A CallWriter member recently stated that covered call writing takes too much time and can interfere with running a business. Actually, covered writing can involve huge amounts of time, or very little time. It all depends on your objectives and your approach.

The two areas that involve time and effort in covered writing are research and monitoring trades. Research in order to find the best stocks with high call returns can take time, since the research is our best protection against stock failure. We monitor trades partly in self-defense but also partly to look for opportunities to close the trade advantageously or simply to trade the calls. Trading the calls (buying them back cheaper than they were sold and then selling them again as the stock moves back up) can really add to returns, but it is not necessary in order to succeed at call writing. Many covered writers let their trades go to expiration regularly, closing them early only every now and then. And there is nothing wrong with this laid-back trading style.

Milking every possible penny out of trades requires watching them and trading the calls as opportunity presents itself. This obviously takes more time than simply writing calls and checking open trades once a day or so. But active monitoring is not a requirement when you write only the best companies.

For those unable or unwilling to monitor trades frequently during the day seeking transient trading opportunities, there is an easy way to write covered calls that involves fairly little time. Simply stick with S&P 100 stocks that are profitable and growing profits. The preferred method is to sort through the stocks on CallWriter’s S&P 100 list to find a group of candidates you like that frequently have high premium and therefore are frequently on our lists (ideally in different industries) and concentrate in them. Or you might like stocks such as Dell that have already taken a hit and formed a new trend or trading range. Doing this cuts down significantly on research time, and the same thing can be done with our Nasdaq 100 list. Note: avoid the ones in trouble or whose chart shows the stock diving for the cellar!

Write ATM for maximum return, or write ITM for less return but a larger premium and thus more downside protection (not every ITM call will offer good return). It’s your choice.

Then simply let the trades go to expiration and, if not called out, either re-write the stocks following expiration or sell the stocks and find new trades from the same list and write them. This writing style works just fine, and the majority of covered call writers probably trade in this fashion - conservatively and laid back.

This entry was posted on Monday, May 14th, 2007 at 10:35 am and is filed under Covered Calls, Trading Tips. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.