Covered Calls Against Dividend Stocks

The Hide and Seek Covered Calls Strategy is designed around dividend stocks and explains in detail the tools to use for timing when to enter covered calls trades and when to exit. It describes how to examine the history of a chart to pinpoint covered call strikes to be considered and which strikes to be avoided. The Hide and Seek Covered Calls Strategy assists investors in understanding how to profit from market declines rather than panic and how to determine when a stock is undervalued and at what price point to consider buying additional shares for extra profits in rebounds and rallies.

Includes In The Money Covered Calls Strategy

The Hide and Seek Covered Calls Strategy studies selling In The Money Covered Calls for larger covered call premiums and shows techniques for rescuing covered calls that are caught deep in the money to avoid exercise and loss of shares.

Rescue Strategies Are Illustrated

The fear of many investors using covered calls is the loss of their stock due to a rally in the stock which leaves them at risk of exercise. The Hide and Seek Covered Calls Strategy illustrates rescue strategies to save stock from exercise as well as explains how through the use of two simple timing tools, to avoid exercise including when selling In The Money Covered Calls.

Stocks Studied – JNJ Stock and XOM Stock

The Hide and Seek Covered Calls Strategy is designed for a variety of large cap dividend paying stocks and two stocks are studied in this strategy paper. The first, Johnson and Johnson Stock is less volatile than some stocks and the article presents how to apply the Hide and Seek Covered Calls Strategy to stocks like JNJ Stock that have lower volatility. The second stock is Exxon Mobil Stock which is more volatile than JNJ Stock to assist investors in understanding how to apply the Hide and Seek Covered Calls Strategy to volatile stocks.

Johnson and Johnson stock is studied from two perspectives. The first perspective is a study built around an actual trade by an investor who is caught holding deep in the money covered calls that are about to be exercised. This study is from November 2012. The second perspective is a review of actual trades of the Hide and Seek Covered Calls Strategy which were applied from 2001 through the market collapse of 2002.

The Exxon Mobil Stock study looks at the period from 2007 to 2008 when Exxon Mobil lost almost 50% of its value. The study shows how to not only profit from such an event but how to determine when a stock is under-valued and should be purchased for a trade.

Please note that once purchased there are no refunds. Any difficulties or questions please email teddi@fullyinformed.com

The investment strategies in the article were designed for Ultra type ETFs. Ultra ETFs provide 200% or more of daily swings in the underlying security. As such, these Ultra ETFs are highly volatile and used properly can provide excellent profits for those investors interested in Ultra ETFs. However all of these strategies have been applied to stocks and as indicated above include examples. In particular a look at an amazing recovery of a Bank Of America trade through the Cry Baby Strategy where an investor turned a 90% loss into a 67.4% gain in 13 months.

One of the problems of Ultra ETFs is that they tend to lose value in sideways markets due to tracking, simply because they are reflecting 200% or more in daily movements. These strategies take this into account allowing investors to stay longer in an Ultra ETF.

Below are outlines of the 4 strategies discussed in this article:

The Gambler Covered Call Investment Strategy

I always preach that investing is not gambling but I realize that many investors are risk takers and gamblers. Some investors just love volatile ETFs or stocks and are drawn to them like moths to a zapper. However a lot of them while gamblers in nature also know they have to hedge their bets and try to contain risk. This is the basis for The Gambler Covered Call Strategy.

The Gambler likes to stay close to the action and sell only one or two months out. The Gambler uses the market timing technical indicators of Bollinger Band, Momentum, Ultimate Oscillator and Rate Of Change. He likes to sell covered calls close to his break-even and build up his cash flow. He closes his positions early and often. He opens new positions quickly based on his technical criteria and closes them at any sign that would indicate his trade is changing or is wrong.

The article shows actual trades and how The Gambler investor applies his market timing tools to pick optimum moments to sell covered calls and how he buys them back for profits. Being a Gambler he always leaves himself “wiggle” room and keeps a specific number of shares uncovered in order to rescue his underlying security. By doing this the Gambler not only grows his investment in the underlying security but he also compounds his investment, reduces his overall cost basis of the shares purchased, takes advantage of rises in the underlying security and has some protection against declines in the share price. The Gambler Strategy allows the investor to take advantage of the high volatility which is a major component of Ultra ETFs to profit  from it. The Gambler Strategy also allows the investor to stay for extended periods in an Ultra type ETF and not be concerned about the known “tracking” problem.

In the article I explain the technical settings of each timing tool used and how they are applied and read by the investor. The actual examples of the trade also show how The Gambler Strategy handles trades that do not work out and how they are returned to profitability. The strategy is not overly complex but like any financial investment strategy the investor needs to understand the tools being used and how to be consistent in applying the strategy for maximum profit potential.

The Cry Baby Stock Trading Strategy

We have all been Cry Babies at one time or another. We have bought stock only to watch it plummet and then ended up saying “if I had more capital I would buy more right now!”. When a baby cries, parents often use a soother to calm the baby down. In this strategy Free Money is the soother. The Cry baby strategy shows how to find additional capital through selling covered calls that can be used to earn capital while waiting for the underlying security to recover. It shows how the Cry Baby strategy is used to continually benefit the investor and set up a strategy that can generate additional income, compound that income and keep some shares uncovered to take advantage of possible rises in the share value. There are a number of examples including a Bank of America stock example from the crash of 2008 where an investor down almost 90% in stock valuation used the Cry Baby strategy to end up with a 67.4% total return in 13 months. It is quite the strategy and among my favorites to employ.

The Twin Sister Put Selling Strategy

The Cry Baby Strategy has a number of twists and one of them is the Twin Sister Put Selling Strategy. The Twin Sister is more conservative their her brother, the Cry Baby. The Twin Sister Strategy is often used by investors who have been caught with a plunge in share value and need to generate a return while waiting for their original investment to recover. The Twin Sister uses technical tools of Momentum and Ultimate Oscillator to assist in picking prime moments to sell out of the money puts. The Twin Sister strategy assists investors in reducing their overall cost basis by taking advantage of the volatility of Ultra type ETFs. The article shows actual examples and the types of returns that could be anticipated through the strategy. It is more conservative in nature than the Cry Baby strategy but returns can still be quite profitable and compounding. This strategy can easily be applied to stocks aside from ultra ETFs.

The Shark Option Trading Strategy

The final strategy is the most complex. The Shark option trading strategy relies on the Fast Stochastic and Moving Averages combination of technical tools to pin point when to buy and sell both puts and calls. There are two versions of this strategy included in the article. The first looks at the Original The Shark strategy and the second studies The Shark Strategy with the adjustments I have made to it over the years in an endeavor to gain larger returns that the original. The Shark Option Trading Strategy does not listen to news events, worry about analysts recommendations or care about overall stock market direction. The Shark follows the price action in the underlying security to determine proper periods to buy calls or puts depending on the shares price action and when to sell them.  The Shark Strategy enjoys larger returns with higher volatility and loves the whipsaw of Ultra ETFs. While designed for ETFs this strategy can be used on other stocks and included is an example of Amazon Stock and Bank of Nova Scotia stock. There are distinct advantages to The Shark strategy including:

1) Small amounts of capital required for The Shark Option Trading Strategy.

2) No need to commit capital to shares.

3) No need for large capital positions in the underlying security.

4) Rarely caught at the top of a rally and rarely caught in a plunge.

5) No concern as to what direction the security is headed.

6) rarely get caught missing a rally or a tumble in the stock.

7) Often capital is not in the market while waiting for the next signal to invest again.

I have used the Shark Option Trading Strategy on a variety of stocks before turning to Ultra ETFs. Most of the time I use it only on Ultra ETFs because the volatility provides excellent option premiums, however throughout the year I find myself applying this strategy to stocks that fall within the guidelines of the Fast Stochastic. Once in a while a quick trade such as recently in Amazon stock and also in PepsiCo can reap excellent returns for a few days of work. The Shark is an option trading strategy well worth learning even if an investor only used it once or twice a year.

Please note that once purchased there are no refunds. Any difficulties or questions please email teddi@fullyinformed.com