Covered calls are suitable for investors who are:
1) Neutral to moderately bullish on stocks in their portfolio
2) Willing to limit upside potential in exchange for downside protection
3) Interested in being paid to agree to sell stocks at a specified price
Covered calls involve the sale of call options against stocks currently held, generating premium income while capping upside if the stock rises above the strike price. This strategy can provide income and reduce cost basis for stocks expected to trade sideways.
investment strategies to grow your income. How much risk can you subject your investments to? How much can
you afford to lose in the near future? Remember that most forms of
investment have risk associated with them. Simply pick investment
instruments that match your risk tolerance.
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Wayne Lippman has forty years of involvement in broad daylight bookkeeping incorporating a quarter century Price Waterhouse, where he served as an expense accomplice in the San Francisco and Oakland workplaces. He was already Managing Tax Partner of the Walnut Creek office of Price Waterhouse.
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investment strategies to grow your income. How much risk can you subject your investments to? How much can
you afford to lose in the near future? Remember that most forms of
investment have risk associated with them. Simply pick investment
instruments that match your risk tolerance.
Investment basics wayne lippman
Wayne Lippman has forty years of involvement in broad daylight bookkeeping incorporating a quarter century Price Waterhouse, where he served as an expense accomplice in the San Francisco and Oakland workplaces. He was already Managing Tax Partner of the Walnut Creek office of Price Waterhouse.
Wayne spends significant time in individual assessment getting ready for corporate officials and corporate duty anticipating firmly held organizations. He has huge involvement in investment opportunity arranging, exploration and trial credits and multi-state tax assessment. His industry experience incorporates the tax assessment of assembling, dispersion, development, high innovation, retail, benefit commercial enterprises, land organizations and endeavor reserves. Wayne is dynamic in expert associations and is a past administrator of the Taxation Committee of the California Society of Certified Public Accountants, East Bay Chapter. Wayne Lippman got a Bachelor of Arts degree in Economics from the University of California, Berkeley and a Master of Science degree in Taxation from Golden Gate University.
Watch full video on Youtube - https://youtu.be/Qmw15cG2Mv4
This video enhances your knowledge on portfolio management. It explains the meaning, types, process and objective of managing portfolio which comprises of stocks, mutual funds, commodities, metal, real estate etc. diversified sort of investments.(portfolio management)
Thank You
http://profitableinvestingtips.com/stock-investing/designing-an-investment-portfolio
Designing an Investment Portfolio
Designing an investment portfolio may be the most important thing you do in investing. There are tips and insights to make you money but over the long haul profitable investing hinges on hedging investment risk as well as picking winners. Here are a few insights into designing an investment portfolio.
Matching Portfolio Risk to the Investor
We have often noted that as an investor ages he or she will commonly want to move to dividend stocks instead of riskier investment. Business Insider gives an example of analyzing the portfolio of a retiree for risk.
What’s one trademark of a poorly designed investment portfolio? The answer is a portfolio whose risk character is incompatible with the risk character of its owner.
Frequently, these risk incompatibilities are camouflaged by a hot stock market. But when the market reverses and begins to fall like it has lately, the problems of investment portfolios with unsuitable risk levels becomes apparent.
Factors to consider are cost, diversification, risk, tax efficiency and long term performance. You may be invested in a fund that pays good returns but those returns are largely eaten up by fees and commissions. If you were invested heavily in big oil you lost heavily when the price of oil fell. Diversification across various market sectors is good. Tax free or tax advantaged investments are good if you are still in your earning years but less important as you retire. Risk and long term performance are closely related. As the author says when the market is hot all stocks look good but when it falls only strong companies hold their value. If you would like to sleep well at night load up on long term strong performers.
Unexpected Outcomes
Sometimes strategies for designing an investment portfolio do not work out as expected. The New York Times writes about investment strategies mean to lessen volatility and how they may not have worked as expected.
The presentation tries to give an overview of why an individual (retail investor) should opt for investing in the financial markets through various vehicles for getting returns that can beat inflation and other asset classes. Reach out for getting more clarity or assistance regarding the same.
To become a good Options investor, understanding the basic fundamentals and its pricing is key. In this session, we will discuss fundamentals of Options. This is an opportunity for beginners to ask the most basic questions on the working of CALL/PUT options and we will also put on trades (on a demo account).
We will discuss risks of buying and writing Options.
We can then talk about basic strategies involving single CALL/PUT contracts. We will see why writing PUTS can be so rewarding; so much so that Warren Buffet prefers selling PUT options.
Watch full video on Youtube - https://youtu.be/Qmw15cG2Mv4
This video enhances your knowledge on portfolio management. It explains the meaning, types, process and objective of managing portfolio which comprises of stocks, mutual funds, commodities, metal, real estate etc. diversified sort of investments.(portfolio management)
Thank You
http://profitableinvestingtips.com/stock-investing/designing-an-investment-portfolio
Designing an Investment Portfolio
Designing an investment portfolio may be the most important thing you do in investing. There are tips and insights to make you money but over the long haul profitable investing hinges on hedging investment risk as well as picking winners. Here are a few insights into designing an investment portfolio.
Matching Portfolio Risk to the Investor
We have often noted that as an investor ages he or she will commonly want to move to dividend stocks instead of riskier investment. Business Insider gives an example of analyzing the portfolio of a retiree for risk.
What’s one trademark of a poorly designed investment portfolio? The answer is a portfolio whose risk character is incompatible with the risk character of its owner.
Frequently, these risk incompatibilities are camouflaged by a hot stock market. But when the market reverses and begins to fall like it has lately, the problems of investment portfolios with unsuitable risk levels becomes apparent.
Factors to consider are cost, diversification, risk, tax efficiency and long term performance. You may be invested in a fund that pays good returns but those returns are largely eaten up by fees and commissions. If you were invested heavily in big oil you lost heavily when the price of oil fell. Diversification across various market sectors is good. Tax free or tax advantaged investments are good if you are still in your earning years but less important as you retire. Risk and long term performance are closely related. As the author says when the market is hot all stocks look good but when it falls only strong companies hold their value. If you would like to sleep well at night load up on long term strong performers.
Unexpected Outcomes
Sometimes strategies for designing an investment portfolio do not work out as expected. The New York Times writes about investment strategies mean to lessen volatility and how they may not have worked as expected.
The presentation tries to give an overview of why an individual (retail investor) should opt for investing in the financial markets through various vehicles for getting returns that can beat inflation and other asset classes. Reach out for getting more clarity or assistance regarding the same.
To become a good Options investor, understanding the basic fundamentals and its pricing is key. In this session, we will discuss fundamentals of Options. This is an opportunity for beginners to ask the most basic questions on the working of CALL/PUT options and we will also put on trades (on a demo account).
We will discuss risks of buying and writing Options.
We can then talk about basic strategies involving single CALL/PUT contracts. We will see why writing PUTS can be so rewarding; so much so that Warren Buffet prefers selling PUT options.
this slide will be very helpful for those who want to invest money in future market and commodity market. protective put how to protect downside risk of your investment by using protective put
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1. Who Should Consider Using Covered Calls?
• An investor who is neutral to moderately bullish on some of the equities in his portfolio.
• An investor who is willing to limit upside potential in exchange for some downside
protection.
• An investor who would like to be paid for assuming the obligation of selling a particular
stock at a specified price.
This strategy would work equally well for a cash,
margin, Keogh account or IRA. Although this
strategy may not be suitable for everyone, any of the
investors above may benefit from using the covered
call.
Definition
Covered call writing is either the simultaneous
purchase of stock and the sale of a call option or the
sale ofa call option against a stock currently held by
an investor. Generally, one call option is sold for
every 100 shares of stock. The writer receives cash
for selling the call but will be obligated to sell the
stock at the strike price of the call if the call is
assigned to the account. In other words, an investor
is "paid" to agree to sell the holdings at a certain
level (the strike price). In exchange for being paid,
the investor gives up any increase in the stock above
the strike price.
How to Use Covered Calls
If an investor is neutral to moderately bullish on a
stock currently owned, the covered call might be a
strategy to consider. Let’s say that 100 shares are
currently held in the account. If the investor was to
sell one slightly out-of-the-money call, the investor
would be paid a premium to be obligated to sell the
stock at a predetermined price, the strike price. In
addition to receiving the premium, the investor
would also continue to receive the dividends (if any)
as long as the stock is still owned.
The covered call can also be used if the investor is
considering buying a stock on which he is
moderately bullish for the near term. A call could
be sold at the same time the stock is purchased. The
premium collected reduces the effective cost of the
stock and the investor will continue to collect
dividends (if any) for as long as the stock is held.
2. In either case the investor is at risk of losing the stock if it rises above the strike price. Remember, in exchange
for receiving the premium for having sold the calls, the investor is obligated to sell the stock. However, as you
will see in the following example, even though the investor has given up some upside potential there can still be
a good return on the investment.
Stock ZYX currently is priced at $41.75, and the investor thinks this might be a good purchase. The three-
month 45 calls can be sold for $1.25. Historically, ZYX has paid a quarterly dividend of $0.25. By selling
the three-month 45 call the investor is agreeing to sell ZYX at $45 should the owner of the call decide to
exercise the right to buy the stock. Keep in mind that the call owner may exercise the option if the stock is
above $45, because he will be able to buy the stock for less than it is currently trading for in the open market.
But, as you will see, the investor's return will be greater than if he had held the stock until it reached $45 and
then sold it at that price.
Let’s take a look at what happens to a covered call position as the underlying stock moves up or down.
Commissions have not been taken into consideration in these examples; however, they can have a significant
effect on your returns.
Buying 100 ZYX at $41.75 and Selling 1 Three-Month 45 Call at $1.25
I. ZYX remains below $45 between now and expiration--call not assigned.
The call option will expire worthless. The premium of $1.25 and the stock position will be retained. In effect
you have paid $40.50 (which is also the breakeven price) for ZYX ($41.75 purchase cost - $1.25 premium
received for sale of call). This would be offset by any dividends that were received, which in this example
would be $0.25.
When the ZYX call expires worthless, the covered call writer can sell another call going further out in time
taking in additional premium. Once again, this produces an even lower purchase cost or breakeven.
If ZYX remains below $45 for an entire year, the investor can sell these calls four times. For this example we
will make the hypothetical assumption that the price of the stock and option premiums remain constant
throughout the year.
$1.25 (Call Premium Received) x 4 = $5 in Premium + Any Dividends Paid = Total Income.
3. II. ZYX rises above 45 between now and expiration--call assigned.
The call buyer can exercise the right to buy the stock and the call seller will have to sell ZYX at $45, even
though ZYX has risen above $45. But remember the call seller has taken in the premium of the call and has
been earning dividends (if any) on the stock.
If ZYX stock is called away at expiration:
Receive: $45 for Stock $4,500
Less: Net Investment (Stock Cost - Premium Received)
[$4,175 - $125] ($4,050)
Return: 11.11% $450*
*In three months plus dividends (if any) received.
III. ZYX is right at $45 at expiration.
The seller of a call may be in situation I or II. The stock may be called away and the call writer will be
obligated to sell ZYX at $45. Alternatively, the stock may not be called away. A call could then be sold going
further out in time, bringing in additional premium and further reducing the breakeven point.
Summary
The covered call write is a strategy that has the ability to meet the needs of a wide range of investors. It can be
used in your Keogh, margin, cash account or IRA against stock you already own or are planning on buying.
Currently, there are short-term options listed on more than 2,000 stocks and more than 400 of those stocks
also have LEAPS®
, Long-term Equity AnticiPation SecuritiesTM
, which are simply long-term stock and index
options. Today’s investor has a choice of short-term and long-term expirations, as well as multiple strike
prices. This strategy is actually more conservative than just buying stock, due to the fact that you have taken
in premium and lowered your breakeven price on the stock position. The covered write allows you to be paid
for assuming the obligation of selling a particular stock at a specified price.
4. Covered Call Worksheet
Date
Stock Stock Price
Strike Price Option Price
Expiration Month Days to Expiration
Annual Dividend Dividend Date(s)
Initial Funds Required Cash Account
1. Purchase ________Shares @ _________
2. Plus Stock Commission +
3. Total Stock Cost =
4. Option Premium
(# of Calls x Price x 100)
5. Less Option Commission -
6. Net Option Premium =
(Line 4 - Line 5)
7. Total Investment =
(Line 3 - Line 6)
Call Assigned, Stock Called Away (Stock At Or Above Strike)
8. Sell _______ Shares @ Strike _______
9. Less Commission On Stock Sale (Assignment) -
10. Plus Net Option Premium (Line 6) +
11. Less Total Stock Cost (Line 3) -
12. Profit On Net Stock Position =
13. Plus Projected Dividend(s) on +
___________ Shares
14. Net Profit =
15. Percentage Return For Period =
(Line 14 divided by Line 7)
16. Annualized Return* =
(Line 15 x 365 divided by # of Days)
5. Call Not Assigned, Stock Not Called Away
(Stock At Or Below Strike)
Cash Account
17. Total Investment (Line 7)
18. Less Projected Dividend(s) on -
_________ Shares (Line 13)
19. Net Cost at Expiration =
20. Breakeven Price at Expiration =
(Line 19 divided by # of Shares)
*Please Note: The profit or loss and annualized rate of return calculated will be achieved only if the parameters
described can be duplicated and there is no certainty of this occurring.
6. Commission, dividends, margins, taxes and other transaction charges have not been included. However, they will affect the outcome of option
transactions and should be considered. The strategy discussed above is for illustrative and educational purposes only and should not be
construed as an endorsement, recommendation or solicitation to buy or sell any particular security. Options involve risk and are not suitable
for all investors. For information on the uses and risks of options, you can obtain a copy of Characteristics and Risks of Standardized Options from
The Options Clearing Corporation, One North Wacker Drive, Suite 500, Chicago, IL 60606, 1-888-OPTIONS.
LEAPS®
is a registered trademark and Long-term Equity AnticiPation SecuritiesTM
is a trademark of the Chicago Board Options Exchange, Inc.
1/03
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