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Hi all,
I'm new to this board, though not to MF and not to investing. I'm a little upset that I've never seen this board before as much as I've been reading, but anyway, to the point. I've been trading options for several years now, pretty much sticking to front month covered calls or naked puts (with the cash to cover in my account). I've had a lot of success at this, and I'm currently looking at forming an investment club or partnership so that some friends and family members can earn along with me (and the compounding works a bit faster). Any suggestions as to how to increase the possible success, or limit the potential losses, of my strategy described below, would be appreciated.

I know the risk of losses with this, so I only invest 5-10% of my portfolio this way, but the success rate I've had is pretty hard for even me to believe, considering that I've always been and always will be a long-term buy and hold investor with the majority of my portfolio in the indexes. That said, I've been averaging 2%-10% monthly returns on invested capital with options for 4 years now. Annual returns for those four years on the options transactions have been 27%-55%.

My strategy is simple, I pick a stock I like, similar to how I would pick one that I'd plan on holding for long term. If I feel it's at a good price, I buy shares and sell covered calls. If I feel it's overvalued, I sell naked puts with the cash to cover. The options I sell are generally very close to the current price, and if an execution of the put happens, I'll generally turn it around and start selling covered calls the next month at the same strike or one level higher.

Example 1 - Bought 1000 shares of JAVA and sold 11/07 covered calls, at expiration stock had dropped (and reverse split 1 for 4) and options expired worthless
Share purchase -$5500
Options sale +$450
Share sale +5300
Total Profit $250 on $5500 invested (risked) 4.55%

Example 2 - Sold 1 December 55 put on CTRP for 3.8, currently expect option to expire worthless
Cash to Cover $5500
Option Sale +$380
Total Profit $380 on $5500 invested (risked) 6.9%

Part of me is telling myself that this doesn't seem sustainable, and the prospect of investing potentially $25,000 to $50,000 of "friends and family money" this way has me a little worried. Not so much worried as thinking I should just stick to "gambling" with my own money this way. I've been doing this for 4 years now and haven't had a loss yet, and friends and family that know I'm doing this are heavily pressuring me to find a way to get some of their money in on it.

Am I missing something or is the hardset part of this really just finding good companies to invest in and then doing the taxes on the profit? I've read about and paper traded other options strategies, but haven't had the same success rate so I never took them "real money". Also, I should mention that I paper traded this strategy for 3 years with similar success prior to investing any real money in it, and since then only invested a small portion of my portfolio. Any suggestions or comments would be appreciated.

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