Using a covered call strategy can be a great way to generate steady returns in your portfolio. As a general rule, I expect my covered call trades to increase my capital by about 25% to 35% per year, depending on the market environment.
(If you're new to the covered call strategy, click here for an introduction to how this strategy works.)
Whenever I set up a new covered call trade, there are a number of different dynamics to be aware of.
I always want to start with an underlying stock that has a high probability of increasing in price. I typically look for stocks with strong fundamental growth and a chart pattern that indicates investors are steadily buying the stock.
Next, I want to make sure that the option contract we use has plenty of premium built into it. Since we make our income by selling attractively priced call options, we need to make sure we're getting a good value for the contracts we sell. Continue reading "Options Traders: Watch Out For This Little-Known Income Killer"
