October is a month that frightens many investors. Now
that we have seen the best September in the past 70
years, what's in store for October?
The one thing that I know for certain is that I have no
clue what lies ahead. Most investors, and that includes
investment clubs, are always bullish. I don't know if
that's because they are believers or are unaware of
I'd never suggest that your club take short positions,
but if this recent rally has anyone concerned about the
future, investment clubs are positioned to take
advantage of using options to hedge (reduce the risk of
owning) stock positions.
If you own at least 100 shares of any stock, consider
writing a covered call. This does limit upside profits,
but you receive a cash premium that's yours to keep, no
matter how the stock price behaves.
It's not a lot of protection against a steep stock
decline, but it does soften the blow. In addition, you
earn a profit when the stock price remains essentially
unchanged - and that beats the stockholder who would
earn nothing. And if the stock does move higher - and
is above the strike price at expiration, you earn a nice
profit. Perhaps you could have done better, but taking
this is an excellent method for eliminating specific
stocks from the portfolio.
If your portfolio contains stocks that are being
considered as sales, think about writing an at-the-money
covered call instead of making the outright sale. This
will be a losing decision only when the market undergoes
a large decline.
Mark D Wolfinger