Covered Call for Income Generation

[brendanb22]

Does anybody here have experience writing covered calls to generate income? Curious what types of equities you generally look for and how you've fared. I would love to find a source to increase the income from my portfolio, especially for some equities where I am already sitting on a gain

[DTEJD1997]

Does anybody here have experience writing covered calls to generate income? Curious what types of equities you generally look for and how you've fared. I would love to find a source to increase the income from my portfolio, especially for some equities where I am already sitting on a gain

I have done this in the past with mixed results.

 

One of the biggest mistakes I've made is buying WNR at 4.5/share, and selling covered calls at 10 six months after I bought it.  Six months after the expiration of the calls, WNR was way, way higher, like $35/share.  So I lost out big time to get $1/share in income.

 

I've also had some successes where I've recovered the initial purchase price of the stock solely by writing covered calls over & over & over.

 

One strategy I like is to write covered calls on stocks that have risen significantly in the past 6 months.  For example, I've got EZPW.  In a bit less than a year, I've got a 50% gain on the positions.  I'm in for a bit less than $6/share.  Stock is now $9/share.  I am considering selling DEC 10 calls.  I would like for EZPW to go up another $.50/share or so, and then be able to sell DEC 10's for maybe $1.35-$1.50 a call. 

 

Once I sell covered calls, I will very closely watch the position, and will try and cover if I can buy them back for a bit less than 50% of what I sold them for.

 

If you work hard, and have a bit a luck, you can really make some good income!

[TwoCitiesCapital]

I do this quite frequently -

 

I typically do it on my more volatile stocks and generally wait for days with a large bump up (after a good earnings report, etc.). I typically sell them with strike prices an additional 10-15% out of the money with the goal of generating a minimum of 1% per month of exposure. This requires implied vols to be high though, so it forces me to be opportunistic with this strategy as opposed to structurally selling.

 

I've had shares called away before and have missed out on further gains, but the amount I've made in premiums has exceeded the the amount in losses. Just be prepared to repurchase the options opportunistically as well - (after they've decayed 50-75%).