I just found your site during a Google search. Am looking for viable/real ways to generate monthly income by writing covered calls.
Your replies to the questions I read didn't get into the pie-in-the-sky certainty of all the other online information I'd seen. This was refreshing. So I thought I'd write to ask if you might recommend some ways to proceed toward incorporating option income strategies into my portfolio?
Thank you very much and best regards,
Pie in the sky is a great method for selling over-priced seminars and newsletters. I never understand why people believe that stuff.
Covered call writing (CCW) works well - but the truth is: if you pick stocks that drop in price, or if the market tumbles, all CCW can do for you is reduce losses. If you pick stocks that hold steady, drop just a bit, or rally, thane CCW produces decent income.
Now to your question: There is more than one decent strategy that can help you meet your goals. Most produce profits on a reasonably steady basis. But - occasional losses can wipe out many months of profits. Thus, in my opinion, the single key to long-term success as an income-seeking option strategist - is the ability to manage risk. Thus, CCW is ok - if your stocks perform reasonably, but you can also sell put spreads or trade iron condors as alternative strategies.
Learn what these strategies are (my Rookie's Guide to options describes them all plus others and teaches good risk management skills), try to find one (or more) that makes you comfortable - that means risk and reward are acceptable - and don't let any position kill you. When it seems that a trade is going badly, consider giving up and taking a loss and moving on. No single stock owes you a profit.
One other piece of advice: it's not necessary to wring every possibley penny of profit from a position,. If your maximum profit is (for example) $500, be willing to accept $450 or a bit more and close the position before expiration - of course that means when there's still some time remaining - say, at least two or three weeks.
You can generate income by adopting option strategies. But please don't get stubborn with posiiton. It is unreasonable to expect each and every one to be profitable. Your goal is for your account value to grow every month (or every year) - your goal is not to make money on every trade. Your goal is attainable using a reasonable strategy and acceptable risk control.
Mark D. Wolfinger
The Rookie's Guide to Options:
The Beginner's Handbook of Trading Equity Options