When setting up a covered call trade, it is important to estimate ahead of time what that trade is likely to return. Not only will this allow you to evaluate the expected return on your current trade, but it will also give you a benchmark for comparing this trade with other opportunities that may be on your radar. I have set up a simple spreadsheet that allows me to input the necessary data to determine what a covered call setup will return if the position is called away at expiration. The sheet also tells me the amount of risk that… Read More

When setting up a covered call trade, it is important to estimate ahead of time what that trade is likely to return. Not only will this allow you to evaluate the expected return on your current trade, but it will also give you a benchmark for comparing this trade with other opportunities that may be on your radar. I have set up a simple spreadsheet that allows me to input the necessary data to determine what a covered call setup will return if the position is called away at expiration. The sheet also tells me the amount of risk that the covered call protects me against should the stock trade lower. Below is a screen shot of the spreadsheet, which can be easily replicated in Microsoft Excel. The blue cells represent numbers that are entered manually, and the white cells represent data calculated by the formulas. The first three cells are fairly clear. For a covered call setup, we will enter the market price of the stock, the strike price of the call option that we are selling, and the premium (or price) of the option. So, for the example above, we are interested in buying… Read More

The covered call strategy is a reliable way to generate income in your investment account on a monthly basis. Basically, this investment approach captures income by selling call option contracts, which speculators purchase in hopes that they will generate outsized returns as stock prices advance. By selling call options, we allow these speculators the chance to make large profits, while we collect high-probability income payments. Here’s how the covered call process works: We purchase shares of stock the same way a traditional investor would. We then sell call option contracts against these… Read More

The covered call strategy is a reliable way to generate income in your investment account on a monthly basis. Basically, this investment approach captures income by selling call option contracts, which speculators purchase in hopes that they will generate outsized returns as stock prices advance. By selling call options, we allow these speculators the chance to make large profits, while we collect high-probability income payments. Here’s how the covered call process works: We purchase shares of stock the same way a traditional investor would. We then sell call option contracts against these shares (one for every 100 shares that we own). Selling these contracts obligates us to sell our stock at the option’s strike price, provided the market price is above this level before the option expires. #-ad_banner-#This approach puts a cap on our potential return because regardless of how high the stock trades, we will still be obligated to sell at the strike price. However, since we are receiving a payment from selling the call contract, known as a premium, this income is very reliable and… Read More

Marvell Technology (NASDAQ: MRVL), a maker of flash memory drives and semiconductor chips, has had a rough summer. The company faced challenges with one of its Asian customers and a greater-than-expected decline in demand for 3G equipment has caused investors to doubt future growth prospects. Last month, the company announced strong second-quarter earnings of $0.34 per share, up 48% from a year ago and beating analyst expectations of $0.28. Revenue of $961.5 million was in line with estimates and up 19% versus the same quarter last year. But despite the strong performance, the company issued weak guidance of… Read More

Marvell Technology (NASDAQ: MRVL), a maker of flash memory drives and semiconductor chips, has had a rough summer. The company faced challenges with one of its Asian customers and a greater-than-expected decline in demand for 3G equipment has caused investors to doubt future growth prospects. Last month, the company announced strong second-quarter earnings of $0.34 per share, up 48% from a year ago and beating analyst expectations of $0.28. Revenue of $961.5 million was in line with estimates and up 19% versus the same quarter last year. But despite the strong performance, the company issued weak guidance of $0.27 to $0.31 per share for the third quarter, below consensus expectations for $0.32. The lower 3G demand is likely to blame for the stock’s decline this summer. Shares dropped from a spring high well above $16 to below $13 last month. At this point, MRVL appears to have bottomed. Investors have likely priced in the bad news, so it is unlikely that the stock will continue to decline. While the bad news has captured headlines, there is a silver lining. Some analysts believe that with 3G demand waning, the company will be… Read More

Trina Solar (NYSE: TSL) is staging an impressive turnaround. In 2013, the company posted a loss of $1.09 per share, its third consecutive year of losses as it struggled with excess capacity and plummeting prices for solar modules. While lower prices have been a tremendous boon for consumers and helped drive the adoption of solar power, they have made life difficult for solar manufacturers with heavy overhead expenses. Trina’s stock price suffered alongside the company’s challenging fundamental prospects, dropping from a high above $36 in 2007 to a low below $3 in just over a year. The stock has been… Read More

Trina Solar (NYSE: TSL) is staging an impressive turnaround. In 2013, the company posted a loss of $1.09 per share, its third consecutive year of losses as it struggled with excess capacity and plummeting prices for solar modules. While lower prices have been a tremendous boon for consumers and helped drive the adoption of solar power, they have made life difficult for solar manufacturers with heavy overhead expenses. Trina’s stock price suffered alongside the company’s challenging fundamental prospects, dropping from a high above $36 in 2007 to a low below $3 in just over a year. The stock has been extremely volatile since then as well, rallying back above $30 in early 2010, before once again falling into the low single digits in 2012. To be sure, the solar business is not for the faint of heart! On Monday, TSL broke out of a near-term consolidation following news that the company landed a new supply agreement in China’s Jiangsu Province. While pricing terms for the deal weren’t disclosed, the news is certainly bullish. As TSL brings its costs in line while growing its sales channels, analysts are now forecasting a profitable year… Read More

Shares of Micron Technology (NASDAQ: MU) have been under pressure during the past few weeks, which puts the stock in an excellent position for us to set up an income trade using our put selling strategy. For the past 18 months, MU climbed steadily — in line with its peers. Since the beginning of 2013, the PHLX Semiconductor Index (SOX) gained more than 55%.   The group’s advance has been fueled by a steady improvement in the technology against a backdrop of an economic recovery and growth… Read More

Shares of Micron Technology (NASDAQ: MU) have been under pressure during the past few weeks, which puts the stock in an excellent position for us to set up an income trade using our put selling strategy. For the past 18 months, MU climbed steadily — in line with its peers. Since the beginning of 2013, the PHLX Semiconductor Index (SOX) gained more than 55%.   The group’s advance has been fueled by a steady improvement in the technology against a backdrop of an economic recovery and growth for the global economy. In particular, the creation of new DDR4 memory modules has caused a stir as these drives are reportedly twice as fast as their DDR3 predecessors and use 30% less power. This breakthrough is part of what analysts are looking at to help fuel future growth for Micron. #-ad_banner-#​Unfortunately for shareholders (but fortunately for us), MU sold off in July. The pullback was largely due to competitive issues with Samsung, which made a surprise announcement that one of its new manufacturing lines would be used to produce DRAM chips, raising supply concerns. Read More

Shares of General Motors (NYSE: GM) were hit hard last month after the company missed analysts’ revenue expectations for the second quarter. The company reported earnings of $0.58 per share — which actually came in above consensus projections — but the 1% increase in automotive revenue raised a major red flag for investors. The day before General Motors released its Q2 numbers, the stock closed at $37.40. Today, investors are able to pick up shares at a 10% discount to that price. On a positive note, it appears that the stock may have… Read More

Shares of General Motors (NYSE: GM) were hit hard last month after the company missed analysts’ revenue expectations for the second quarter. The company reported earnings of $0.58 per share — which actually came in above consensus projections — but the 1% increase in automotive revenue raised a major red flag for investors. The day before General Motors released its Q2 numbers, the stock closed at $37.40. Today, investors are able to pick up shares at a 10% discount to that price. On a positive note, it appears that the stock may have found support as the stock hit a new post-earnings low on Friday, followed by a rally on Monday. While the disappointment in revenue is certainly worth taking note of, it is fair to say that General Motors has faced some tremendous challenges over the past few months, mainly relating to recalls of vehicles with faulty ignition switches. The bad press the company has received is certainly weighing on the company’s ability to sell cars, and yet GM was still able to post a year-over-year increase in automotive sales. Read More

Last week, we saw a massive broader market sell-off that, in part, appeared to be a reaction to stronger economic activity. This included 4% GDP growth in the second quarter and strong labor market data. These reports added to concerns that the Federal Reserve will allow interest rates to rise sooner than expected. As economic activity picks up, the danger of inflation also rises — and the Fed’s primary weapon against inflation is higher interest rates. After a period of near-zero rates, an uptick in Treasury yields could cause a significant shock to the system and trigger a flight out… Read More

Last week, we saw a massive broader market sell-off that, in part, appeared to be a reaction to stronger economic activity. This included 4% GDP growth in the second quarter and strong labor market data. These reports added to concerns that the Federal Reserve will allow interest rates to rise sooner than expected. As economic activity picks up, the danger of inflation also rises — and the Fed’s primary weapon against inflation is higher interest rates. After a period of near-zero rates, an uptick in Treasury yields could cause a significant shock to the system and trigger a flight out of equities and into higher-yielding fixed-income products. #-ad_banner-#Of course, there is a tremendous amount of uncertainty in the market right now as the Fed’s future path is in question and the economic recovery is anything but certain. Several Fed officials have indicated that any rate hike will probably not occur until late 2015, but it’s always a good idea to be prepared. The big question for us is how the new environment will affect our ability to generate income selling puts. And the answer may be a lot more exciting than you anticipate. Key Factors for Options Pricing Our income… Read More

In today’s extended market, it is difficult to find quality investment ideas that haven’t already been bid up to premium valuations. The Federal Reserve has set target interest rates at historically low levels, which in turn, has forced yield-hungry investors out of fixed-income securities and into riskier equities. #-ad_banner-#For the most part, stocks that have pulled back to the point where they are trading at discount valuations have at least some issues that are concerning to investors. Today, we’re going to look at an income opportunity on a stock that has struggled but is trading at what appears… Read More

In today’s extended market, it is difficult to find quality investment ideas that haven’t already been bid up to premium valuations. The Federal Reserve has set target interest rates at historically low levels, which in turn, has forced yield-hungry investors out of fixed-income securities and into riskier equities. #-ad_banner-#For the most part, stocks that have pulled back to the point where they are trading at discount valuations have at least some issues that are concerning to investors. Today, we’re going to look at an income opportunity on a stock that has struggled but is trading at what appears to be a solid floor. This company offers exceptional value (if it is able to get its operations back in line), and after the stock’s decline, option premiums are high enough to give us a lucrative amount of income. Staples (Nasdaq: SPLS) has had a tough year so far. The stock lost roughly a third of its value from its late 2013 high and is off 60% from its all-time peak in 2006.  While the chart may not be much to look at, SPLS may be one of the few true value opportunities available to investors at this… Read More

Assured Guaranty (NYSE: AGO) is in the business of insuring bond offerings for corporations and municipalities. Not the most exciting stuff, but the bond insurance industry is relatively small with only a few key players. Essentially, these insurers put their stamp of approval on new bonds sold by companies or municipalities and agree to back the principle for creditors in the case of default. #-ad_banner-#For undertaking this risk, the insurance company is paid a premium (typically by the selling party), which represents a recurring income stream until the bond actually matures. Selling parties, such as… Read More

Assured Guaranty (NYSE: AGO) is in the business of insuring bond offerings for corporations and municipalities. Not the most exciting stuff, but the bond insurance industry is relatively small with only a few key players. Essentially, these insurers put their stamp of approval on new bonds sold by companies or municipalities and agree to back the principle for creditors in the case of default. #-ad_banner-#For undertaking this risk, the insurance company is paid a premium (typically by the selling party), which represents a recurring income stream until the bond actually matures. Selling parties, such as corporations, cities or counties, are willing to pay this premium because they can typically sell the bonds with a lower rate of interest because investors know that they are much more likely to receive their principal back at a bare minimum.  In addition to the spread between premiums received and claims paid out, insurance companies typically have a second major source of income. This income comes from returns on the massive amounts of capital that the insurance companies are required to hold as protection in the event that they are required to meet claims. Over the past several years, it… Read More

The most recent Federal Reserve meeting stirred up a good bit of speculation among precious metal investors.  #-ad_banner-#While the understanding was that the central bank was on a trajectory of curtailing its bond-buying program and eventually allowing interest rates to rise, Fed Chairman Janet Yellen’s comments caused some uncertainty. Yellen indicated the Fed would likely keep rates at the current target rate between zero and 0.25% for an extended period of time after the end of the central bank’s bond-buying program. This caused precious metal prices to spike, along with share prices for precious metal miners,… Read More

The most recent Federal Reserve meeting stirred up a good bit of speculation among precious metal investors.  #-ad_banner-#While the understanding was that the central bank was on a trajectory of curtailing its bond-buying program and eventually allowing interest rates to rise, Fed Chairman Janet Yellen’s comments caused some uncertainty. Yellen indicated the Fed would likely keep rates at the current target rate between zero and 0.25% for an extended period of time after the end of the central bank’s bond-buying program. This caused precious metal prices to spike, along with share prices for precious metal miners, as continued low interest rates will be more likely to spark inflation. Since Yellen’s statement, other members of the Fed have spoken up, sending mixed messages to the market. In particular, St. Louis Fed President James Bullard said the Fed could raise rates in the first quarter of 2015. With so many different opinions on what the Fed will do, investor uncertainty is rising. This is great news for us as option sellers, because with more uncertainty comes higher option premiums. Today, we will use a put-selling strategy to benefit from the rally in gold stocks, generating an attractive level… Read More