Covered calls in a Roth IRA
> mark,
> I am 44 years old and am becoming more and more conservative by the
> day. i am intrigued by covered calls and would like
> to know if what I plan to do(in my ROTH IRA) makes sense.
> My goal is to own as many shares of GE by retirement as possible so
> that I can supplement my pension with the dividend and any income from
> covered calls. I chose a blue chip because of my conservatism and
> that if I die I can leave the kids these shares. The current 2.8%
> yield doesn't hurt either. I currently own 100 shares and am close to
> having enough cash to buy another 100 shares.
> Do you think writing calls on GE is wise and do you think writing ITM,
> ATM or OTM calls would be wiseset?
> Any insight or improvement in this strategy would be greatly appreciated.
> Thanks, Brian.

> Hello Brian, Covered call writing is a good idea to help your Roth
> IRA grow over the years. GE is a good stock to own. That said, there
> are 2 flaws with your plan.
> First, it's not a good idea to have all your money in a single stock -
> even one as stable as GE. But, because that's your decision, I'll
> move on.
> The second problem is that GE is a very non-volatile stock. That means
> the premiums you can collect fom writing the calls is very small. GE
> is currently 35.69. If you go out 3 months and write the Jan 37.5
> call, you can collect only 20 cents in premium. That means your 100
> shares gives you only $20 in option premium. Even using most
> discount brokers, after commissions you will have very little of that
> $20 left.
> I have 2 suggestions. 1) If you want to use GE, then wait until you
> own more shares - perhaps 500. 2)You must choose between accumulating
> GE shares or finding another conservative stock that has higher option
> premiums. They do exist, so you can do this. Just be certain you
> choose the stock first, then determine if the options are worth
> writing. As a conservative investor, you don't want to find a stock
> with high option premiums and then buy that stock just so you can
> write the options.
> I am not trying to talk you out of owning GE shares. But GE is not a
> good candidate for covered call writing. To reply to another of your
> questions, with a stock such as GE, you cannot write ITM options, as
> they have no time premium. You would have to choose between ATM and
> OTM. Because your stated intention is to accumulate shares, you would
> prefer NOT to be assigned an exercise notice when options expiration
> day arrives. Thus, OTM options are best suited to your purpose.
> Mark