"Unfortunately, none of the example CCs had this type of return (.20 on a $20 equity)..."
When dealing with these small returns, I've found that every bit makes a difference. In order to get the 1% return above, the probs get shaved against one's position, you cap your gain to get that probability and incur fees equal to 20% of your gain.
Again, if it works for you great. I don't think this is something very many DGI investors would do. Typical CC traders are looking for 1.5% net premium per month. The dividend stocks we typically use do not offer that kind of premium.
IMO if one wishes to start with CC they would benefit from using poor man's covered calls. Much less capital required, generating significantly higher % returns.
Good luck to all.
[/quote]
Pretty much everything you said is what I already stated.
I have already said that most people are looking for premiums that are higher. I also write most of my options far enough OTM to skim nickels while maintaining a pretty solid probability of not having shares called away.
"Unfortunately, none of the example CCs had this type of return (.20 on a $20 equity)..." Not sure what that means as I also stated that everyday the premiums will change based on time left AND market conditions. Plus you are changing my skimming nickels into trying to get 1% and since I did not give examples of pulling in 1% per month or more I don't quite understand your comment. You could just take the stocks I listed and write them all closer to ATM and you have your 1%+ income stream but a much higher chance of being called out. I am skimming income while minimizing the risk of having to take capital gains every month beyond the option premium. No reason for me to purposefully churn my stocks.
If one wanted to use the first one I listed, ABT, you could get a two strikes OTM today of $0.22 when on Friday it was $0.19 while the share price is up $0.15 on the stock itself. Also, I stated that I did NOT include dividends in the income side. If you manage to snag the dividend but not getting called you get an additional $0.22 turning your buy/write if done as I type into this:
Stock purchase $36.55, option $0.22@$38 strike Jan 18, $0.22 dividend = $0.44 income, or 1.2%. If you get called out before date of record on the dividend then you could pull in 0.6% premium + 3.96% cap gain in less than 30 days.
Move that to one strike OTM and you get your 1%+. As I type 1 strike OTM is:
Purchased @ $36.55, option $0.52@$37 Jan 18. This is close enough to assume I won't get the dividend so ignoring that and assuming called you get this out come: $0.52 premium = 1.42% income + $0.45 cap gain = 1.23% gives you a total of 2.65% for less than one month gain (your stock goes away before expiration so someone can steal the dividend in this scenario).
Am I misunderstanding your comment or something? Since my example was just made up to show how COSTS are dealt with I am not sure why you are mixing that in with a previous comment that as regarding other topics.
My point on the comment you are responding to was to show that on 500 shares, 5 contracts, that one needs to consider that you will have a total cost of $0.0328 that needs to be accounted for when trying to see if you want to write a specific contract or not. The $20 per share or $0.20 premium is only there as an example and I clearly stated that if you wanted to net $0.20, which yes is 1%. you would need to get a $0.24 premium and the minimum. In my case if I am willing to accept a premium of say 0.40% on a $20 stock, or $0.08 per share then I would need to find the strike that is paying at least $0.12 per share on 500 shares.
Most of my sales on 10 contracts so I am closer to a cost of $0.0189 per share that I have to consider. So to get the result that you misusing that I gave, just take the stocks I listed and change the strikes since they are from two to four strikes OTM just back them down to one to three OTM and you get more what you are looking for and, as shown with ABT in this very comment, you exceed the 1% premium while getting a minimum of a 2.65% cap gain if called out (excluding expenses since I have no idea what your costs are).
Lastly, "I don't think this is something very many DGI investors would do. Typical CC traders are looking for 1.5% net premium per month. The dividend stocks we typically use do not offer that kind of premium." A DGI investor would not be writing options for 1.5% premium per month. That is TRADING as you specified in the very next sentence. Investing and trading are two different things. I use dividend payers for my CC stocks as I want more income to redeploy. When premiums are not there I will still have the dividends coming in. If I used non-payers and premiums just were not there so I was not writing options then I am cash flowing nothing. My method is taking a 3% yielding stock and turning it into a 6% to 10% machine with low risk of being called out. The DGI part of my portfolio does NOT have options sold against the positions. CC trading and DGI investing are two very different things even if one trades options against DG stocks. Using DG stocks does not make one a DGI investor.
When dealing with these small returns, I've found that every bit makes a difference. In order to get the 1% return above, the probs get shaved against one's position, you cap your gain to get that probability and incur fees equal to 20% of your gain.
Again, if it works for you great. I don't think this is something very many DGI investors would do. Typical CC traders are looking for 1.5% net premium per month. The dividend stocks we typically use do not offer that kind of premium.
IMO if one wishes to start with CC they would benefit from using poor man's covered calls. Much less capital required, generating significantly higher % returns.
Good luck to all.
[/quote]
Pretty much everything you said is what I already stated.
I have already said that most people are looking for premiums that are higher. I also write most of my options far enough OTM to skim nickels while maintaining a pretty solid probability of not having shares called away.
"Unfortunately, none of the example CCs had this type of return (.20 on a $20 equity)..." Not sure what that means as I also stated that everyday the premiums will change based on time left AND market conditions. Plus you are changing my skimming nickels into trying to get 1% and since I did not give examples of pulling in 1% per month or more I don't quite understand your comment. You could just take the stocks I listed and write them all closer to ATM and you have your 1%+ income stream but a much higher chance of being called out. I am skimming income while minimizing the risk of having to take capital gains every month beyond the option premium. No reason for me to purposefully churn my stocks.
If one wanted to use the first one I listed, ABT, you could get a two strikes OTM today of $0.22 when on Friday it was $0.19 while the share price is up $0.15 on the stock itself. Also, I stated that I did NOT include dividends in the income side. If you manage to snag the dividend but not getting called you get an additional $0.22 turning your buy/write if done as I type into this:
Stock purchase $36.55, option $0.22@$38 strike Jan 18, $0.22 dividend = $0.44 income, or 1.2%. If you get called out before date of record on the dividend then you could pull in 0.6% premium + 3.96% cap gain in less than 30 days.
Move that to one strike OTM and you get your 1%+. As I type 1 strike OTM is:
Purchased @ $36.55, option $0.52@$37 Jan 18. This is close enough to assume I won't get the dividend so ignoring that and assuming called you get this out come: $0.52 premium = 1.42% income + $0.45 cap gain = 1.23% gives you a total of 2.65% for less than one month gain (your stock goes away before expiration so someone can steal the dividend in this scenario).
Am I misunderstanding your comment or something? Since my example was just made up to show how COSTS are dealt with I am not sure why you are mixing that in with a previous comment that as regarding other topics.
My point on the comment you are responding to was to show that on 500 shares, 5 contracts, that one needs to consider that you will have a total cost of $0.0328 that needs to be accounted for when trying to see if you want to write a specific contract or not. The $20 per share or $0.20 premium is only there as an example and I clearly stated that if you wanted to net $0.20, which yes is 1%. you would need to get a $0.24 premium and the minimum. In my case if I am willing to accept a premium of say 0.40% on a $20 stock, or $0.08 per share then I would need to find the strike that is paying at least $0.12 per share on 500 shares.
Most of my sales on 10 contracts so I am closer to a cost of $0.0189 per share that I have to consider. So to get the result that you misusing that I gave, just take the stocks I listed and change the strikes since they are from two to four strikes OTM just back them down to one to three OTM and you get more what you are looking for and, as shown with ABT in this very comment, you exceed the 1% premium while getting a minimum of a 2.65% cap gain if called out (excluding expenses since I have no idea what your costs are).
Lastly, "I don't think this is something very many DGI investors would do. Typical CC traders are looking for 1.5% net premium per month. The dividend stocks we typically use do not offer that kind of premium." A DGI investor would not be writing options for 1.5% premium per month. That is TRADING as you specified in the very next sentence. Investing and trading are two different things. I use dividend payers for my CC stocks as I want more income to redeploy. When premiums are not there I will still have the dividends coming in. If I used non-payers and premiums just were not there so I was not writing options then I am cash flowing nothing. My method is taking a 3% yielding stock and turning it into a 6% to 10% machine with low risk of being called out. The DGI part of my portfolio does NOT have options sold against the positions. CC trading and DGI investing are two very different things even if one trades options against DG stocks. Using DG stocks does not make one a DGI investor.