There are a number of strategies available to investors that use option contracts to generate attractive levels of income. Two strategies in particular that have become popular with individual investors are selling covered calls and selling puts. These strategies can be implemented through traditional brokerage accounts, as well as through qualified accounts such as IRAs. #-ad_banner-#Covered Calls: Investors purchase shares of stock and then sell call options against these shares. Selling the call options leaves the investor with an obligation to sell the shares of stock if the… Read More

There are a number of strategies available to investors that use option contracts to generate attractive levels of income. Two strategies in particular that have become popular with individual investors are selling covered calls and selling puts. These strategies can be implemented through traditional brokerage accounts, as well as through qualified accounts such as IRAs. #-ad_banner-#Covered Calls: Investors purchase shares of stock and then sell call options against these shares. Selling the call options leaves the investor with an obligation to sell the shares of stock if the price of the stock is above the strike price of the option when the option expires. Income is generated through the proceeds received from selling the call option contracts. Selling Puts: Investors sell unhedged or “naked” put option contracts on stocks that they expect to trade higher (or at least remain stable). Selling puts obligates the investor to buy shares of stock if the market price falls below the strike price when the option expires. Income is generated through the proceeds received from selling the put option contracts. One thing many investors… Read More

The covered call strategy can be a very effective approach to boosting the amount of income you generate from your investment portfolio. In fact, when things are going well and the stocks that you use remain stable or increase in price, it is not unreasonable to target returns between 25% and 35% per year.#-ad_banner-# The approach takes a certain amount of maintenance, as we typically set up trades that expire over a four- to eight-week timeframe. But the time investment usually turns out to be worthwhile considering the reliable income stream that is available. Although the… Read More

The covered call strategy can be a very effective approach to boosting the amount of income you generate from your investment portfolio. In fact, when things are going well and the stocks that you use remain stable or increase in price, it is not unreasonable to target returns between 25% and 35% per year.#-ad_banner-# The approach takes a certain amount of maintenance, as we typically set up trades that expire over a four- to eight-week timeframe. But the time investment usually turns out to be worthwhile considering the reliable income stream that is available. Although the covered call strategy is fairly easy to implement, the true key to long-term success is being able to manage risk when trades do not go as planned. Proper risk management will allow you to keep your capital base intact, which in turn allows you to make up any losses quickly and continue your process of generating investment income. Before I explain how to manage risk when stocks decline, let’s first take a quick look at how the covered call strategy works. To begin with, we purchase shares of a stock that we believe will be stable or move higher. We… Read More

Activist investors have the ability to influence significant changes in companies that they take an interest in, often leading to greater profits and investor confidence and ultimately driving stock prices higher. #-ad_banner-#In practice, an activist typically buys a large block of shares and then uses this ownership as leverage to influence the company’s direction. Many times, an activist investor will require a seat (or several) on the board and may push for replacing executives if it appears the current leaders are not adequately managing the company. Activists may take the form of institutional investors (such as mutual funds,… Read More

Activist investors have the ability to influence significant changes in companies that they take an interest in, often leading to greater profits and investor confidence and ultimately driving stock prices higher. #-ad_banner-#In practice, an activist typically buys a large block of shares and then uses this ownership as leverage to influence the company’s direction. Many times, an activist investor will require a seat (or several) on the board and may push for replacing executives if it appears the current leaders are not adequately managing the company. Activists may take the form of institutional investors (such as mutual funds, hedge funds or endowments), or they may simply be one or more wealthy individuals. Whatever form they take, activist investors can be very motivated toward driving change in a company and unlocking shareholder value. For this reason, it makes sense to keep track of the actions of successful activist investors, and to trade alongside these opportunists when possible. Today, I want to take a look at an income trade that does just that. Darden Restaurants Pressured To Break Up Our target today is Darden Restaurants (NYSE: DRI), owns and operates full-service restaurants chains such as the well-known Olive Garden… Read More

One of the benefits of the covered call strategy is that it is usually a “set and forget” type of approach. By that, I mean that we can set up our positions (buying stocks and selling call options), and then wait until the option contracts expire to make any adjustments. #-ad_banner-#While the majority of covered call positions are held until maturity, there are certain times when it makes sense to adjust a position before the options expire in order to reduce risk or to capture an even bigger profit. We’ve previously covered adjustments to covered call positions for the… Read More

One of the benefits of the covered call strategy is that it is usually a “set and forget” type of approach. By that, I mean that we can set up our positions (buying stocks and selling call options), and then wait until the option contracts expire to make any adjustments. #-ad_banner-#While the majority of covered call positions are held until maturity, there are certain times when it makes sense to adjust a position before the options expire in order to reduce risk or to capture an even bigger profit. We’ve previously covered adjustments to covered call positions for the purpose of risk management. Today, I want to focus on adjustments to covered call positions that move dramatically in our favor. In these situations, the objective is to maximize our profit and make the most efficient use of our capital. Anatomy Of An Accelerated Covered Call Position To understand both why and how to take advantage of a covered call position that moves sharply in our favor, let’s set up a hypothetical trade to see exactly how the different components of the trade work together. For our example, let’s assume we are buying the iShares Silver Trust (NYSE: SLV)… Read More

The covered call strategy can be a very lucrative approach to investing, especially during periods of uncertainty, when most traders are lucky to simply maintain their capital base.#-ad_banner-# As a brief overview, this strategy includes buying a stock and then selling call options against the position. For selling the call option contract, we collect a premium, and in return, become obligated to sell our stock at the option’s strike price, assuming the market price is above that level before… Read More

The covered call strategy can be a very lucrative approach to investing, especially during periods of uncertainty, when most traders are lucky to simply maintain their capital base.#-ad_banner-# As a brief overview, this strategy includes buying a stock and then selling call options against the position. For selling the call option contract, we collect a premium, and in return, become obligated to sell our stock at the option’s strike price, assuming the market price is above that level before the option expires. As a general rule, I prefer to set up covered call trades that will expire in four to eight weeks. This allows us to sell calls at an attractive price and still close out our trades for profits relatively quickly. Typically, we can expect to book a profit of 3% to 5% over the time period, which means that our per-year returns are in the neighborhood of 25% to 35%. Dividends Add Firepower To A Covered Call Strategy Covered call trades are powerful enough on their own. But when you add in the extra income from… Read More

As traders, we constantly deal with various levels of uncertainty. If anyone tells you that they have found a “sure thing” when it comes to your investments, you should run (not walk) in the opposite direction.#-ad_banner-# Instead of dealing with certainties, we must constantly seek the optimum balance between high probability (having a strong chance of success) and high profitability (generating a high rate of return). Most of the time, these two dynamics work inversely. If you find a trade that has the potential to triple your money, the probability of that trade will likely be very low. Read More

As traders, we constantly deal with various levels of uncertainty. If anyone tells you that they have found a “sure thing” when it comes to your investments, you should run (not walk) in the opposite direction.#-ad_banner-# Instead of dealing with certainties, we must constantly seek the optimum balance between high probability (having a strong chance of success) and high profitability (generating a high rate of return). Most of the time, these two dynamics work inversely. If you find a trade that has the potential to triple your money, the probability of that trade will likely be very low. On the other hand, you can set up a trade with a very high probability of success, but the actual return on that trade will likely be small (think Treasury bonds). As covered call traders, we have a unique ability to pick out specifically where on the probability/profitability continuum we want our trade to sit. Depending on how aggressive or conservative we want to be, we can pick an options contract that gives us the right amount of protection, or the amount of potential returns that we are looking for. Setting Up Covered Call Positions Based On Probability For… Read More

Selling puts in your investment account can be a tremendous strategy for generating reliable income while taking on less risk than more traditional income strategies like buying and holding dividend stocks. The trading approach is made possible by selling a put option to speculators who either: 1. Think that the underlying stock or exchange-traded fund (ETF) is headed lower, or 2. Want to hedge their current exposure.#-ad_banner-# From our perspective as option sellers, one of the most important decisions is what types of securities to sell puts against. Specifically, some traders struggle with the… Read More

Selling puts in your investment account can be a tremendous strategy for generating reliable income while taking on less risk than more traditional income strategies like buying and holding dividend stocks. The trading approach is made possible by selling a put option to speculators who either: 1. Think that the underlying stock or exchange-traded fund (ETF) is headed lower, or 2. Want to hedge their current exposure.#-ad_banner-# From our perspective as option sellers, one of the most important decisions is what types of securities to sell puts against. Specifically, some traders struggle with the decision of whether to sell puts against individual stocks (which give them a risk/return profile that is affected by the individual company dynamics), or against broad indexes or ETFs (which offer more diversification). To determine where you should put your capital to work, let’s look at the driving forces for both risk and returns based on both of these approaches. Volatility And Diversification One of the primary benefits of investing in an ETF as opposed to individual stock positions is that the ETF gives you instant diversification. However, keep in mind that not all ETFs are as diversified as… Read More

Believe it or not, solar stocks have been some of the best performers in the second half of 2013.#-ad_banner-#​ Earlier this year, analysts began to see an uptick in global demand for solar energy as Japan began transitioning from nuclear power to renewable energy, and other developed nations began increasing purchases of solar energy components. Last quarter, a number of high-profile solar companies reported increasing shipments of solar panels, and this led to a significant rise in stock prices. This rally was from a very depressed base, due to weakness over the past several years that was caused… Read More

Believe it or not, solar stocks have been some of the best performers in the second half of 2013.#-ad_banner-#​ Earlier this year, analysts began to see an uptick in global demand for solar energy as Japan began transitioning from nuclear power to renewable energy, and other developed nations began increasing purchases of solar energy components. Last quarter, a number of high-profile solar companies reported increasing shipments of solar panels, and this led to a significant rise in stock prices. This rally was from a very depressed base, due to weakness over the past several years that was caused by overcapacity, an inventory glut and falling prices for solar components. A number of solar manufacturers were put out of business or forced to merge with competitors due to the challenging environment. At this point, it is a bit difficult to determine how high solar stocks could ultimately trade, because there is so much uncertainty regarding future profits. Aside from industry leader First Solar (Nasdaq: FSLR), most solar manufacturers are still operating at a loss. But over the next few years, the profit picture is expected to change. For example, Yingli Green Energy (NYSE: YGE) is expected to cut its… Read More