Hi Mark,

My question is simple.  I have been a buy and hold type investor for many years and recently learned about writing covered calls.  Several people who have attempted to recruit me for a stock/options training program have indicated that it is not uncommon for people who write covered calls to earn an average of 40 to 80% a year and more.  I have always been told that you are doing well to beat the S&P average. Can returns like 40 or 50% be earned annually on a consistent basis by writing covered calls?

Thank you in advance for your time.  I reviewed your website and found it quite interesting!  Thank you again.

Paul Miano

Hi Paul,

Anyone who tells you that it is 'not uncommon' to earn 40 to 80% per year in the stock market is not to be trusted.  Yes, it's possible and I have no doubt that a decent number of people do earn that much.

But on a consistent basis?  No way.  If you take $10,000 and make 40% compounded for only 5 years, you would have $75,000.  That's a pretty remarkable return.

Covered call writing will give you a smoother ride.  That means fewer drastic fluctuations in the value of your investment portfolio.  You will make less in years when the market surges (ala 1994-8), and more all the rest of the time.  When things are bad, you will lose less. [And if interested in preserving capital so that years such as 2008 don't decimate your account, look into collars - that's a covered call plus put ownership.]

If the people who are recruiting you for a training program intend to charge several thousand dollars, tell them 'no, thanks.'  This is a very uncomplicated strategy, and if you take a look at The Rookie's Guide to Options, you will get a very detailed explanation of how this strategy works and how you can use it.  And the book is (sometimes) only $23 at amazon.

Regarding covered call writing:
  • The major factor in determining your long-term success as a covered call writer is you ability to pick stocks.  If you pick stock that tumble, this strategy will not be profitable
  • It's a strategy that does not do well in bear markets, but makes good money in rising and steady markets
  • The more money you attempt to earn, the more risk you will be forced to accept.  You do not get high profits with little risk.
    • The strategy can be used in conservatively or aggressively.  As is obvious, the former provides more steady returns and the latter allows for large gains and losses
  • It is possible to earn 5 to 10% per month, but that's not a unlikely outcome on a consistent basis.
  • Covered call writing on a diversified portfolio slightly outperforms (over the past 20 years) a simple buy and hold (with dividends reinvested) strategy.  To outperform in a major way, you must trade volatile stocks that have high option prices.  And those prices are high for good reason.  These stocks can rise rapidly, but they can fall just as rapidly, resulting in good-sized losses.
Bottom line:  I like writing covered calls, especially for someone who is first learning to use options.  But, I prefer less risky position and teach several of them in the book.  there's one point that must be emphasized:  when I say that covered call writing is risky, it's substantially less risky than simply owning stocks - and that's what you do now.


Mark D. Wolfinger
The Rookie's Guide to Options:
The Beginner's Handbook of Trading Equity Options
Free eBook: