Increase Portfolio Yield         with Covered Calls     http://www.borntosell.comMike Scanlin | mike@borntosell.com | (800...
Agenda   • Who is Mike Scanlin   • 5 minute review of Covered Call Strategy   • 15 minutes on Born To Sell   • Live demo o...
Mike Scanlin Bio   • Trading covered calls since 1981 (31 years)   • Stock broker father taught me when I was 15   • My ca...
Options Popularity   • Option volume growing at 25% per year for 37 years   • 2010 volume more than 5x the 2002 volume    ...
Resolution At Expiration   • For any given option series:            – 60% closed prior to expiration            – 10% exe...
Covered Calls Are Popular   • Covered calls are "so popular that 84% of investors who trade     options at Charles Schwab ...
What Is A Covered Call?   • Call Option           – 1 call option gives the buyer the right to buy 100 shares of stock at ...
Risk/Reward of Covered Call  • Buy and Hold                                        • Covered Call           – Buy 100 shar...
Pros and Cons   • Pros           – Receive cash the day you sell the call options           – Creates additional yield on ...
Covered Call Benchmarks                                                        23 year study   • Robotic call writing indi...
$100K Example     Data as of Nov 3, 2010      Sym       Shares         Price   Value    Sell                     Upside   ...
$500K Example     Data as of Nov 3, 2010      Sym       Shares         Price   Value    Sell                     Upside   ...
Covered Call Web Site   • Born To Sell is a web site service that helps investors with the     covered call strategy:     ...
Two Ways To Use It   • Watchlist (top down, you already know the symbols you like)           – Enter symbols you‟re intere...
Watchlist                     Enter symbols                                 you like                                      ...
Watchlist Email                                                           Set the threshold to whatever you               ...
Still looking for 5-10% out of the   Covered Call Search                                                 money, but this t...
Example Screen           •   Filter 230,000 down to 38 candidates                                Increase Portfolio Yield ...
Search Features   • Remove all candidates with earnings before expiration     (to remove earnings announcements risk)   • ...
Shows what other   Crowd Sourcing                 members have                                  invested in               ...
Covered Call Chain                                      Select how much of the                                            ...
Portfolio Management   • Dashboard shows you how much time premium remains in each     position (tiny premium remaining me...
Diversify                                     Overweighted in                                     financials, use Show    ...
Offers   • Free           • Covered call newsletter (monthly)           • Covered call blog (weekly)           • Covered c...
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Increase Portfolio Yield with Covered Calls

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How to use covered calls to increase yield (return) on your portfolio of stocks and ETFs. By selling call options on your existing positions you can add 6-10% per year to the dividends you already receive.

Published in: Economy & Finance, Business
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Increase Portfolio Yield with Covered Calls

  1. 1. Increase Portfolio Yield with Covered Calls http://www.borntosell.comMike Scanlin | mike@borntosell.com | (800) 434-6980
  2. 2. Agenda • Who is Mike Scanlin • 5 minute review of Covered Call Strategy • 15 minutes on Born To Sell • Live demo of Born To Sell • Q&A Increase Portfolio Yield with Covered Calls at5/6/2012 2 www.borntosell.com
  3. 3. Mike Scanlin Bio • Trading covered calls since 1981 (31 years) • Stock broker father taught me when I was 15 • My career – 10 years software engineering (two IPOs, 1 acquisition) – 4 years investment banking (raised $400M for 120 startups) – 6 years venture capital (invested $86M into 10 startups) – 3 years as CEO of Born To Sell Increase Portfolio Yield with Covered Calls at5/6/2012 3 www.borntosell.com
  4. 4. Options Popularity • Option volume growing at 25% per year for 37 years • 2010 volume more than 5x the 2002 volume Average Daily Volume of Options 2002-2010 • At any moment, 300M open interest controls 30B shares Increase Portfolio Yield with Covered Calls at5/6/2012 4 www.borntosell.com
  5. 5. Resolution At Expiration • For any given option series: – 60% closed prior to expiration – 10% exercised – 30% expire out-of-the-money • If you eliminate those closed prior to expiration, it‟s fair to say that 75% of those held to expiration expire worthless (good news for sellers of options). Increase Portfolio Yield with Covered Calls at5/6/2012 5 www.borntosell.com
  6. 6. Covered Calls Are Popular • Covered calls are "so popular that 84% of investors who trade options at Charles Schwab are using covered calls these days.” – WSJ, Jan 2, 2010 • “Covered calls are the #1 most popular strategy among our retail accounts” – online broker TradeKing • Attitude of fans of the strategy: “If you’re not doing covered calls on stocks and ETFs you own then you’re leaving money on the table each month.” • Works well in sideways, slightly down, or slightly up markets. Not optimal in strong bull markets. Increase Portfolio Yield with Covered Calls at5/6/2012 6 www.borntosell.com
  7. 7. What Is A Covered Call? • Call Option – 1 call option gives the buyer the right to buy 100 shares of stock at the strike price before the expiration date. – Conversely, the seller of a call option is obligated to sell 100 shares of stock for the strike price if the buyer chooses. • Covered call = long stock + short call option – Buy 100 shares of stock (or ETF) and sell 1 call option against it. • Free covered call tutorial at – http://www.borntosell.com/covered-call-tutorial Increase Portfolio Yield with Covered Calls at5/6/2012 7 www.borntosell.com
  8. 8. Risk/Reward of Covered Call • Buy and Hold • Covered Call – Buy 100 shares @ 46 – Buy 100 shares @ 46 – Break even = 46 – Sell a 50-strike call @ 3 – Break even = 43, max profit = 700 – Unlimited upside – At expiration, CC is better than Buy & Hold for all values < 53 + 700profit CC P&L B&H P&L B&H P&L 0 46 43 46 50 53 loss loss Increase Portfolio Yield with Covered Calls at5/6/2012 8 www.borntosell.com
  9. 9. Pros and Cons • Pros – Receive cash the day you sell the call options – Creates additional yield on stocks and ETFs you already own – Lowers your break even point • More conservative than the Buy And Hold strategy – Lowers account volatility • First part of any drop in stock price is covered by call premium • Cons – Puts a cap on your upside – You can still lose if your stock drops below your net debit • net debit = stock cost minus call premium received Increase Portfolio Yield with Covered Calls at5/6/2012 9 www.borntosell.com
  10. 10. Covered Call Benchmarks 23 year study • Robotic call writing indices – BXM writes 1 month at-the-money covered calls on S&P500 – BXY writes 1 month 2% out-of-the- money covered calls on S&P500 • Both have lower volatility (smaller std deviation and lower beta) End 12/31/11 • Both beat S&P in almost any time frame Increase Portfolio Yield with Covered Calls at5/6/2012 10 www.borntosell.com
  11. 11. $100K Example Data as of Nov 3, 2010 Sym Shares Price Value Sell Upside Premium w/comm Annual Yield COP 400 61.25 24500 Jan 62.5 @ 1.85 2.0% 740 730 13.8% DOW 700 32.77 22939 Dec 34 @ 0.77 3.8% 539 529 19.1% GLD 200 136.03 27206 Dec 138 @ 2.77 1.4% 554 544 16.6% IWM 300 73.36 22008 Jan 76 @ 1.81 3.6% 543 533 11.2% 96653 2376 2336 15.5% • Average holding period of 2 months • Repeat the process 6x per year • Less volatile stocks require longer option duration (maybe 3-6 months instead of 2) to make the premium worthwhile Increase Portfolio Yield with Covered Calls at5/6/2012 11 www.borntosell.com
  12. 12. $500K Example Data as of Nov 3, 2010 Sym Shares Price Value Sell Upside Premium w/comm Annual Yield COP 800 61.25 49000 Jan 65 @ 1.00 6.1% 800 790 7.4% DOW 1500 32.77 49155 Dec 35 @ 0.47 6.8% 705 695 11.7% GLD 400 136.03 54412 Nov 138 @ 1.37 1.4% 548 538 22.6% IWM 600 73.36 44016 Dec 76 @ 1.17 3.6% 702 692 13.0% AAPL 200 318.00 63600 Dec 340 @ 4.30 6.9% 860 850 11.1% INTC 2300 20.97 48231 Dec 22 @ 0.22 4.9% 506 496 8.5% KO 800 62.45 49960 Nov 62.5 @ 0.63 0.1% 504 494 22.6% PEP 700 65.35 45745 Jan 67.5 @ 0.72 3.3% 504 494 5.0% PFE 2800 17.38 48664 Dec 18 @ 0.22 3.6% 616 606 10.3% SPY 400 122.26 48904 Dec 125 @ 1.46 2.2% 584 574 9.7% 501687 6329 6229 11.1% • Average holding period of 1.5 months • Repeat 8x per year Increase Portfolio Yield with Covered Calls at5/6/2012 12 www.borntosell.com
  13. 13. Covered Call Web Site • Born To Sell is a web site service that helps investors with the covered call strategy: – Screener sorts 230,000 covered call choices with custom filters – Portfolio management & tracking for time premium optimization • Not a trade recommendation service • Not a broker (we don‟t handle client funds) • Use-at-your-own-risk tools • Offered as a subscription service (monthly, quarterly, annual) • Free trial available Increase Portfolio Yield with Covered Calls at5/6/2012 13 www.borntosell.com
  14. 14. Two Ways To Use It • Watchlist (top down, you already know the symbols you like) – Enter symbols you‟re interested in tracking – The covered call results are limited to only those symbols – Can have candidate trades emailed to you after the close each day • Search (bottoms up, you‟re looking for something new) – Scans the universe of 230,000 covered calls that meet your criteria (prices update during market hours, 15-min delayed) – You can be as detailed (or not) as you want. Specify expiration month, how far out-of-the-money you want (%), industry sector, P/E, etc. – For example, you could say “Show me covered calls in the Basic Materials sector that are 5% out-of-the-money, expire in 2 months, do not have any earnings releases before option expiration, and have an annualized yield over 12%” Increase Portfolio Yield with Covered Calls at5/6/2012 14 www.borntosell.com
  15. 15. Watchlist Enter symbols you like Looking at Mar expiration Looking for 5-10% out of the money Earnings before expiration in red Ex-div before expiration in green • Watchlist is only shows covered calls for symbols you enter • This list can be emailed to you after the close each day Increase Portfolio Yield with Covered Calls at5/6/2012 15 www.borntosell.com
  16. 16. Watchlist Email Set the threshold to whatever you like (only alerted when there are matching returns available) Increase Portfolio Yield with Covered Calls at5/6/2012 16 www.borntosell.com
  17. 17. Still looking for 5-10% out of the Covered Call Search money, but this time across the entire universe of stocks Earnings before expiration are in red • Scans 230,000 call options (all symbols) • Sort by any column. Add/remove additional columns. • For more control, additional filtering choices under “Advanced Filters” Increase Portfolio Yield with Covered Calls at5/6/2012 17 www.borntosell.com
  18. 18. Example Screen • Filter 230,000 down to 38 candidates Increase Portfolio Yield with Covered Calls at5/6/2012 18 www.borntosell.com
  19. 19. Search Features • Remove all candidates with earnings before expiration (to remove earnings announcements risk) • Limit results to only those with ex-div before expiration (for dividend capture strategy) • Limit results to only S&P 500, or only ETFs • Include/exclude by industry sector (tech, healthcare, etc) • There is an „excluded list‟ of symbols you don‟t like • „Max Protection‟ page finds deep in-the-money candidates for conservative buy-writes Increase Portfolio Yield with Covered Calls at5/6/2012 19 www.borntosell.com
  20. 20. Shows what other Crowd Sourcing members have invested in Shows what other members are watching Click on any symbol to see the covered call chain Increase Portfolio Yield with Covered Calls at5/6/2012 20 www.borntosell.com
  21. 21. Covered Call Chain Select how much of the chain you want to see Enter symbol Ex-div and earnings date before expiration reminders Increase Portfolio Yield with Covered Calls at5/6/2012 21 www.borntosell.com
  22. 22. Portfolio Management • Dashboard shows you how much time premium remains in each position (tiny premium remaining means it‟s time to roll) • Rolling Calculator helps modify any existing position (buy back the call and sell a different one) • Personalized calendar shows ex-div and earnings dates for only symbols in your portfolio • Diversify feature points out if you are over or under weighted in any sector (compared to the S&P 500) Increase Portfolio Yield with Covered Calls at5/6/2012 22 www.borntosell.com
  23. 23. Diversify Overweighted in financials, use Show Mine to see yours. Underweighted in tech, use Search to find covered calls in tech sector. Increase Portfolio Yield with Covered Calls at5/6/2012 23 www.borntosell.com
  24. 24. Offers • Free • Covered call newsletter (monthly) • Covered call blog (weekly) • Covered call tutorial • Subscriptions Plan Price Works out to 2 week trial Free Free Monthly $59.95 $59.95/mon Quarterly $149.95 $49.98/mon (17% off) Annual $499.95 $41.66/mon (31% off) Increase Portfolio Yield with Covered Calls at5/6/2012 24 www.borntosell.com
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