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Hello All,

It's nice that the last Friday this month is on a holiday weekend and the market closed early today. I actually have time to write this up today. I hope everyone had a good Thanksgiving.

Anyway, this is my third monthly update of the covered option experiment I'm trying. For those of you that haven't seen the other 2 updates here is a quick rundown of what I'm attempting. I'm trying to create an income stream of 2% per week selling covered call options. At the same time, not lose my original capital. Since I don't need the income at this time I'm rolling any profits into the port. The primary goal is to create at minimum 2% of covered call premiums each week based on a pre-determined goal. The goal is 2% of the original value of the portfolio compounded by 2% each week. The secondary goal is to preserve my original capital. So, I'm looking to sell a minimum amount of premiums each week and increase the value of the portfolio by 2% each week. this translates into 9% per month.

October was a bad month, but November shows what can happen when I'm more vigilant with stock picking and when the tide rises like it did this month it makes it that much easier. First off here is the summary of where I'm at so far.

Monthly Summaries:

Month Call Premiums Capital Increase Total Increase

September 8.24% 1.95% 10.19%

October 10.22% -25.28% -15.05%

November 11.96% 14.96% 26.92%
Total 34.78% -15.98% 18.80%

The goal each month is 9% in premium income and 0% in capital appreciation. This is assuming that some weeks the price of stocks will to up and some they will go down. I didn't quite reach my income goal in September but that was before I created the minimum income rule. Since then, I've been able to easily beat the goal each week. Not losing on the stock trades has been more difficult, but I'm getting better at it. The 2% compounded weekly comes to 29.5% increase for 3 months. I'm at 18.8% so I'm still behind and the -15.98% above shows that.

I wrote last month that I was going to be more discerning with my stock picks. I've decided to list out all of my trades that closed in November. I consider a trade still open as long as I own the stock. So, if I open a trade and the stock is not assigned then the trade is still open. Here is the list with the profit/loss of each one.

Stock Date Opened Date Closed Profit

INO 9/28 11/13 5.57%

SRNE 10/9 11/20 -21.06%

WKHS 10/12 11/20 -10.99%

PINS 10/26 11/2 8.84%

YELP 11/2 11/6 8.45%

NKLA 11/9 11/13 8.66%

NIO 11/16 11/20 13.59%

From the list above you can see my October downfall was caused by SRNE and WKHS. SRNE was an obvious mistake in my opinion. I'm staying away from any Covid vaccine / therapy stocks in the future. WKHS was actually a good buy, just bad timing. I bought right before the US Postal Service announced that they were delaying their fleet buying decision. It caused the stock to tank. It's still on my watch list for possible future purchases. EV is hot right now and I'm riding the wave while it lasts. The other stocks showing up as good potential stocks are pot stocks, specifically ACB.

Here is what the port looks like at the end of today.

Stock Amount %

NKLA 23.53%

NTNX 12.01%

INO 10.26%

GME 6.20%

Cash 48.00%

As you can see above I'm trying to keep as much cash on hand as possible. When I have stocks that tank I can utilize the cash to insure the income stream while I wait for them to recover. I'm still really new to the covered call game but I feel I'm getting better every week. NKLA is getting assigned at the end of today and since the lockup period ends on Tuesday, I'm staying away this week. I still have my weekend research to do for next week. Hopefully, December is close to being as good as this month.

One quick note. I've found a really good source for finding hot option stocks. There is a web site called They have a paid and free section. I use the free section at this point. There is an option report that I use and look at the implied move column. It is really good at pointing out options with high premiums. From there it's just checking out the stocks the good old fashioned way.

I'd appreciate any thoughts or comments that any of you might have.

Thanks for reading,

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Hi Darryl,

I'm thinking of doing something similar but with a far lower set of goals in my retirement account. Here I'm matching 3+% dividend yield with a planned goal of just 4% increase in return from annual covered call writing. I'm picking low beta stocks that generally do not have the sort of covered call premiums you see in the stocks you pick.

A question for you though. Have you tested how this concept will play out with a much lower VIX? Call premium has come down over the last weeks as the VIX dropped from nearly 40 to now close to 20.

Some thoughts for you to consider.

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Hi Ragnar,

Funny you ask. Yes, I've been looking at how to sell covered calls on lower volatile stocks. I've been playing around with it on paper only. I really haven't come up with a methodology that I'm comfortable with. The biggest problem is the same one that Denny Schlesinger ran into. Way too much opportunity loss.

The one thing that I have locked in on is that you really have to sell them weekly. If you sell the calls further out, you're just increasing the possibility of the stock getting assigned. The other thing is that it looks like it works better with higher priced large cap stocks. From what I've seen so far stocks priced at $80 and above work better. You can actually have demand at 0.2% - 0.4% premium levels. At 0.2% without compounding you'll get a 10.4% annual return. Plus, if you start selling at premiums at $0.05 or less the commissions start to take a bite out of the profits.

I don't know how the option market acts around the ex-dividend date. I probably wouldn't sell options that week, or around earning dates. I would think that would be the most volatile time periods. By eliminating those time periods that might cut down on the opportunity loss. I don't know but it seems logical. If you do that it would cut the 0.2% weekly return down to 8.8% annually.

Thinking about it a different way. Let's say we want a 4% annual return on covered call premiums. If we actually could get around 8.8% that would allow us to have ~4.8% in opportunity loss during the year and still meet our goal. That actually might be something to look at.

Thanks for the question. It made me think deeper about this. If you do something I'd like to see what you come up with. Like I said on an earlier post, it's almost limitless what you can do. I'm still a neophyte with this so take that into consideration.

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