever be higher in percentages as you bought low. Also, since market dropped, you can do both of selling both Calls and Puts for at least couple years, if you feel nervous of selling puts, do put credit spreads, limited risk, do them further out till expiration so you give them time for come back if they go into the negative. Each month check Trucking stock Index, if it is dropping then not hauling goods which means the economy not in good way. I use to watch cardboard sales but trucking is better for me.
I'm using the buy write index as a proxy for covered call writing on div stocks because, according to your words "almost the entire S&P 500 pays divys now so basically you are still just long the s&p 500 at the end of the day. You might as well just buy the SPY ETF. You do know that it pays a divy too right? Pretty much about the same divy as most stocks."
its a better proxy than random tickers. your earlier self would agree with me, but its not longer convenient for you now is it?
Fine, another random pick. MO. Another fav among widows and orphans. Closed at 63.70 up 1.85 on the day. The Nov 65 calls are .65 bid!!!!!!! Again, we can only go one point out of the money to get a measly .65? The stock moved more then 2 1/2 times friday then the total call premium. I can do this all day long because all these options are priced the same. The numbers don't change. But please someone prove me wrong. I'm genuinely curious.
Daal, what's wrong with you man? I'm not picking a fight with you. YES, I agree the buy/write by DEFINITION HAS to outperform on the way down because your loss is = to strike - premium received. Even if you sold a call for a nickel it will by definition outperform. But I completely disagree with you if you think these nickels or dimes or .85 or whatever is going to provide comfort. I do agree that over LONG periods of time, the outperformance is somewhat noteworthy in a quiet mkt. But that is NOT your argument. Your argument is the FAST PANIC where the premiums just don't do anything for you. I'm sorry, they just don't.
I guess you have crystal ball ? Best to be shorting more than buying, shorting non dividend stocks or just ETFs geared to stock market. I keep going to the flea markets for the crystal ball, they just have rusty plyers.