Seller's Paradise

Retirement calculators can be fun... Just enter some crazy values and you're an automatic millionaire waiting to happen, enjoying huge projected withdrawals after an early retirement.

Rarely is it that easy. Is it realistic to assume you'll make 20%/year for the next 20 years, never have a down year, and have no increase in underlying expenses or tax rates? Probably not.

Recently we came across a very thorough retirement calculator written by a devoted covered call writer. You can read about it and other retirement calculators in A Retirement Calculator For The Covered Option Writer.

Apple's ex-dividend date is August 9th, and the company will pay a $2.65 dividend to anyone who owns the stock on the close of August 8th. So, if you want the dividend, own the stock when the market closes on August 8th. You can sell it the morning of the 9th and still get the dividend (although it won't be paid until the pay date of Aug 16).

A better strategy, that combines covered calls with dividend capture, is to own the stock and sell a covered call with an expiration date later than the ex-div date (August 9th). Because AAPL trades weekly options, you could initiate a buy-write this Thursday (Aug 2nd) when the Aug 10 weeklys begin to trade.

Buy 100 shares of stock and sell an in the money covered call (maybe 10 points in the money, but it depends on how bullish you are; and remember when setting the strike that the stock will open 2.65 lower on the 9th due to the dividend having been paid). You'll collect some time premium as well as the dividend in an 8-day trade.

Born To Sell has as specialized search mode called Dividend Capture that is optimized for covered call trades just like (with ex-div dates prior to option expiration). Check it out under the Search->Dividends menu.

'Rolling' a covered call position is the act of buying back the short call option you've already sold and then selling another one with a different expiration date or strike price (or both). It is an important skill to have in order to maximize your time premium capture.

The key question is "When should I roll?" There is no single answer as it depends on your outlook for the underlying stock, whether there are any tax issues of assignment, your risk tolerance, if there are earnings coming up, your transaction costs, the bid-ask spread on the options, and the premiums being offered.

One common reason to roll is when there is little to no time premium remaining in the option you are currently short. The whole purpose of shorting the call option was to capture time premium. Once it is gone, why stay short? Maybe if it has a few days to go and a few pennies of premium left you can just let it expire (especially if your transaction costs to buy it back are high).

But if there are more than a few days remaining and you are trying to optimize the time premium per day you receive, then very often it's best to buy back the option that only has a few pennies of time premium and then sell another one that has more time premium. If you really want to maximize your time premium capture then you should be short the option that has the highest time premium per day at all times (but consider your transaction costs for switching too often).

For example, if there was an option with 5 days remaining trading at 15 cents then it has 3 cents per day of time premium. Maybe the same underlying stock has another option with 35 days remaning selling for $1.40 (same strike). That one has 4 cents per day of time premium remaining. But maybe there is an earnings announcement before this 35-day option expires -- more risk (which is why there is more premium).

And what about capital gains/losses and tax treatment? Do you want the stock called away so that it becomes a realized gain or loss? Or is the stock in a tax-deferred account so it doesn't matter?

Unfortunately, there is no single best answer on when to roll. But a tiny amount of time premium remaining in the option you sold is a pretty good place to start thinking about rolling.

Born To Sell's Dashboard feature lets you see at a glance how much time premium remains in each of your positions (as as %, $s per share, or in absolute $s). You can sort by this attribute and then your most likely roll candidates will be on the left. And the Roll Me feature shows you 15 scenarios side by side so you can compare the option you are currently short with 14 alternatives... a real time saver, and premium maximizer.

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With 3 weeks to go until the August options expire, the top 4 covered calls Born To Sell members have written are (in order of popularity):

(Note: Born To Sell members have access to the full Top 10 Covered Call list, as well as having this list update real-time as members change positions. These are not recommendations, they are merely a reflection of our members' current positions.)

Currently, the top 8 stocks Born To Sell members are using for their Watchlist are (in order of popularity):

(Note: Born To Sell members have access to the full Top 20 Watchlist, as well as having this list update real-time as members change their watchlists. And, you can have the highest yielding covered calls from your personal watchlist emailed to you after the close each day. Never miss a fat premium from your watchlist again!)

Born To Sell is dedicated to only one thing: Making Money With Covered Calls. Our subscribers have access to state-of-the-art covered call screeners and covered call portfolio management tools. For less than the profit of a single trade you could be enjoying recurring monthly income using our tools. Three subscription types to choose from:

Plus, all subscriptions begin with a no-obligation 2-week free trial. What are you waiting for? Start collecting premium today!

Happy Trading,

The Born To Sell Team