High Yield ETF Covered Calls as of July 6th 2007

Only two more weeks till options expiry!  As usual, I’m excited to see how the cash is going to tumble in.   Here are this week’s ETF Covered Call picks from the ETF-Cashinator.  The usual suspects are all here… Russia, China, Brazil, Energy & Gold.
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5 Responses to High Yield ETF Covered Calls as of July 6th 2007

  1. lou ciullo says:

    Rich-
    Do you use Ron Groenke’s software to select the ETF’s that you list in the weekly Cashinator?
    How does one choose the ETF to do the covered call?

  2. Rich Slick says:

    I never purchased Ron’s software but I developed my own (ETF-Cashinator) to essentially scan all the ETFs that trade options and have high enough daily volume to peak my interest.

    I usually end up with at least 6 or so to choose from. Eventually, my money will be divided into the top 2 or 3 high yield ETFs but I usually try to select an ETF that I’m sure will get called so I’m not left holding the bag (so to speak).

    Part of the selection process though is up to you and your sentiments toward the various markets. Do YOU think China is a good place to invest? How about Brazil? What about Gold or Oil?

  3. broknowrchlatr says:

    I read your walk-through page but I am still a little confused on the selling portion.

    Forgive my ignorance, but I have a couple questions for you on that.

    Say I do a buy-write on XLE options today. As of this instant, the price is $72.15 and august options at $73 are selling for $1.80. So I buy 100 shares for $7215. I then sell 1 contract and get $180.

    Now there are 3 scenarios.
    1) Price goes down – Options expire uncalled and I lose money on the fund, but still have the $180. Thus, selling the option has saved me 2.5% ($180/$7250)
    2) Price goes up but stays under $73 – I gain money in the fund but it never gets called. Thus, I beat my return by 2.5% again.
    3) Price goes up over $73 and I get called. After sales, I esentially get the same return as I would if the price just went to $73.

    So, essentially I am getting a better return by 2.5% if the price stays under $74.80 (the effective return price I am getting on selling at $73.00 and getting $1.80 from the option) But, if the price goes over $73, I am limitting my returns to that point.

    It seems to me that this is a pretty good deal for 28 days. Am I missing anything?

  4. broknowrchlatr says:

    Correctio, 38 days

  5. RichSlick says:

    You are correct, I’ve followed up in an email so I hope you got my detailed response. Just keep in mind that the ETF prices and options prices move daily. I publish the ETF-Cashinator on Friday’s to give people a chance to look over the report, do some research and be prepared to trade on Monday (or any day after) after I publish the report. Sometime by 10 a.m. on Monday, the ETF prices and options have moved (up/down) and the percentages will change.

    I’ve considered looking into real time calculations but I simply don’t have the computing power and subscription feeds to make that possible yet. Perhaps in the future I could do it real time but for now, it’s always as of close of business on Friday when I publish.

    I do occasionally publish the report during Holidays or other market close days as they occur.

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