Using Covered Calls to Profit in this Volatile Market

Using Covered Calls to Profit in this Volatile Market

Posted On March 18, 2020 3:00 pm

It’s very dangerous and scary trying to catch a falling knife or to pick a bottom in this stock market. But, with the “SPDR Trust (SPY)” off some 30%, and many individual stocks down 50% or more, it’s time for investors, especially younger ones with a longer-term horizon, to start nibbling.

The rational approach is to use some form of dollar-cost averaging. Let’s say deploying 10%-20% of your capital for each 5% decline in the market or a stock price.  It also makes sense to employ an option strategy that takes advantage of the record level of the VIX which has huge premiums across the options market.

The strategy I like is covered call strategy.  It’s one of the most popular options strategies, especially among investors that don’t consider themselves ‘options traders.’

It’s a way for owners, especially for buy-and-hold types, to generate income from the stocks they own.  It also provides an immediate discount to the purchase price of shares from their current price.

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About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.

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