ETF Covered Calls

Only 21 more days before May expiry.  Here are this weeks ETF-Cashinator picks.   I’ve included the full report for a few people who are curious to look at the full 50+ page report which displays ETF Covered Calls deep into 2010.

April 2008 ETF Covered Calls Full Report

ETF Covered Calls website is for educational and entertainment purposes only. Any investment activity is not without risk including loss of principal. Neither this website nor its authors assume any responsibility arising from the use or misuse of any information presented in this blog. You are urged to contact a financial adviser before making any investment decisions. Past performance is no indication of future performance.

I’m on a mission to prove that leveraged ETF’s might be the only ETF you need to own. In particular, the Dow 30 leveraged ETF is one that I’ve decided to try to exclusively trade in my mini-account. I picked up 200 shares of DDM at $77 and sold the May $78 strikes for $1.90. This will be 2.5% return in less than 25 days and if DDM pops over $78 that will bring my return up to 3.7% and as always if DDM is down, I’ll move on to June, July or later calls.

ETF Covered Calls website is for educational and entertainment purposes only. Any investment activity is not without risk including loss of principal. Neither this website nor its authors assume any responsibility arising from the use or misuse of any information presented in this blog. You are urged to contact a financial adviser before making any investment decisions. Past performance is no indication of future performance.

With April expiry over, its time to move on to May so I sold 4 contracts on my existing XHB shares in my arbitrage account. I sold 4 XXJEW (May $23 strikes) for $1.23 to rake in $484 (5.4%) with 27 days to go until May expiry!

ETF Covered Calls website is for educational and entertainment purposes only. Any investment activity is not without risk including loss of principal. Neither this website nor its authors assume any responsibility arising from the use or misuse of any information presented in this blog. You are urged to contact a financial adviser before making any investment decisions. Past performance is no indication of future performance.

Many people keep asking me how to pick an ETF for which to perform a covered call on and the answer to that question really depends on your financial situation, financial goals and perspective on the market. There is no blanket answer that will cover everyone’s situation but one of the key indicators I use is to look at the 52 week high/low of a particular ETF.

For ETFs that are hovering around a 52 week low, it may be an indication that the ETF may be falling out of favor for a variety of reasons and may drop significantly more. It may also mean that it is at a good buy value but there’s no way to be sure.

Conversely, an ETF that is trading at 52 week high may be an indication that the ETF has been overbought and is at its peak or perhaps has more room to grow.

In either situation, there is no way to find out if the ETF is about to drop even lower or go even higher so the best alternative is to look for ETFs that are trading above their 52 week low by at least 20% so if you look at the chart, you’ll find that SMH and XHB meet that criteria and XME and UNG are trading near their 52 week highs so they do not meet the criteria. Correction: I just noticed that the SMH on the report is an adjusted ETF so ignore it but SMH is still a good possibility.

This is not a hard rule but a general guideline. There are instances when a bull market may make it favorable to go after those ETFs that are near their 52 week high but I generally buy at a level 20% below their 52 week high on “bullish” ETFs (e.g. OIH).

I’ll post the 52 week range on the ETF-Cashinator report as a guideline from now on so hopefully this will help but remember that the report is a tool to help you BEGIN to do your own due diligence. I personally never buy an ETF that I’m not willing to own over a long term period (10+ years) and adhere to the rule “don’t own a stock for 10 minutes if you’re not willing to own it for 10 years” rule. Remember there are no guarantees in the stock market.

ETF Covered Calls website is for educational and entertainment purposes only. Any investment activity is not without risk including loss of principal. Neither this website nor its authors assume any responsibility arising from the use or misuse of any information presented in this blog. You are urged to contact a financial adviser before making any investment decisions. Past performance is no indication of future performance.

Here’s an update on the transactions:

In the Power Funds Account:

Bought 200 QID (Short QQQ) @ $46.74 and Sold 2 QIDDU (April $47 Strikes) for $1.20 to earn 2.5% return. As of close of business today, QID will likely close below strike price so my options will expired worthless. UPDATE: CLOSED AT $43.22

Plan of action: Sell 2 more contracts for May $47 strikes or July $47 strikes.

In the Mini Funds Account:

Bought 200 DDM (Double Long Dow) @ $74.60 and Sold 2 DDMDW (April $75 strikes) for $2.05 to earn 2.65% return. As of close of business today, DDM will likely close above strike price so my options will be assigned and I’ll be in 100% cash. UPDATE: CLOSED $77.80

Plan of Action: Look for opportunities, perhaps XHB or SSO.

In the Arbitrage Account:

Bought 400 XHB (Home Builders) @ $22.72 and Sold 4 XXJDW (April $23 Strikes) for $0.70 to earn 3% return. As of close of business today, XHB will likely close above strike so my options will be assigned and I’ll be in cash. UPDATE: CLOSED $22.86

Plan of Action: Look for opportunities, perhaps XHB or SSO. Sell more XHB calls!

Here is the ETF-Cashinator report for looking at May 2008.

ETF Covered Calls website is for educational and entertainment purposes only. Any investment activity is not without risk including loss of principal. Neither this website nor its authors assume any responsibility arising from the use or misuse of any information presented in this blog. You are urged to contact a financial adviser before making any investment decisions. Past performance is no indication of future performance.

Today is options expiry so let’s review some transactions for the month of April that ended with today’s expiry.

In the Power Funds Account:

Bought 200 QID (Short QQQ) @ $46.74 and Sold 2 QIDDU (April $47 Strikes) for $1.20 to earn 2.5% return. As of close of business today, QID will likely close below strike price so my options will expired worthless.

Plan of action: Sell 2 more contracts for May $47 strikes or July $47 strikes.

In the Mini Funds Account:

Bought 200 DDM (Double Long Dow) @ $74.60 and Sold 2 DDMDW (April $75 strikes) for $2.05 to earn 2.65% return. As of close of business today, DDM will likely close above strike price so my options will be assigned and I’ll be in 100% cash.

Plan of Action: Look for opportunities, perhaps XHB or SSO.

In the Arbitrage Account:

Bought 400 XHB (Home Builders) @ $22.72 and Sold 4 XXJDW for $0.70 to earn 3% return. As of close of business today, XHB will likely close above strike so my options will be assigned and I’ll be in cash.

Plan of Action: Look for opportunities, perhaps XHB or SSO.

There were other transactions conducted during April however those will be impacted by May 16th expiry. I will run the ETF-Cashinator later in the evening tonight to generate a list of opportunities. Tune in tonight .

ETF Covered Calls website is for educational and entertainment purposes only. Any investment activity is not without risk including loss of principal. Neither this website nor its authors assume any responsibility arising from the use or misuse of any information presented in this blog. You are urged to contact a financial adviser before making any investment decisions. Past performance is no indication of future performance.

Sold 7 contracts on EEB $53 strikes for May 08 at $1.10 to rake in ~$800 today. This was from existing shares in power account.

ETF Covered Calls website is for educational and entertainment purposes only. Any investment activity is not without risk including loss of principal. Neither this website nor its authors assume any responsibility arising from the use or misuse of any information presented in this blog. You are urged to contact a financial adviser before making any investment decisions. Past performance is no indication of future performance.

As I feared and predicted, the market is sliding back down and I positioned recently with QID and previously with DXD but am long with DDM with a short position in calls.   As long as the market seesaws, it’s good profits….

Here are this weeks ETF-Cashinator results:

This website is for educational and entertainment purposes only. Any investment activity is not without risk including loss of principal. Neither this website nor its authors assume any responsibility arising from the use or misuse of any information presented in this blog. You are urged to contact a financial adviser before making any investment decisions. Past performance is no indication of future performance.

I picked up 400 shares of XHB at $22.72 and sold 4 contracts for April $23 strikes for $0.70 to rake in $270 in my arbitrage account.   This represents a 3% return in under 10 days with options expiry next week.  I’d been eyeing XHB for some time now and I’m willing to take the risk for a week to rake in these profits .

This website is for educational and entertainment purposes only. Any investment activity is not without risk including loss of principal. Neither this website nor its authors assume any responsibility arising from the use or misuse of any information presented in this blog. You are urged to contact a financial adviser before making any investment decisions. Past performance is no indication of future performance.

I picked up 200 shares of QID around $46.74 and sold April $47 strikes for $1.20 to rake in about $230 today.    This is a 2.5% return in under 10 days with options expiry happening next Friday!   We’ll see how the trade pans out.

This website is for educational and entertainment purposes only. Any investment activity is not without risk including loss of principal. Neither this website nor its authors assume any responsibility arising from the use or misuse of any information presented in this blog. You are urged to contact a financial adviser before making any investment decisions. Past performance is no indication of future performance.