Replies to post #30 on Covered Calls

[gtober]

rros, I think it is unwise to go 100% any strategy for your entire portfolio. Especially one you are just learning about. That said, in terms of risk, covered calls is one of the lowest risk strategies one can undertake for trading.

[Joe Stocks]

rros, I true covered call only port would be less risky than a stocks only port if managed properly. The port risk factor would be relative to the quality of the holdings. If you were going to load the port up with equities anyways, I would say selling calls on all the stocks should give you a better return than not selling the calls.

That said, I am not recommending that your funds for investment should all be in stocks. What I am saying is that the part in stocks could be 100% buy-writes and I would think it would have less risk and potentially more gains.

This week I am setting up a $25,000 cash port with margin, and only going to do covered calls. I plan to always be fully invested. I will report my trades here. At the end of each month I will update the balance. I am curious how it will do. I currently have portfolio with the majority in covered call plays, but never did one solely. The account has been funded, just waiting for option approval.

I would suggest the same with you. Split out a amount you want to put towards covered calls and call it your 'covered call port'. See how well you do starting off slowly and as you gain experience and confidence, add funds to the port if it is doing well. Just remember, covered calls will not totally insulate you from market downturns. That's why I like to spice my port up with some insurance with holdings in TWM and DUG to hedge. DUG only because the majority of my covered calls are in the energy area.

I think 10-15% of your port in stocks is a bit too conservative for most people. Of course I do not know your circumstances. I am very bearish on the market and think we are in a secular bear market than is going to last many more years. I have my 27 year old daughter in treasuries because she has no time to manage her account. It sounds like I may be talking out both sides of my mouth. I am simply saying that if one is watching the markets and managing their accounts, I think a minimum of 25% in stocks would be good.

If you are retired and depending on this money for living, don't put any in stocks, buy treasuries, and go fishing.