I got a pm asking about writing covered calls so I figure I'll go into more detail about them today.

Covered call writing is the most popular options strategy available to your average retail investor. It is purely a income generating strategy. You won't get rich from this and it only provides limited downside protection. It is relatively low risk and easy to understand once you understand how options work. Most brokerages will allow this to anyone even if they don't allow selling puts or naked options. If you are a buy and hold investor you can make a little extra cash off your shares in addition to dividends every quarter. If you are a trader this won't help you much since you would have to hold the shares until the options expired.

When you buy a call option you are buying the right to purchase a stock at a certain price. Therefore, when you sell a call option you are being paid for the obligation to sell the stock at a certain price. Covered call writing...

It's hard to believe another month has gone by and it is expiration day already. Most people know the third Friday of every month is expiry date for equity options but that is merely scratching the surface. Technically expiration is the third Saturday but all this means is you have to be aware of after hours trading on any stocks in which you have a options position. I usually prefer to close all my positions before this day.

Today I wanted to write about a common mistake many novice do upon expiration. Market makers love expiration day. This is their chance to make some extra dimes here and there from the average traders who don't know how to exit their positions. Let me use a example to show what I mean.

Let's say you own a ABC Oct 50 call and on expiration day ABC is trading at 55. Since there is almost no time value left your option value should equal $5. What actually happens though is your option has a bid of $4.90 and ask of $5.10. You don't want to...

I typed this up a few days ago and saved as a draft. Now I can't tell if it can be seen by public or not so I figured I'll post it again.


If you are reading this then you have probably clicked on my profile after seeing some financial advice I gave. So I guess I'll tell you a little bit about myself as a investor. I shamelessly stole this template from BillyBob29's post in the Stock Investing Social Group. If any of you are interested in day trading then you should do a search for all his posts.

I've been investing for nearly 6 years and actively trading for about 4 years now. I'm primarily a stock and options trader, on a few time frames (long term, position trading), but I primarily focus on options strategies. I use fundamental analysis extensively when adding to my long term holdings and a mixture when trading in the short term.

I started out by investing in index funds with the proper diversification and asset allocation. I still...

When you trade options it is not always necessary to bet on up or down movement. You can bet on sideways movement or bet that a stock wouldn't move past a certain point. Today I'll expound a little more on the latter. I am always on the lookout for opportunities to bet against a stock moving above or below some price.

A good example of a definite ceiling for a stock is a buy out offer. The market knows how much a company will pay and usually trades a few points under that. This is to account for the risk the buy out might not occur. Of course when it comes to the market things are not always that simple.

Inbev had offered $70/share for Anheuser Busch (BUD) which received overwheming approval from Inbev shareholders today. Despite this BUD opened at 62 and closed at 64. I think part of this has to do with the dismal state of the market last week as much as the risk the deal wouldn't go through. If you wanted to participate in the stock while limiting the downside...

I promise not to write this often every day. I'm still learning the functions of this blog. I'll probably average 2 - 3 entries per week.

I guess I should go into more details about my options trading.

First let me talk a bit about Wachovia. Last week they were in the middle of a legal dispute between Citigroup and Wells Fargo. Citigroup (with prodding from the FDIC) made a bid of $1/share for Wachovia. Then suddenly out of no where comes Wells Fargo with a bid of $7/share. These were offers of all stock so the prices aren't set in stone. Now if you were a stock trader you would have 2 choices here. You could buy at 5 (what WB was trading at when I heard the news) or sell the stock short at 5. Either propostion was high risk/low reward because of the uncertainty of their legal proceedings. However, a options trader would see this completely differently. This was a golden opportunity to write out of the money calls on WB. Implied volatility was high and time...