Get Rich - Stay Rich - Investing for Monthly Income

Posts Tagged ‘best covered call writing’

New Income trade for 130% Annualized Return

Income Opportunity for 130% Option Trade
As income investors, we seek to create consistent monthly income by selling options to collect monthly premiums.  This has been successful for our investors for years.  Option selling offers another method to diversify investing strategies beyond traditional dividend investing.  We have combined technical stock events with our strategy to identify high returns option selling opportunities. This income trade will generate a return of more than 130% annualized.
 
Stock:  Zumiez (ZUMZ) is a leading specialty retailer of apparel, footwear, accessories and hardgoods for young men and women who want to express their individuality through the fashion, music, art and culture of action sports, streetwear, and other unique lifestyles. As of October 28, 2017 it operated 694 stores, including 604 in the United States, 51 in Canada, and 32 in Europe and 7 in Australia. ZUMZ operates under the names Zumiez, Blue Tomato and Fast Times.
ZUMZ announced that total net sales for the four-week period ended October 28, 2017 increased 10.0% to $61.5 million, compared to $55.9 million for the four-week period ended October 29, 2016. The Company’s comparable sales increased 6.6% for the four-week period compared to a comparable sales increase of 10.2% in the year ago period.
 
Earnings Per Share (EPS) was up 49% compared to the same quarter in the prior year. This tells us the company increased earnings and/or decreased the number of shares.
Return on Equity (ROE) is 8.01% for the latest twelve months. This reflects how efficient the company has been at turning a profit on the money shareholders have invested.
Chart: We have detected a “Symmetrical Continuation Triangle (Bullish)” chart pattern formed on ZUMZ. The stock’s price has broken upward to confirm a classic chart pattern, offering a target price for the intermediate-term in the range of 21.00 to 21.70 for a 19% price increase
Subscribe to Monthly Income Newsletter
Follow us on Twitter – @GetRichStayRich

Proof that Option Income Writing is a Winner

With a covered call and protective put strategy, you have a win – win- win –win situation.  Here is what happens when the underlying stock changes:

  • Stock price increases –      you win by keeping the premium and either rolling up your call to a higher strike price or letting the stock get assigned;
  • Stock price is unchanged – you win by keeping the premium and possibly the stock to write more calls against it in coming expiration months;
  • Stock price slightly declines – Your amount of premium received will cover a slight decrease in the stock price so you win and keep the stock for more call writes for income;
  • Stock price declines aggressively – the protective put will gain value as stock prices decline closer or through the put strike price while you keep the premium and stock for more writes.

If you use the covered call with a protective put, you can create a great wining trade.  This is better for writing calls against a stock several months as this will offset the cost of buying a put for protection.  The protective put should be at least six months ahead of the current call expiration month when initially purchased.   This allows the investor to spread the put cost over the six month period to increase the profitability of the trade.  For example, if the protective put cost $300 to buy, the cost will average $50 per month on average.  However, if you exit the covered call position before the put expires, you can sell the put to recoup some of its cost.

In the case of a significant price decline, the put will become more profitable as it will increase in value.  The call writer can buy back the sold call
for pennies and sell a new call at a lower strike price to get more premium income.  After a few months of this, the trade should be profitable.

Subscribe for FREE Trades

Subscribe for FREE Trades

* indicates required
/ ( mm / dd )
Archives