Seller's Paradise

Some covered call traders have a 'set and forget' attitude where once they have sold some call options they just wait until expiration and let whatever happens happen. That is certainly a low-maintenance strategy, and can work well. But you can optimize your overall returns with a bit more time and attention.

On big down days (like today) it can often be a good idea to buy back your calls (which, presumably have fallen in value along with the underlying) and then wait for a bit of recovery in the underlying to sell new calls. It is a 'buy the dip' strategy for just the call option side of the trade. Of course, you have to still like the underlying stock or else you should just get out of both sides of the trade.

The strategy works best with options that have small spreads (high liquidity) so that your cost to exit the option you are currently short and then open a new option position after the underlying has gone up a bit is as small as possible. Now, we're not suggesting you attempt to day trade the option side of a covered call position, but after significant moves it can make sense to buy back the short options since you have captured most of the value and downside protection already.

A recent report by Morgan Stanley notes that funds who write covered calls on part or all of their portfolios end up reducing volatility and delivering competitive returns. From the list of funds with active managers who use covered calls, the report favors three:

Of course, the fact that these experienced managers are using the strategy only strengthens our conviction that covered calls are a good strategy. And you don't need to pay fund management fees to benefit from covered calls...anyone can do it with a little research time and effort.

Here's a summary of April's blog articles (click on any article to read it):

With just over 2 weeks to go until the May options expire, the top 4 covered calls Born To Sell members have written are (in order of popularity):

(Note: Born To Sell members have access to the full Top 10 Covered Call list, as well as having this list update real-time as members change positions. These are not recommendations, they are merely a reflection of our members' current positions.)

Currently, the top 8 stocks Born To Sell members are using for their Watchlist are (in order of popularity):

(Note: Born To Sell members have access to the full Top 20 Watchlist, as well as having this list update real-time as members change their watchlists. And, you can have the highest yielding covered calls from your personal watchlist emailed to you after the close each day. Never miss a fat premium from your watchlist again!)

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Happy Trading,

The Born To Sell Team