Self Directed Investor Inc
SDI: "Empowering investors with ideas and education"
Symbol Lookup »  
Topics:ChinaETFsEarningsEconomyEnergyForexGoldIncomeLessonsIdeasTrading

  • Other news: News from PR Newswire
| More

Covered Calls Finish Strong in 2011

Tue, Jan 3, 2:41 PM ET, by Bill Luby

Just looking back at The Year in VIX and Volatility (2011) is enough to make one's stomach churn. Try to tell someone who has acrophobia that even the scariest roller coaster ride ends up right where it started and you will likely not assuage any fears. Something similar is at work for hikers, bikers or mountain climbers. The amount of effort they will need to call upon has nothing to do with ending up at the same elevation they started, but rather it is the cumulative elevation gain over the course of the trail, road or mountain. As with many things in life, it is all about the journey, not the destination.

For those who may have a touch of acrophobia, prefer their hikes to put less stress on their cardiovascular system and want a portfolio that matches the way they wish to experience the world, covered calls or buy-write strategies might be the answer. I have addressed the subject of covered calls and buy-writes a number of times in the past on this blog (see links below), but essentially this is a strategy which sells calls against an existing (covered call) or new (buy-write) long position in order to generate income off of the underlying. Covered calls and buy-writes will generally beat the SPX/SPY if stocks decline, move sideways or rise slowly. The cost to implementing one of these strategies is that if the markets make a sharp bullish move, gains are capped by the covered calls.

In the ETP world, there are two choices when it comes to buy-write strategies:

  • PowerShares S&P 500 BuyWrite Portfolio ETF (PBP)
  • iPath CBOE S&P 500 BuyWrite Index ETN (BWV)

PBP is by far the more liquid of the two alternatives, but some investors may also have reason to prefer BWV's approach and performance.

In the chart below, I have captured the equity curve of PBP vs. SPY over the course of the second half of 2011 - a period in which stocks generally moved sideways and volatility remained high. In other words, a period that was tailor-made for buy-write strategies. Note that PBP outperformed SPY by 7.7% during this six-month period, with considerably less volatility and also a less peak-to-trough drawdown"Žor what alpinists would probably call cumulative elevation loss.

Should high volatility persist in 2012 and stocks end up near where they started the year, both PBP and BWV are likely to outperform the major market indices.

Related posts:

 


[source(s): ETFreplay.com]


Disclosure(s): long PBP at time of writing; TradeKing is an advertiser on VIX and More



SDI Glossary: "Call" Definition
SDI Glossary: "CBOE" Definition
SDI Glossary: "Option" Definition
SDI Glossary: "VIX" Definition
This Article's Word Cloud:   BuyWrite   Calls   Covered   Index   Markets   More   Sideways   TradeKing   Volatility   Year   acrophobia   adsbygoogle   also   below   call   calls   course   covered   cumulative   elevation   generally   have   high   less   likely   long   make   mountain   move   over   period   prefer   sideways   started   stocks   strategies   that   their   these   they   this   volatility   want   where   which   will   with   world   write   writes

| More

A Quick Dual Reversal Up for Stocks and Oil
Fri, Feb 12, 11:51 AM ET, by Corey Rosenbloom

After sinking to new swing lows together, stocks and Crude Oil reversed higher off positive ...

Feb 12 Gold Update on Stellar Rally through Targets
Fri, Feb 12, 10:11 AM ET, by Corey Rosenbloom

If you’ve not been watching or trading gold, you’ve missed something incredibly exciting and rare. ...

High Volatility Market Update and Stock Scan Feb 11
Thu, Feb 11, 3:41 PM ET, by Corey Rosenbloom

Yesterday’s divergences into resistance set the stage for a down-swing – and that’s precisely what ...

Gold Stalls into $1,200 Target with Trade Planning
Wed, Feb 10, 1:51 PM ET, by Corey Rosenbloom

Gold is challenging the underside of the $1,200 key target level after a strong rally. ...

February Scan for Top Five Most Extended Stocks from 200 day SMA
Wed, Feb 10, 12:31 PM ET, by Corey Rosenbloom

Which five stocks are most over-extended above AND beneath their 200 day Simple Moving Average? ...

Corey's Feb 9 Chaotic Market Update and Stock Scan of the Day
Tue, Feb 9, 3:51 PM ET, by Corey Rosenbloom

Up, back down, up, back to a new low, and now off to a new ...

February 2016 Sector Strength and Weakness Charts
Tue, Feb 9, 11:31 AM ET, by Corey Rosenbloom

Which of the nine major sectors is currently the strongest, which is the weakest, and ...

Down to New Lows We Go in Stocks
Mon, Feb 8, 12:21 PM ET, by Corey Rosenbloom

Two months into 2016 and the stock market is falling to fresh new downtrending lows. ...

Corey's February 5 Trend Day Market Update and Stock Scan
Fri, Feb 5, 4:11 PM ET, by Corey Rosenbloom

Tech stocks lead the market lower and there are some surprising drops in major names. ...

Corey's Midday Market Update and Stock Scan Feb 4
Thu, Feb 4, 6:41 PM ET, by Corey Rosenbloom

Yesterday saw a bullish “surprise” reversal and today gives us the opposite – a bear ...

Sell Swing Market Update and Stock Scan Feb 2
Tue, Feb 2, 9:12 PM ET, by Corey Rosenbloom

Stocks fell sharply from a key overhead resistance target – with divergences – to produce ...

Google GOOGL Surges to New Highs on Earnings
Tue, Feb 2, 1:22 PM ET, by Corey Rosenbloom

Google (GOOGL) broke impulsively higher to a fresh new all-time price high today after yesterday’s ...

Feb 1 Crude Oil Trade Planning Levels
Mon, Feb 1, 1:12 PM ET, by Corey Rosenbloom

Crude Oil (@CL) broke lower at resistance with stocks this morning. Let’s overlay a Fibonacci ...

The Bullish Breakout and Uptrend Continues in Google GOOGL
Fri, Jan 29, 6:22 PM ET, by Corey Rosenbloom

With the market bounce continuing today, Google (GOOGL) – one of our “strong stocks getting ...

Jan 28 Wide Range Day Update with Stock Scan
Thu, Jan 28, 6:22 PM ET, by Corey Rosenbloom

Price is pivoting between the wide range from yesterday’s Fed Announcement. Let’s update our levels ...

There's the Break but Will it Hold?
Wed, Jan 27, 6:22 PM ET, by Corey Rosenbloom

There we go! The S&P 500 surged above 1,900 this morning! However, is this the ...

Rally into Resistance Update and Stock Scan Jan 26
Tue, Jan 26, 6:22 PM ET, by Corey Rosenbloom

Today’s action so far completely erased the bearish action of yesterday, but price still couldn’t ...

Jan 25 Market Update and Trending Stock Scan of the Day
Mon, Jan 25, 6:22 PM ET, by Corey Rosenbloom

The consolidation continues into the 1,900 level in the S&P 500 and we have new ...

Start Your Week with Corey and a Live Briefing Monday
Mon, Jan 25, 1:12 PM ET, by Corey Rosenbloom

I’m excited to announce that I’ll be returning for a fifth time to join a ...

Market Breadth Update Then and Now Jan 21
Thu, Jan 21, 6:22 PM ET, by Corey Rosenbloom

What’s Breadth suggesting about the current market? And how was it extremely helpful in calling ...

The Top Five Best and Worst Dow Stocks So Far in 2016
Thu, Jan 21, 1:12 PM ET, by Corey Rosenbloom

With the S&P 500 falling over 11% at the beginning of 2016, which big-name stocks ...

Three Quick Charts Underscore How Bad 2016 Has Been
Wed, Jan 20, 1:12 PM ET, by Corey Rosenbloom

As we focus on the US Stock Market, let’s pull the perspective back. Let’s focus ...

Downtrending Twitter TWTR Cannot Catch a Break
Tue, Jan 19, 3:52 PM ET, by Corey Rosenbloom

“Stocks which are weak tend to get weaker.” Twitter (TWTR) continues to demonstrate the power ...

Relentless Selling Market Update and Trending Stock Scan Jan 15
Fri, Jan 15, 6:22 PM ET, by Corey Rosenbloom

Can buyers catch a break? Or better yet, catch a falling knife? Not yet it ...

Big Reversal Rally and Market Update with Stock Scan Jan 14
Thu, Jan 14, 6:22 PM ET, by Corey Rosenbloom

Some might say we were way overdue for a larger rally or snap-back bounce for ...

Critical Pivot Level Planning for SPX and NASDAQ
Thu, Jan 14, 1:12 PM ET, by Corey Rosenbloom

With the downside target fully achieved on a second “crash,” we prepare our next move ...

$30 per Barrel Achieved for Crude Oil - What Now
Tue, Jan 12, 1:22 PM ET, by Corey Rosenbloom

Crude Oil finally (and fully) achieved its downside round-number target of $30.00 per barrel this ...

The Surprising New Impulse Low for the Russell IWM
Fri, Jan 8, 4:22 PM ET, by Corey Rosenbloom

Just how low can this market go and how many more support levels can it ...

The Catalyst and Targets for a Bullish Rally Jan 8
Fri, Jan 8, 3:42 PM ET, by Corey Rosenbloom

Are stocks set to bounce (rally) after multiple days of selling? Divergences at support say ...

More Selling and Jobs Market Update and Stock Scan Jan 8
Fri, Jan 8, 3:22 PM ET, by Corey Rosenbloom

You would think that a stronger Jobs Report this morning would be a catalyst for ...

The Five Surprising Downtrending Dow Jones Stocks at Fresh New 52 Week Lows
Thu, Jan 7, 4:12 PM ET, by Corey Rosenbloom

Are you ready to be surprised? Five leading, well-known stocks in the Dow Jones Industrial ...

Weekly Distribution Arc Trendlines and Targets for SP500 and Dow
Thu, Jan 7, 1:22 PM ET, by Corey Rosenbloom

2016 begins very bearishly, and the selling continued this morning. Let’s focus on the Dow ...

Jan 6 Another Crash Market Update and Big Stock Scan
Wed, Jan 6, 6:42 PM ET, by Corey Rosenbloom

2016 is off to a bearish beginning as the S&P 500 plunged to fresh new ...

The Year in VIX and Volatility (2015)
Tue, Jan 5, 3:52 PM ET, by Bill Luby

Every year one of my most-read posts is my annotated overview of the year in ...

Smith and Wesson SWHC Surges on Day of Obama Executive Order
Tue, Jan 5, 3:52 PM ET, by Corey Rosenbloom

Leading gun manufacturer Smith and Wesson (SWHC) surged on the very day President Obama announced ...

Trade Planning and Targeting for Google and Amazon GOOGL AMZN
Mon, Jan 4, 4:12 PM ET, by Corey Rosenbloom

Big trending stocks Google (GOOGL) and Amazon.com (AMZN) took a big bearish hit (gap down) ...

Every Single VIX ETP (Long and Short) Lost Money in 2015
Mon, Jan 4, 8:12 AM ET, by Bill Luby

Just one month ago, in The Current VIX ETP Landscape, I plotted all twenty-four VIX ...

The Case Against High Stock-Market Volatility in 2016 (Guest Columnist at Barron's)
Sat, Jan 2, 3:52 PM ET, by Bill Luby

About a month ago, when Steve Sears and Barron's asked if I would be interested ...

Flat but Not Boring Year for 2015 SP500
Thu, Dec 31, 1:32 PM ET, by Corey Rosenbloom

If the 2,060 level for the S&P 500 seems familiar for you, that’s because it ...

Dec 29 Big Holiday Bullish Trend Day and Surging Stock Scan
Tue, Dec 29, 2:52 PM ET, by Corey Rosenbloom

Another holiday week bullish breakout triggered with this morning’s gap, creating a bullish short-squeeze. Check ...

Dec 28 Reversal Market Update and Trending Stock Scan
Mon, Dec 28, 3:52 PM ET, by Corey Rosenbloom

Stocks played off a key pivot level this morning, but reversed off support mid-morning. Let’s ...

Intraday Bears Everywhere Except Bonds Monday
Mon, Dec 28, 12:32 PM ET, by Corey Rosenbloom

If you’re following Money Flow across the main markets this Monday morning, you’ll notice the ...

Enhancing Performance with Low Volatility ETPs
Mon, Dec 28, 12:22 PM ET, by Bill Luby

One theme that I will spend more time on in 2016 and beyond is the ...

Stellar Bullish Trend Day Update and Surging Stock Scan Dec 23
Wed, Dec 23, 4:12 PM ET, by Corey Rosenbloom

Santa Claus continues to deliver the bullish goods to the market today! First, take a ...

The Santa Claus Rally Finally Appears!
Wed, Dec 23, 12:22 PM ET, by Corey Rosenbloom

It’s about time! The famous “Santa Claus Rally” occurred this holiday week. Many traders were ...

Netflix NFLX Struggles to Hold Key Support
Tue, Dec 22, 11:22 AM ET, by Corey Rosenbloom

Will Netflix (NFLX) hold critical support and bounce higher to continue the uptrend? Or perhaps ...

Tracking Money Flow and Sector Rotation Video
Mon, Dec 21, 7:42 PM ET, by Corey Rosenbloom

James Ramelli and I presented a featured webinar earlier in December entitled: “How to Follow ...

Big Stock Scan and Midday Market Update Dec 21
Mon, Dec 21, 3:52 PM ET, by Corey Rosenbloom

Today’s session – while bearish – is showing hopeful bullish signs. What are they? Let’s ...

A Bottom Fishing Buy for Chipotle CMG?
Mon, Dec 21, 12:22 PM ET, by Corey Rosenbloom

Might Chipotle (CMG) be flashing a “bottom fishing” bounce (buy) signal at current lows? More ...

What Breadth Says about the Current Market Dec 21
Mon, Dec 21, 11:52 AM ET, by Corey Rosenbloom

What message does Breadth reveal to us right now during the holiday week? Let’s take ...

  More articles:  1 2 3 4 5 6 7 next »

ABOUT US »   ADVERTISE »   CONTACT US »   TERMS OF USE & PRIVACY POLICY »

Covered Calls Finish Strong in 2011 | Self Directed Investor | Copyright © 2008 - 2016, All Rights Reserved

Any ideas and opinions presented in Self Directed Investor content are for informational and educational purposes only, and do not reflect the opinions of BNK Invest, Inc. or any of its affiliates, subsidiaries or partners. In no way should any content contained herein be interpreted to represent trading or investment advice. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. All site visitors agree that under no circumstances will BNK Invest, Inc,. its subsidiaries, partners, officers, employees, affiliates, or agents be held liable for any loss or damage caused by your reliance on information obtained. Read Full Disclaimer.

SDI is associated with: ValueForum.com -- a subscription-based online social networking forum of serious individual investors. | MarketNewsVideo.com -- videos appearing on SDI are produced by Market News Video. | TickerTech.com -- stock quote content appearing on SDI is at least 20 minutes delayed and is powered by Ticker Technologies. | GoldStockStrategist.com -- Edited by Scott V. Nystrom, PhD, Gold Stock Strategist provides analysis on gold mining companies.