Writing Covered Calls

I hope you are well. I'm very limited on the speed and timely accuracy of the news I get and the prices of stock and options on the stock, so you will have to check out the current prices yourself.
A blog or two ago, I mentioned I wanted to see how much oomph September Options had left. So, I set out this AM to work with a paper-trade amount of $20,000 and write covered calls. The attempt is to try to pick up 10% cash on the $20,000. Let's see what shakes out.

Simply put, Writing Covered Calls means you own stock (or buy it for this purpose) and then sell the fluff of options, giving someone the right to buy your stock at a price you pre-determine.

By selling an option you take on an obligation to sell (deliver) the stock anytime, on or before the expiration date, usually the third Friday of the month. It should be noted that there are now two or three expiration dates a month, especially in bigger traded stocks. Again, you sell and take in the cash now, and then whether you actually sell the stock or not, you get to keep the money.

For this exercise we will not do margin. For those of you who want to pick this up a little, remember you only have to put up half of the money if trading on margin, and your broker will loan you the other half, using the stock as collateral. It is a form of debt, and should be used sparingly. If you want those calculations, just double everything you read here---the cost of the stock and the option prices.

Here goes. We'll start with RenRen (RENN). The stock is at $7.25, and I think there is every indication the stock will settle in near the strike price of $7 around next Friday, the expiration date. The $7 call option was at 50 X 60 cents. We sell at the first  (or lower) number.
RENN: 1,000 shares at $7.25 is $7,250 and we sell the calls for 50 cents, taking in $500.
ACCUMULATED TOTALS: $7,250, $500 in.
Next we'll do 2,000 shares of Eastman Kodak (EK) for $3.24, or $6,480 and sell the $3.50 call for 37 cents, taking in $740.
ACCUMULATED TOTALS: $13,730, $1,240.
Last we'll do 500 shares of FAS, an ETF (Exchange Traded Fund, in the Banking Sector), at $12.10. That's $5,060 and then sell the $12 call for 90 cents, taking in $450.
ACCUMULATED TOTALS:  $18,790 into the stocks, with $1,690 in.
Well, with this batch of stocks we didn't make it to the 10%, or $2,000, but only $1,690. And just think, it's for 8 days.

I ignored getting called out and giving back the 25 cents in RENN or the 10 cents in FAS, but I also ignored the 26 cent gain in EK times 2000, or $520. With all of that we're very close to the $2,000.
And you should see the October numbers on these. I'll write more later. Also, margin investing, even for part of this, would put you way over the top.

I suggest you start thinking of retiring. For years, I've been teaching "Cash to Asset to Cash." My books and seminars have been about getting assets to produce income---the only way to fly.
If you need help on this, order my book, STOCK MARKET MONEY MACHINE. You can email me at cabdriver22@msn.com if you're interested in getting this book on covered calls.