Covered Calls and Synthetic Covered Calls

[Guest]

Good morning.

Does anyone have some resources they could recommend on covered calls and synthetic covered calls?

Examples of questions I have are:

1. Is it better to sell slightly OTM calls or ATM calls?

2. Better to sell weeklies or monthlies and how far should/could the expiry be?

3. What to do around the ex-dividend date and earnings time?

Thank you!

Richard

[Guest]

Good morning.

Does anyone have some resources they could recommend on covered calls and synthetic covered calls?

Examples of questions I have are:

1. Is it better to sell slightly OTM calls or ATM calls?

2. Better to sell weeklies or monthlies and how far should/could the expiry be?

3. What to do around the ex-dividend date and earnings time?

Thank you!

Richard

I'm definitely not an expert (I can count the number of years I've been playing at stocks on my hands, and options on one hand), but here is my opinion since I started options by selling covered calls and still do that in my retirement account.

1) It depends on 2 things: the premium and the stock. Solid, low beta companies typically have low premiums because they don't move as much. At this point, selling OTM calls will only gain you a few percent if you are lucky. When I sell covered calls, I usually like to do it for a month or two max (to capitalize on the best theta). If we look at a stock like KO, the NOV 38.75 call is selling for .81 (around 12-13% annualized). The 40 call is selling for .32 (about 5% annualized). So here, you pretty much have to sell the ATM call to make what my bare min for return is (I usually shoot for 12%+). The other thing that comes into play is where you think the stock is going. Right now, I think KO is overvalued a little, but not by much. I could see it coming back to $37-37.5 in the near future, but it isn't likely. So I may sell the $37.5 call for 1.59. If I'm right, this protects my position down to $36.82, if I'm wrong, I make .60 or 9-10% annualized. In this case, the premium isn't worth it, so if I was going to sell a covered, I'd sell the 38.75. The OCT options don't look appealing to me. Right now, I have no short positions against my KO long position. More volatile stocks work better for covereds.

2) Depends on your risk tolerance. I never go more than 3 months out when selling. I rarely hold until expiration. Usually sell with a week or so left unless I really like where it is at. I'd probably not sell weeklies, but that is more because I do covereds in an account where I don't do a lot of tinkering on a daily basis.

3) I typically try to avoid earnings on my covered calls that I am specifically writing for premium. If it is part of my core holdings, I will hold the options through (because as we've learned here, earnings are hard to predict, so don't try). For ex-div. If I am writing the covered specifically for the premium (meaning I want it to get called away), I'll hold through ex div and hope it gets called away. If it is part of my core holdings and I am not looking to trim, I'll buy it back before ex div if it is deep ITM. If it is ATM, I may buy back if the premium is close to the div amount. If I am looking to trim, I'll let it go.

Really, there are no hard and fast answers. Depending on your stocks, your own personal levels of risk tolerance, and the current state of your portfolio, the answers to all 3 of those can vary.

I think Chris currently sells weeklies against a long AAPL call, but as he mentioned in a post, you know to know how to adjust and what to do. If the stock blows through the bottom of your protection, do you sell the next week's option at the lower rate and eat it? Do you hold hoping it comes back? etc. Monthly options are just safer for me, plus you get more downside protection, which I like for my purposes.

Edited October 1, 2012 by trhanson

[Guest]

I'm definitely not an expert (I can count the number of years I've been playing at stocks on my hands, and options on one hand), but here is my opinion since I started options by selling covered calls and still do that in my retirement account.

1) It depends on 2 things: the premium and the stock. Solid, low beta companies typically have low premiums because they don't move as much. At this point, selling OTM calls will only gain you a few percent if you are lucky. When I sell covered calls, I usually like to do it for a month or two max (to capitalize on the best theta). If we look at a stock like KO, the NOV 38.75 call is selling for .81 (around 12-13% annualized). The 40 call is selling for .32 (about 5% annualized). So here, you pretty much have to sell the ATM call to make what my bare min for return is (I usually shoot for 12%+). The other thing that comes into play is where you think the stock is going. Right now, I think KO is overvalued a little, but not by much. I could see it coming back to $37-37.5 in the near future, but it isn't likely. So I may sell the $37.5 call for 1.59. If I'm right, this protects my position down to $36.82, if I'm wrong, I make .60 or 9-10% annualized. In this case, the premium isn't worth it, so if I was going to sell a covered, I'd sell the 38.75. The OCT options don't look appealing to me. Right now, I have no short positions against my KO long position. More volatile stocks work better for covereds.

2) Depends on your risk tolerance. I never go more than 3 months out when selling. I rarely hold until expiration. Usually sell with a week or so left unless I really like where it is at. I'd probably not sell weeklies, but that is more because I do covereds in an account where I don't do a lot of tinkering on a daily basis.

3) I typically try to avoid earnings on my covered calls that I am specifically writing for premium. If it is part of my core holdings, I will hold the options through (because as we've learned here, earnings are hard to predict, so don't try). For ex-div. If I am writing the covered specifically for the premium (meaning I want it to get called away), I'll hold through ex div and hope it gets called away. If it is part of my core holdings and I am not looking to trim, I'll buy it back before ex div if it is deep ITM. If it is ATM, I may buy back if the premium is close to the div amount. If I am looking to trim, I'll let it go.

Really, there are no hard and fast answers. Depending on your stocks, your own personal levels of risk tolerance, and the current state of your portfolio, the answers to all 3 of those can vary.

I think Chris currently sells weeklies against a long AAPL call, but as he mentioned in a post, you know to know how to adjust and what to do. If the stock blows through the bottom of your protection, do you sell the next week's option at the lower rate and eat it? Do you hold hoping it comes back? etc. Monthly options are just safer for me, plus you get more downside protection, which I like for my purposes.

Thank you trhanson for this informative post. One question:

try). For ex-div. If I am writing the covered specifically for the premium (meaning I want it to get called away), I'll hold through ex div and hope it gets called away. If it is part of my core holdings and I am not looking to trim, I'll buy it back

I am not sure what you mean here? Why would you want the stock to get called away? If you have an example then I think that would help me. Thank you again for your time!

Richard

[Guest]

Thank you trhanson for this informative post. One question:

I am not sure what you mean here? Why would you want the stock to get called away? If you have an example then I think that would help me. Thank you again for your time!

Richard

Sometimes, the premium on the covered call is quite good. I may not have any interest in holding onto the stock long term, so I may do a buy write. I'm going to give you a for instance using a real stock, but PLEASE do not buy this stock without doing research on it. I think energy prices are going to be stable or increasing the next month, so if I'm looking to capitalize on this in the short term, I may look for a stock that has been been putting a good floor, and is not going to collapse for the short term. A good example is FXEN. It has traded in a pretty tight range and is currently in the bottom where it has some support. I have no interest in owning it long term (it really doesn't do too much for me), BUT the October 7.5 call is selling for .90. Thats 13.7% if flat with 3 weeks left! Depending on your annual calculation method, that is between 237-265% annualized return. Since they don't report (and have no div), it would be a full holder. My goal here is to have my stock called away here, take my 13.7% and run.

*Note: I am considering this trade.

Edited to add: I don't think that the stock will move to be 8.4 in 3 weeks, which also makes it a good covered call IMO.

Edited October 1, 2012 by trhanson

[Guest]

Sometimes, the premium on the covered call is quite good. I may not have any interest in holding onto the stock long term, so I may do a buy write. I'm going to give you a for instance using a real stock, but PLEASE do not buy this stock without doing research on it. I think energy prices are going to be stable or increasing the next month, so if I'm looking to capitalize on this in the short term, I may look for a stock that has been been putting a good floor, and is not going to collapse for the short term. A good example is FXEN. It has traded in a pretty tight range and is currently in the bottom where it has some support. I have no interest in owning it long term (it really doesn't do too much for me), BUT the October 7.5 call is selling for .90. Thats 13.7% if flat with 3 weeks left! Depending on your annual calculation method, that is between 237-265% annualized return. Since they don't report (and have no div), it would be a full holder. My goal here is to have my stock called away here, take my 13.7% and run.

*Note: I am considering this trade.

Edited to add: I don't think that the stock will move to be 8.4 in 3 weeks, which also makes it a good covered call IMO.

Fantastic example Tyler! Thank you.

How do you typically find candidate trades like this?

R

[Guest]

Tyler,

Also, hopefully someone else can also comment on synthetic covered calls. They seem like an interesting variation because if the stock nose dives your losses are capped.

[Guest]

Synthetic covered calls are useful for stocks that have high prices (like AAPL) since you don't have to have so much capital to buy 100 shares, but I think the concepts are the same. Your losses are indeed capped, but you have to buy them deep ITM to get a delta of close to 1, and if the stock falls, you are then padded some by the time premium left, so it could be a good play. I think Chris does it. I don't typically work with stocks in those price ranges. It's psychological, I know, but

As for screening for calls, I'll give you an example of a couple of methods that I use when I get home. One is really easy, and I'm kind of embarrassed to give it up, but I'll let the suspense build until I can get my other method on paper for you as well. Most of the time though, I sell calls against core positions that I intend to hold onto once they become slightly overvalued.

[Guest]

Synthetic covered calls are useful for stocks that have high prices (like AAPL) since you don't have to have so much capital to buy 100 shares, but I think the concepts are the same. Your losses are indeed capped, but you have to buy them deep ITM to get a delta of close to 1, and if the stock falls, you are then padded some by the time premium left, so it could be a good play. I think Chris does it. I don't typically work with stocks in those price ranges. It's psychological, I know, but

As for screening for calls, I'll give you an example of a couple of methods that I use when I get home. One is really easy, and I'm kind of embarrassed to give it up, but I'll let the suspense build until I can get my other method on paper for you as well. Most of the time though, I sell calls against core positions that I intend to hold onto once they become slightly overvalued.

Currently the only covered call I am doing is on Microsoft (MSFT) for obvious reasons.

What do you think about covered calls on precious metals like SLV or GLD. Even Silver Wheaton? Commodities?

When you get a chance please do send me your filtering method.

Thanks again!

Richard

[Guest]

As one of the other posters noted, I do sell covered calls on LEAPS -- particularly AAPL. That said, someone said they like that strategy because it "limits losses." I would respectfully disagree, as the losses, if any, are amplified over a covered call on a stock. Let's take one I'm in right now.

I bought the Dec 600 AAPL Leap when AAPL was at 690, it cost me $91.50. That week I sold the weekly 700 call for $5.50. That's a six percent return in ONE WEEK. If the price goes way up (lets say 710), sure I have to buy the call back for a $10.00 loss, but the LEAP has gained $20 -- so even a better situation.

But what if (as actually happened), AAPL drops to 660?. Well my LEAP is now worth $60.00 -- a 30% loss on your principal, in exchange for a 6% gain on the sale. Whereas if you had actually owned AAPL,, the decline from 690 to 660 is only a 4.3% loss. There's a big difference between a 4 percent and a thirty percent loss. The trade off is you still only got the $5.50, which is less than a one percent return.

So what to do when the price plummets like that and your LEAP loses value? (technically not a LEAP because it's December). This is where trade management comes in.

I'm still positive on AAPL, so I don't panic. What I do is roll short 700 call to a short 690 call (still above my original purchase price) for another $4.00. My "basis" is now $82, so my breakeven price for AAPL is 682. So in week two, I'll sell a call above that price, ideally 685-690 (which is what I did), garnering another $4.00. I continue to do so for as long as you want.

WARNINGS: Earnings can play havoc with this as you will get a large price swing. In the perfect world you do this up to one week before earnings, with AAPL's price being steady.

You also need to have a plan on what to do if the price REALLY drops out quickly (personally my plan is to avoid stocks where I see a big risk of a 10% decline in the underlying in the short term). Always have your pain point known in advance to know when to just take your losses and exit.

[Guest]

Chris- with this type of synthetic covered call trade and if you are very comfortable with the 600 price point does it not give you a fair amount of space to keep rolling the weeklies over as long as the shorts are always above your 600 strike? Or is there a point in the trade where rolling does not make mathematical sense any more and should just close out the trade? I guess I am interested at what price points in the trade would you close out the trade?

[Guest]

That answer changes around earnings periods -- as well as how long I've been rolling (though this is a BAD way to analyze a trade as each trade should be looked at independently).

Earnings aside, one helpful way is to try to figure out how much premium you "think" you can extract. Let's say you were to enter this trade last Thursday (though I did three weeks ago).

I like to enter these trades on Thursday's because it gives me the most premium possible on the monthly. Last Thursday the 600 call would have cost $93, and AAPL was at 681. The 690 weekly call would have gotten you $5.00 (which is what I target on AAPL, sometimes you can't get that).

Next look at how many weeks could you roll this -- 85 days to expiration, 12 weeks, but have to sell the week before, so 11 weeks. If things go as planned, and AAPL stays at around 680 (or goes up), you could theoretically earn around $55 in premium. That's a best case though, and I would plan for something less than that -- around the $45. That would work out to a 48% profit (or more if AAPL slowly rises) in a good case. That rarely happens.

But, with proper management, even when AAPL is declining, we still can get the $45 in premium. So what's our "pain" point? I personally try to target a 15% loss -- but what is that. For a rough calculation:

$93 purchase price -- break even 693 on expiration

$45 in gain (93-45) = 48.

Fifteen percent loss: 48*.85 = 40.8.

So when the value of my call option drops around 40, I'll begin looking at exiting.

Please note though that this is a dynamic calculation that assumes you're near expiration and have already collected premium. If the value of the option drops to 40 early on, I'll have collected less premium, thus increasing my losses.

For instance, in the past three weeks I've collected $16 in premium. My 15% loss point is at 65.

I personally calculate based off end losses to give me some leeway -- but I have a higher risk tolerance and know that means, while closing on a bad move in December might be a 15% loss, if I had to close earlier, it might be closer to 30%.

You need to find out what size losses you're comfortable with immediately and in the long term and position size and manage from there. Don't calculate exit points based off of potential gains in risk management (still do that, but not for risk management).

Hope that's not too rambly.

[Guest]

WARNINGS: Earnings can play havoc with this as you will get a large price swing. In the perfect world you do this up to one week before earnings, with AAPL's price being steady.

You also need to have a plan on what to do if the price REALLY drops out quickly (personally my plan is to avoid stocks where I see a big risk of a 10% decline in the underlying in the short term). Always have your pain point known in advance to know when to just take your losses and exit.

Thank you Chris! Earnings and dividends both wreak havoc right? What do you do around dividend time?

Is there ever a safe stock that won't decline 10% that you sell a reasonably priced call on? I think it is really tough to figure those out Walmart? However their calls don't pay well.

Other than proper position sizing, what are some options when the stock takes a nosedive like you mention? Maybe purchase a deep OTM put or vertical to start with?

[Guest]

That answer changes around earnings periods -- as well as how long I've been rolling (though this is a BAD way to analyze a trade as each trade should be looked at independently).

Earnings aside, one helpful way is to try to figure out how much premium you "think" you can extract. Let's say you were to enter this trade last Thursday (though I did three weeks ago).

I like to enter these trades on Thursday's because it gives me the most premium possible on the monthly. Last Thursday the 600 call would have cost $93, and AAPL was at 681. The 690 weekly call would have gotten you $5.00 (which is what I target on AAPL, sometimes you can't get that).

Next look at how many weeks could you roll this -- 85 days to expiration, 12 weeks, but have to sell the week before, so 11 weeks. If things go as planned, and AAPL stays at around 680 (or goes up), you could theoretically earn around $55 in premium. That's a best case though, and I would plan for something less than that -- around the $45. That would work out to a 48% profit (or more if AAPL slowly rises) in a good case. That rarely happens.

But, with proper management, even when AAPL is declining, we still can get the $45 in premium. So what's our "pain" point? I personally try to target a 15% loss -- but what is that. For a rough calculation:

$93 purchase price -- break even 693 on expiration

$45 in gain (93-45) = 48.

Fifteen percent loss: 48*.85 = 40.8.

So when the value of my call option drops around 40, I'll begin looking at exiting.

Please note though that this is a dynamic calculation that assumes you're near expiration and have already collected premium. If the value of the option drops to 40 early on, I'll have collected less premium, thus increasing my losses.

For instance, in the past three weeks I've collected $16 in premium. My 15% loss point is at 65.

I personally calculate based off end losses to give me some leeway -- but I have a higher risk tolerance and know that means, while closing on a bad move in December might be a 15% loss, if I had to close earlier, it might be closer to 30%.

You need to find out what size losses you're comfortable with immediately and in the long term and position size and manage from there. Don't calculate exit points based off of potential gains in risk management (still do that, but not for risk management).

Hope that's not too rambly.

Chris,

Thank you for the information you shared.

I don't get how you can calc for a 15% loss? If after week #1 AAPL drops $30 then what would you do? Would you roll the weekly mid-week? Would you exit once it drops the first $20? When would you consider re-entering, if at all?

Thanks.

Richard

[Guest]

Purchasing a Deep OTM put can be helpful. I've been looking at that with AAPL -- eying ones that cost me between one to two weeks of premium. That would give a nice partial hedge (haven't finished the math though).

As far as "safe" stocks -- as you noted the premium on the "safe" stocks (MSFT, XOM, JNJ, etc) are not NEAR as high and don't normally justify the risk. I used to use MCD and IBM -- and then they both took a huge hit and just wiped out six months of premium gains. If you own the stock, not always a big deal as those can make up core portfolio holdings. If you own a LEAP or shorter term option though, you might not be able to hold for the long term.

I tend to TRY to make sure I'm getting at least a 5% return per week on the short sale/call price. That's my opinion though.

As far as dividends go, they tend not to make a big impact on the instruments I trade. I try to sell OTM calls and the DITM LEAPS aren't impacted, other than by the post ex-div standard moves.

Earnings can wreak havoc -- go look at NFLX. Anything that is at risk of a big drop can destroy you.

[Guest]

Purchasing a Deep OTM put can be helpful. I've been looking at that with AAPL -- eying ones that cost me between one to two weeks of premium. That would give a nice partial hedge (haven't finished the math though).

As far as "safe" stocks -- as you noted the premium on the "safe" stocks (MSFT, XOM, JNJ, etc) are not NEAR as high and don't normally justify the risk. I used to use MCD and IBM -- and then they both took a huge hit and just wiped out six months of premium gains. If you own the stock, not always a big deal as those can make up core portfolio holdings. If you own a LEAP or shorter term option though, you might not be able to hold for the long term.

I tend to TRY to make sure I'm getting at least a 5% return per week on the short sale/call price. That's my opinion though.

As far as dividends go, they tend not to make a big impact on the instruments I trade. I try to sell OTM calls and the DITM LEAPS aren't impacted, other than by the post ex-div standard moves.

Earnings can wreak havoc -- go look at NFLX. Anything that is at risk of a big drop can destroy you.

Hmmm. There is no free lunch right

Another alternative would just do a deep ITM call but not a 90+ delta. Maybe something more in the high 70 or low 80 delta range.

Actually I like MSFT. Look at the returns. The commisions may kill it but the returns are not that different than AAPL if you are getting $5 a short call contract.

A few more questions/comments:

1. You won't realize that $5 profit right because you roll it each Thurs. Aren't you only realizing like $3 to $4 of that short profit?

2. What is your plan if you do get a big first week drop? In this example let's say AAPL drops $40 in one week. Not that crazy with how its going lately.

3. Did you say you would ever roll the weekly short mid week to a lower strike?

Thanks.

Richard

[Guest]

Again, depends on the drop, the corresponding drop in the price, and how much premium I can get. I have done any and all.

For instance, on AAPL, last week when it dropped from 680-660, I did just roll middle week and grabbed another $3.00 in premium.

As I had only on a half position, today I actually averaged down when AAPL hit 652, I doubled up my position for $68.00. So one at $91.50, and a second at $68.00. That averages out to 79.75. With the premium I've already gained, I'm actually quite happy with the position. My current "panic" point, which will last to Thursday (when I roll) is around 630.

At 630, I would project the value of my call to be around $48-$50. I've already collected just north of $15.00 in premium (after accounting for the averaging down). That's $65.00. So at 630, if I exited, I would be facing about a 22% loss. And remember, earlier in the option, I'm more risk tolerant as the price can rebound, later on, less so.

So, what do I do when things go south?

1. Look at averaging down

2. Look at rolling the short down for more premium

3. Look to exit

And, I can hold some losers longer, depending on the overall risk on in my portfolio -- that's a dynamic number as well. you need to just find losses you're comfortable with and NOT let them get out of control. If there's doubt, bail.

[Guest]

Hmmm. There is no free lunch right

Another alternative would just do a deep ITM call but not a 90+ delta. Maybe something more in the high 70 or low 80 delta range.

Actually I like MSFT. Look at the returns. The commisions may kill it but the returns are not that different than AAPL if you are getting $5 a short call contract.

A few more questions/comments:

1. You won't realize that $5 profit right because you roll it each Thurs. Aren't you only realizing like $3 to $4 of that short profit?

2. What is your plan if you do get a big first week drop? In this example let's say AAPL drops $40 in one week. Not that crazy with how its going lately.

3. Did you say you would ever roll the weekly short mid week to a lower strike?

Thanks.

Richard

I haven't looked a MSFT -- it might be a great candidate (it wasn't last spring).

As far as realizing the profit, I just maximize the roll, I try to realize as much as the $5.00 as I can. For instance, last week I NETTED $5.22 after the roll, and then gained another $2.50 rolling down this week. But what's the cost to that? Oh yeah, the underlying dropped $25.00.

As for the "big first week" drop. If there's going to be a big drop, I'd rather it be in the first week as there is still plenty of time to sell premium and/or for the price to rebound. The question comes though, at what point do you take your losses and go? And all I can say is there is no hard line, I run a risk adjusted portfolio, where at NO TIME can I ever have any realistic chance of a 10% or more drop on the whole portfolio. That gives me some flexibility on trades like this -- maybe one month I could tolerate a 30% or even a 40% drop in the call, depending on position size, weighting, and how risky the other positions are. It's impossible for me to say at what point would I close and move on in general. I can tell you right now, if AAPL drops below 630 this week, I'm out. But that's just this week.

Quite likely, if I have this CC on, then I have some sort of other hedge on against it -- either something as simple as a DOTM put, a vertical put spread, maybe an ATM IC on a couple other highly correlated stocks.

I would NEVER have this as the only trade in my portfolio, having 50% of my money on it. Ever. Me personally, I would never have this trade make up more than 10%, and ideally not more than 5%, of a portfolio. Let's say it is 5% of my portfolio? What if AAPL drops 200 points? Well, worst case, I lose 5%. (I would not let it get that bad). Risk tolerance is a creature of ALL of the trades you have on, not just one.

[Guest]

And continuing, I just looked at MSFT -- not sure why you think that's such a good candidate. For going just .50 OTM, you only get .09 in premium on a weekly basis.

[Guest]

Again, depends on the drop, the corresponding drop in the price, and how much premium I can get. I have done any and all.

For instance, on AAPL, last week when it dropped from 680-660, I did just roll middle week and grabbed another $3.00 in premium.

As I had only on a half position, today I actually averaged down when AAPL hit 652, I doubled up my position for $68.00. So one at $91.50, and a second at $68.00. That averages out to 79.75. With the premium I've already gained, I'm actually quite happy with the position. My current "panic" point, which will last to Thursday (when I roll) is around 630.

At 630, I would project the value of my call to be around $48-$50. I've already collected just north of $15.00 in premium (after accounting for the averaging down). That's $65.00. So at 630, if I exited, I would be facing about a 22% loss. And remember, earlier in the option, I'm more risk tolerant as the price can rebound, later on, less so.

So, what do I do when things go south?

1. Look at averaging down

2. Look at rolling the short down for more premium

3. Look to exit

And, I can hold some losers longer, depending on the overall risk on in my portfolio -- that's a dynamic number as well. you need to just find losses you're comfortable with and NOT let them get out of control. If there's doubt, bail.

Thanks Chris. I am thinking rather than a OTM put as a hedge maybe not going to deep ITM on the call and maybe looking at more of an 80 type delta far enough out that the theta is low. seems like cheaper insurance than the put.

[Guest]

Thanks Chris. I am thinking rather than a OTM put as a hedge maybe not going to deep ITM on the call and maybe looking at more of an 80 type delta far enough out that the theta is low. seems like cheaper insurance than the put.

I don't have access to old data, but on Thurs I think the premium was closer to .22 on a weekly that was around .30 OTM. .30 of around $30 is around 1%. This a stock that doesn't often have large moves. If you make 1.5% on it a week because it went up around $.50 than I think that is good. However perhaps you can check TOS thinkback. (you'd need the high low not the Thurs close).

[Guest]

Thanks for answering my question Chris.

[Guest]

So I'm back to give up my screener information. I have a couple of different screening tools, but pretty much do the same thing on both.

The one I like is not flashy and very basic. I have to do quite a bit of manual work myself, BUT it's not too bad. Forgive me for how basic this is.

So how did I come up with the FXEN play? Simple. I made it seem as thought I looked for an energy play, but I really didn't I was looking for home run plays just for a good example. So here is my screen from the Schwab tool (they use LiquidPoint) and the results that were posted. I then looked at some of them and found one. Note that I could have

selected a sector or an industry if I so chose. I do sometimes. Also the image shows 12%, but the results are from 10%.

This is a very agressive looking for a 10% return in 18 days (the FXEN is actually 12.82% if even, 14.5% if called). I normally don't find anything that I really like in that short of a timeframe. For quick jobs like that, I loke to look for something going up. FXEN isn't something I would normally do this trade on since it has not made a profit, BUT since they don't report earnings or anything in the next month and I don't see energy colapsing, it may be a good *speculative* trade to try and make a quick 12% on. YMMV

So anyway, I usually do something like the screener 3 to find decent companies to trade. Looking for 10% over 2 months. That's still pretty agressive, but for these types of trades, I'm looking for those. I set the P/E to being at least 5 so that I only get profitable companies.

Right now that screen really doesn't populate anything that I'm really digging. Don't ever feel like you HAVE to have a covered call going on. Also, this screen usually only comes back with 10 or so results, easy enough to process manually for myself. I then do chart work and other reasearch. Usually I can exclude a company very quickly from this. I've only made a handful of covered calls like these this year. I could probably make better use of these tools, but for the most part, I write calls against core holdings (and I've not been on this long enough to have a ton to write against), but for my Roth IRA, this works well for me.

Edited October 2, 2012 by trhanson

[Guest]

Thanks Tyler. Interesting information.

Does anyone know if IB or TOS has a similar screening capability? I have seen screeners on stocks but not on options like this.

[Guest]

Thanks Tyler. Interesting information.

Does anyone know if IB or TOS has a similar screening capability? I have seen screeners on stocks but not on options like this.

TDAmeritrade does -- most major brokers do (and TOS is through TDAmeritrade)