Kiss Goodbye To “Ordinary” Investing: Why Smart Investors Use Covered Calls
Tuesday, March 3, 2009
by Karim Rahemtulla, Investment Director, Smart Profits Report
Just what is the best way to profit in a stock market like this?
Our mission here is not only to show you the sectors, industries, and stocks that are set up to fare well, and the trends you can play to your advantage, but to also show you how to profit from them in more advanced, sophisticated ways than ordinary investors.
And when I say “advanced” and “sophisticated,” I don’t mean “complex to understand” and “difficult to execute.” Far from it.
In recent columns, we’ve talked about investing in water, gold investments, the real estate market, and much more (check out our Smart Profits Report archives if you’ve missed anything).
The bottom line is that amid all the bailout and stimulus talk… the volatility… the fear… the constant doom and gloom… we continue to stress that there are ways to negotiate brutal bear markets - ways that can still bring in strong profits.
Covered call investing is one of them…
Covered Calls: The Perfect “Cover” For An Imperfect Market
We realize that times are tough. No doubt about that. But we’re not sitting around complaining about it. Our focus, as always, is purely on showing any investor how to take profits from any market.
And we’ve demonstrated that in recent weeks, due in no small part to our covered call strategy.
Now, before I go any further… I understand that options strategies can sometimes spook investors. They seem complicated, especially since most people are used to just buying and selling stocks.
But our job is to educate you… helping you become a smarter investor, able to take bigger profits…
2 Key Elements That Will Help You Beat Wall Street…
In some ways, Wall Street is like the world’s biggest casino.
The devious types who make their living there don’t want you to know about the tips and techniques that can help you win.
They’re perfectly happy for you to remain in the dark, unwilling to teach you about hedging your bets. They just want you to make them and grab your money.
Now, in some cases, I’ll be the first person to admit that hedging your bets is a flat-out bad idea. However, this is not one of those cases. And I’ll tell you why…
This type of market, complete with its daily volatility and blow-ups, requires that you expand your investing acumen. And this is where we come in, giving you the two key elements you need…
- The necessary know-how.
- The specific trades to take end-game profits.
Covered Call Buyers vs. Covered Call Sellers… Who Wins?
Using options does not mean gambling. If you’re relatively new to the options world, that’s the first fallacy you need to put aside. Options actually work very logically. With every buyer, there’s a seller.
The Buyers: 9 times out of 10 - especially with short-term options trading - buyers lose out. And with good reason: It’s like trying to predict where a stock will go in a couple of weeks or months - something that nobody is entirely capable of doing.
The Sellers: Options sellers, on the other hand, usually make money because they’re basically betting on this lack of supreme knowledge. Huh… how does that work? Simple…
While they acknowledge that they can’t predict where an index or stock will go with pinpoint accuracy, they at least want to try by making a well-informed, educated estimate. And they want to get paid for trying and waiting around. In particular, with deep-in-the-money covered call selling or put-selling, they want to own the underlying shares, but at a price that they specify.
I’ll give you an example…
Using Covered Calls To Invest In Gold
As we’ve written about here before, we liked gold investments when no one else did. So we put our money where our mouth was and bought shares in Goldcorp (NYSE: GG), a major gold producer.
But we were also aware that gold prices would likely remain volatile for a time, keeping shares from reaching our targets right away.
So what to do?
Easy. We bought the shares and sold call options against our position. This not only reduced our cost, but also gave us a quasi-dividend and increased our chances of a win.
In the end, our shares didn’t get called away from us at options expiration. But that was fine with us. We got another opportunity to lower our cost and increase our potential for a win by selling more calls.
We did the same with a recent trade in the Xcelerated Profits Report - and I’ll be doing it again very shortly. In this market, it’s how you play the game that counts. It’s all about risk management.
The Covered Call Investment Strategy - A Gateway To Safer Profits
In case you don’t know, we have the resources for you to learn about the covered call investment strategy (and several others, for that matter) in more detail on our Smart Profits Report website.
Scan our archives. It’s all free and essential reading if you’re serious about investing. We provide step-by-step instructions on how to execute various trades, as well as the rationale behind them.
And if you find something you really like, why not take your investing to the next level? See below…
Karim Rahemtulla
Editor’s Note: This article originally appeared in Inside MVR - a weekly “digest-style” report, e-mailed to Mt. Vernon Research members every Friday. Written by Karim, it’s a free, additional benefit to their subscription and also features every Smart Profits Report editor giving their take on the market… where we’re headed next and how to profit from the moves… plus the state of the group’s various portfolios.
To receive it yourself, simply sign up for one of our other products. If you want a broad overview of our entire group and receive investment recommendations from each editor, check out the Xcelerated Profits Report newsletter. But if you want to start profiting regularly from the kind of recommendations that Karim talked about above, take a look at his Strategic Income service.
Related Articles:
Investment Strategies To Survive And Thrive… Even As Stocks Fall
The Best Investment Strategy For A Market Like This… The Truth About Covered Call Investing
How One Company's Groundbreaking "Cancer Blaster" Could Make You Rich
While the World Health Organization predicts 12 million people will develop cancer in 2009, this little-known company is fighting the surge with its amazing cancer-killing device...
Although most people know nothing about it, this "Cancer Blaster" has already saved thousands of people around the world... Like Ohio resident, Caroline Brubaker, who says "with just three, pain-free outpatient visits, I had my life back" or Richard Swanson of Arizona who ended up cancer-free after just 4 hours of treatment...
The best part is, the company recently discovered an extraordinary breakthrough that could go mainstream in a matter of days... Read the full details to find out how you can get in ahead of the event - and be on your way to booking truly incredible gains.
|
Comments
Due to the amount of comments we receive Smart Profits Report will not be able to respond to all questions. By submitting your comment you agree to adhere to our Comment Policy.
Got something to say?
