7 of 8 Stocks in $25,000 Covered Call Watchlist Gained Friday; Average List Gain 2.2%; List Down 0.9% On The Week
The strategy is simple. Pick good under valued dividend stocks. These 10 have active and liquid options that can be used to generate additional income by selling covered calls and puts.
By Donald E. L. Johnson
Cautious Speculator.
Seven of the eight stocks in our $25,000 watch list rose in Friday’s wild rally. 23 and Me (ME) was the only loser, down 1.9% on the day and 4.7% on the week. We wrote about the watch list and the stocks and possible covered calls trades on Feb. 20 and before that on Jan. 21.
Over the five trading sessions ended Friday, the eight stocks still were down 0.9%, bringing their one month performance to down 4.8% and year to date performance to down 7%. They are down an average of 4.8% over the last three months and up 19.7% over the last year. Futures look weak with the Dow Jones Industrials down 390 points at about 8:40 p.m. Sunday.
All of the stocks but Newmont Mining (NEM) closed sharply below analysts’ target prices and at an average of 61% of the high target prices.
AEO, F, KMI, ME, NEM, SOFI, T and XLE all closed below their March 18 expiration strike prices. So far, it other words, it doesn’t look like they will be called. But a lot can change in the next 19 trading days. Friday’s rally showed how quickly stocks can snap back.
For dividend and income traders who want to speculate on these stocks and write covered calls, the strategy is to buy the stocks and pick options at strikes at the money (ATM). Then sell the calls. This approach gives the speculator a chance to collect premiums and possibly small gains over the next 19 trading sessions if the prices of the stocks rise.
Should prices continue to sink, the call sellers would collect their premiums and sell calls for April 14 expirations.
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Question: What questions do you have about this watch list? We can discuss it in comments.
LINKs:
Home Page. See previous articles on other stocks and watch lists. If you read several of these articles, you’ll learn how this strategy is meant to work. No guarantees.
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A video on how to place options trades on Think or Swim.
Beware
Like all investing, trading stocks and options is risky. If you can’t sleep with market risks, you might want to let someone else do your trading. Consider an option trading ETF like XYLD, which I own. I also trade its calls and puts. I’m an active private speculator who trades covered calls and sells puts on stocks for my accounts. I am not a professional analyst nor a financial advisor. I don't take and won't take responsibility for how other people trade. This article is for educational purposes only. It is not advice. The data presented looked accurate at publication time except for intra-day fluctuations, but I can’t guarantee the accuracy. Traders should do their due diligence. I reserve the right to trade any of the listed stocks and options at any time. I own and/or have options positions in AEO, KMI, NEM, SOFI and T.
@realDonJohnson. Because I don’t want to litter subscribers’ in boxes with emails, I’m active most days on twitter where I tweet about stocks, options trades and other topics.
Don, when you write, "For dividend and income traders who want to speculate on these stocks and write covered calls, the strategy is to buy the stocks and pick options at strikes at the money (ATM). Then sell the calls."
This would only hold true if a person feels the stock price will stay about the same, or even decline, and is bearish on the stock, right?
If I am bullish on a stock I own, I would want to pick a strike that is out of the money and at a higher level than the current stock price, right?