| My Trade Journal |
| I have started a new method. (Okay, not really "started", more like "stolen".) It's immensely simple, but offers pretty decent returns for the short-term investor. This method is called "writing covered calls". What you do: buy a stock in 100 stock blocks. Then, you can sell a covered call on that stock. What this does is give someone the right to buy that stock from you at a future date, at a specific price. (Example, a Dec. 2.5 call gives someone the right to buy the stock from you for 2.5 before December 20th.) How I use this strategy: find a low priced stock that has an active options market (these are rare, but existent), buy it, and write a relatively recent call (4-5 months out at most) at a strike price higher than you bought it. Here you make money two ways: 1) selling the call, 2) if they choose to exercise, the stock return. But, if they choose not to exercise, you can sell another call! I've tried it some... It seems to be working so far. Update (1/17/02): Writing covered calls is going great. But, I've made a small shift in my strategy. Now, I'm writing calls 12 months out. It cuts down on trading costs, and also how closely I need to watch the stocks. It's wonderful. I'm building up a system that won't require hardly any of my time at all. Update (6/10/04): I've made some changes to my covered call strategy. When I do a screen now (on Yahoo! Finance) I make sure that the company is earning a profit. This is essential to make sure the stock doesn't go bust on me (I've had a couple do that. Not fun.). Still a work in progress, but it's progressing! |
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