I have seen, some of the people here on this forum are real good traders. I am a newbie, wanted to know, is there some strategy where I could quit my job and make some comfortable earning per year. Some of my friends suggested me selling covered call against well know companies ( Solid cash companies ).
I would highly appreciate some serious suggestions as stock books don't help, they keep on printing used charts or telling stories of big wigs.
i average 25-30% per year by buying out of favor blue chips (52+ week lows) with a healthy yield of 3-4%. with the divy i buy 10 - 20% out of the money leap puts for insurance. you may also use a 10 - 15% sliding stop loss. with options you not only have to guess the direction of the underlying equity put also be very precise in its timing. guessing a stock price direction up/down is difficult enough. by going long on equities you can hold for a blue chip turnaround if your investment falls off a cliff. i've had big paper losses (-50%) come back in 2-3 years to break even. GL.
Selling covered calls is an extremely boring, low-risk and low-reward style of investing which benefits your broker more than the investor under most circumstances. The exception being the case where you are long a high growth stock for a low price, say NFLX in 2007 for $15/share and you bought 10,000 shares. Thus, you could sell 100 OTM call options each week hoping they expire worthless and make premiums, or profit huge selling calls now on the way down. In this case the risk is only in having your high growth stock called away from you if it rises above the calls you sold.
I would recommend selling covered calls and/or selling naked puts for monthly return of 5-10%. Choose Good companies or Index(SPY,QQQ,RUT,DIA etc). When VIX is at current value of 25-30, You get approx 5-10% per month return even if Market Index falls 10-15% in a month.
If you could make 5% monthly, everyone would be doing it and would become very wealthy. I recently bought some shares of MCP at $35 and sold the Oct $37.50 calls for $3. Finally last Friday the stock was called away as MCP closed slightly above the strike. I made a terrific percentage return for one month, but while I waited MCP pulled back to around $30 at one point. Had the market not rallied, I would have lost a significant amount of money. The safer companies typically are not volatile enough to have a decent premium. So, IMO ,keep plenty of cash available to pick up bargains. I suggest you find a few stocks you like and scale into them.
5-10% seems a healthy return rate for a small working class person like me. However, in order to sell this much calls/naked puts, T3 Margin requirements would creep in. Based on whatever little exposure I have, for safe ( at a reasonable distance from current value of stock ) the naked short puts or short calls in order to make 5 to 10%, may require me to put double amount of what I said above, as broker ( IB in my case ) is very strict. Just my comment.
Thanks for the info. You are more than welcome if you would like to comment on it.