This is Why You are NOT Making Money Selling Covered Calls

Selling covered calls is a simple and ¨not so simple"option trading concept which 

option traders often begin with. It attracts people because of the appearance of juicy option premiums and yet often befuddles those who mistakenly believe it is an effortless way to gather ¨free" money.

So, I have compiled a simple list of reasons which causes failure for those who 

try to earn regular income from the practice of selling covered calls.

1.  Taking profits before your position is closed. Option premiums may be hundreds of dollars falling into your account with the click of a few buttons. Resist the temptation to ¨count your chickens before they hatch¨ by waiting until your covered call position is closed or assigned before you consider the profit or loss to be realized. The Market is constantly changing. While this volatility is the best friend of an option trader, we must ALWAYS use patience and wait until positions are closed before we consider the gain/loss as REAL.
2.  Selling covered calls on an underlying asset that is about to go through a reverse split. Don´t sell covered calls on underlying equities that you do not fully understand. A surprise, merger, a negative earnings report, or a shocking news report can cause an unexpected loss in your covered call position. Do your due diligence and research the companies before you bet your hard earning money on a covered call position.
3.  Not choosing the most profitable strike price at which to sell the covered call at. Choosing strike prices is an art in my humble opinion. There are those who calculate complicated formulas to determine which strike price at which to sell a covered call at. However, I prefer the tried and true method of relying on many years of market experience.....reading tape...as they say.
4.  Choosing low quality underlying equities upon which to sell covered calls. Although, people can and do, sell covered calls on lower quality stock, it is inherently more risky to do so. Risk can lure in option traders with juicy high option premiums. But it can be very painful to your wallet to pour good quality money into a low quality equity position just for a very temporary boost in option premium. KNOW your underlying assets....and choose wisely.
5. Using margin debt to finance the selling of covered calls. The stock market can be volatile, and using debt to finance your covered call option trades can be tempting, and can sometimes be profitable. However, any usage of leverage (debt) must be done wisely and with the understanding of risk, reward and interest rates. Not all investors have the temperament to manage debt wisely. Those who have a ¨gambler´s mindset may not want to even entertain the idea of using debt to ¨play¨ options with.  Debt is a great tool in the hand of a master, but a deadly weapon in the hand of a fool.

Well, friends, that´s enough caution and warning for a beautiful Sunday afternoon. Be blessed in your investing and trading.

Peace,

Carla

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The Markets are a Thing?

It irks me when folks regard and talk about the "stock market" as if it is an inanimate object.

The market is anything but a lump of "thing".

It is more of a lively beast, reactive, calculating, and at times manipulative and seductive.

Some people state that the market is simply a set of algorithms and that there isn't any human involvement in it anymore.

 In my own kwirky understanding of the market I'd like to say the following:

Yes, of course human beings are going to use artificial intelligence more and more and more as time goes on, to maintain a financial edge and semblance of "control" in markets. But that doesn't make the market "less human". No, using A.I. is akin to  using your sharpest knife in the kitchen when you are trying to carve up a steak.....it just works better than a dull butter knife.

Behind every A.I. program is a programmer. Those programmers don't just set an A.I. system loose on the markets and trust it's instinct. A.I. does not have instinct. A.I. does precisely what it is programmed to do, and not a tad more than that. Programmers and traders work in tandem to tweak and adjust their A.I. algorithms to maximize trends and take advantage of unpredictable market events. The programs maintain the priorities that are set into their systems, and stick to script, unlike humans who often lose their priorities when their emotions run hot.

So, yes, we don't see  many folks running around the trading pits with papers strewn all over the floor, and traders making weird hand signals to brokers to complete trades. ( however, that still does happen in certain circles) But, the market is still very reactive and lively. Behind the screens, laptops, mobile phones, rooms filled with processors and huge monitors across the globe..... are very real and very wonderfully emotional human beings...determined to make a buck. The more computerized are our interactions with the markets, the more that we can use these preset tools to overcome our emotional weaknesses. Computers can cross the gap that sometimes prevents us from doing what is logical and rational, because of our own stubbornness and hot-headed-ness.

The events over the past two days should show us once again, that the market is a lively beast being controlled by humans.....humans with strong opinions, beliefs and emotions.


Well, that's all for now. Just wanted to put that out there.

Have a peaceful day friends.

Carla.








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Another Potential Win for Canadian Investors

Was happy to notice a wee blurb in Monday May 2 ,2016's Globe and Mail
entitled "The investment industry's growing unrest over hidden fees" by Clare O'Hara.( section B--pages 1 and 7)

There is more hope on the horizon for those Canucks who still insist on purchasing mutual funds. The
"hidden" commissions that "financial advisors" earn for the period of time that a consumer holds units of a certain mutual fund will, Clare asserts, in the near future become more restricted, AND/OR much more transparent.

After all, why should there be so much murkiness in the "investment product" industry?
Since when are investments now known as mere "products "??

Since when are "investors" merely treated as "financial product" consumers?

It used to be....or at least it "felt" more that way when I was young, that investments were something
that held "unlimited " potential. The mystery and the myriad of ways in which a potential financial investment could grow or morph or produce multiple income streams was a beautiful and alluring "unknown".

Now it seems that banks and financial investment companies are determined to
"capture and control" every single aspect of an "investment". No more surprises....only more legaleze, and more ways for the investment industry to make money off the backs of hard working and naive "investors".....They don't even call us "investors" any more. We are merely "consumers" who are being sold "products".

By the way, we prefer to be called "investors"....no matter what the amount we are able or willing to "invest".

Anyway, pardon the rant..... This post is intended to be positive.
If even the investment industry is ready and willing to admit that there needs to be changes that "help" individual investors, then we are indeed poised for greater gain.

Tony Robbins,through his book  "Money, Master the Game" , exposed much of the murkiness in the USA's mutual fund industry and explained how so many many fees and hidden costs are bound up in the American mutual fund industry. The fees and extra charges are so complex, hard to find, and so "murky" that few, if any, invididual investors even know how much in fees that their investments are actually costing them at the end of their investing life. Those hidden fund fees and charges can eat up the majority of any potential profit that an individual investor may earn over their lifetime by holding mutual fund units."Mutual Fund Buyers beware"......was Tony's timely advice.

Yes, Tony's book was written for the States. But maybe Canada listened in on the conversation and has begun to take some preventative measures.
If Canada's mutual fund industry is willing to play a little more fair and transparently, then maybe, just maybe, you won't have to run and hide from mutual funds any more and stop picking stocks for yourself. Maybe.... just maybe.. maple syrup toting DIY investors might start trusting the advice of the "professionals" again.

Clare's article sheds a few good Canadian rays of light on the matter.
Happy investing, friends,
May you live long and prosper.

C.
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Are STocks keeping up with Inflation?

Jus' thinkin' aloud again....
I must say that I have always been more interested in equities than in owning chunks of debt instruments, such as bonds.

But there is a looming threat called "inflation" which is something for which we may just not be prepared.
It's all well and good if our stocks are increasing in "numeric value" representing real capital gains. But if
the average loaf of bread is going to rise to $8 a loaf then, the REAL TIME VALUE of our portfolios must be re-assessed to reflect and hedge against this type of threat of inflation. Large numbers of dollars don't really mean much if it is going to cost a lot more just to get around town, buy your food and support the roof over your head. REAL increase must reflect an increase in REAL buying power....not just the dizzying knowledge of growing numbers on your investment statements.

One of the things I love about stocks, is the proverbial "drip" plans in which one can re-invest any dividends payable and they magically produce more shares to own....without any pesky commission fees.

But how is it going to affect long term investors, if the underlying stock prices do not rise with inflation and the cost of living? Is it possible that a drip will lose "real time value" simply because the share prices do not keep up with the cost of living? I am wondering if even many blue chip companies might be affected by this predicament. For a blue chip company can have a steady positive cash flow and  pay out reliable dividends and still their share price may not be rising as fast as inflation.

It's all well and good to invest long term in equities with the added cushion of DRIPS helping you to accumulate a larger portfolio, but if in the long term those equities do not represent real "BUYING POWER" in which you can tap into into your retirement years....what is the point?

Stocks have to carry clout, and the only way they will continue to carry weight in the eyes of investors, is whether they can be sold at an undetermined point in the future for real dollars,.....real dollars that buy real food, pay for real real estate, and support a decent lifestyle.

I'd be more than eager to hear your thoughts on this matter, my most intelligent readers.
God bless.

Carla