![]() ![]() In normal market conditions, a return of 2-4% is achievable compared to the 1-2% for selling options on ETFs. Now if you are asking yourself why use stocks at all, the answer lies in the greater returns you will garner by writing calls on individual equities. With ETFs, we are basically tracking just one security. With individual equities, we are constantly changing our portfolio mix and factoring in earnings reports, technical and fundamental analysis. There is also a benefit of a lesser time requirement. By writing calls on ETFs, each share represents a basket of stocks and therefore, instant diversification. This may require a cash allotment of $25,00 to $50,000 or more. Owning five different stocks in five different industries would require you to own at least 500 shares since each options contract represents 100 shares. ![]() No one industry should represent more than 20% of your portfolio holdings. These securities provide the diversification of an index fund.Ī critical requirement of my system is to be properly diversified both by industry and by cash allocation. I use this strategy in my mother’s account where I can generate significant and yet relatively safe returns (1-2 %/month) in normal market conditions.Īn exchange-traded fund is a security that tracks an index, a commodity, or a basket of assets like an index fund, but trades like a stock on an exchange, thus experiencing price changes throughout the day as it is bought and sold. Would you like a quick, easy, inexpensive and still safe way to invest with covered call writing? If so, why not consider using exchange traded funds? In chapter 14 of my first book, Cashing in on Covered Calls, I discuss diversification and dollar cost averaging as an investment strategy and how that approach can be utilized when writing covered calls. ![]()
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