would query your ANZ calls.....???
*edit* just read the rest of your post.
*edit* just read the rest of your post.
covered calls
- Thread starter chilliaa
- Start date
Who does that help though whether it be property, shares etc?
I'm finding the thread interesting, as with Evands, you never know when a gem may appear
hehe no still around, just nothing to add yet.
Im not ready to write calls on QBE, CSL, BXB
AMP is a bit of a quandry (spelling?). I only have 5000 shares and i'm having trouble valuing it (earnings are sensitive to market turn around).
The banks are a big headache at the moment. They are now well in the money, but what are the correct values for the banking sector.
Australia's big 4 banks (+MQG) are the new play thing for international hedge funds (go long AU$ long australian banks as a trade). So there is alot of hot money in this sector at the moment.
Against this we have turnaround conditions in Australia. Changes in economic inflection points are the most difficult periods to estimate future earnings
* potential reduction in loan provisions and bad debts
* increased margins on lending especially non housing lending
* reduction in lending costs
* however risk of companies switching from bank debt to corporate bonds
* significantly higher shares on issue which will dilute future earnings unless that capital can be employed effectively.
I sold the 500 shares in Westpac yesterday that arent covered by the covered calls.
I sold the ANZ shares that arent covered by the covered calls last week i think.
Reason: stock rotation.
Im not ready to write calls on QBE, CSL, BXB
AMP is a bit of a quandry (spelling?). I only have 5000 shares and i'm having trouble valuing it (earnings are sensitive to market turn around).
The banks are a big headache at the moment. They are now well in the money, but what are the correct values for the banking sector.
Australia's big 4 banks (+MQG) are the new play thing for international hedge funds (go long AU$ long australian banks as a trade). So there is alot of hot money in this sector at the moment.
Against this we have turnaround conditions in Australia. Changes in economic inflection points are the most difficult periods to estimate future earnings
* potential reduction in loan provisions and bad debts
* increased margins on lending especially non housing lending
* reduction in lending costs
* however risk of companies switching from bank debt to corporate bonds
* significantly higher shares on issue which will dilute future earnings unless that capital can be employed effectively.
I sold the 500 shares in Westpac yesterday that arent covered by the covered calls.
I sold the ANZ shares that arent covered by the covered calls last week i think.
Reason: stock rotation.
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Meanwhile I'm still playing around with my miners. I never knew it would be so easy. I'm up over 100% close to 200% since the market low.
I'm having some early luck buying silver futures, just going with momentum in the VERY short term. This started when I got up at eleven to watch some cricket. As always I look at the gold price first thing, and noticed that it had collapsed but was recovering nicely. Silver had collapsed too but had not recovered so I decided it was time I learnt the mechanics of my trading platform. I fiddled around a bit but made a nice profit an hour or so later. I think this is repeatable if you are selective about the moves you ride. It is just as easy to go short if the price is collapsing after a jump. Brokerage on a single contract is US$11 so much lower than trading covered calls.
I must repeat my disclaimer that this is pure speculation and is not investment advice.
I'm up over 100% close to 200% since the market low.I'm having some early luck buying silver futures, just going with momentum in the VERY short term. This started when I got up at eleven to watch some cricket. As always I look at the gold price first thing, and noticed that it had collapsed but was recovering nicely. Silver had collapsed too but had not recovered so I decided it was time I learnt the mechanics of my trading platform. I fiddled around a bit but made a nice profit an hour or so later. I think this is repeatable if you are selective about the moves you ride. It is just as easy to go short if the price is collapsing after a jump. Brokerage on a single contract is US$11 so much lower than trading covered calls.
I must repeat my disclaimer that this is pure speculation and is not investment advice.
It's been a interesting post this one ,and the way investors make their money,"JUST GOES TO SHOW IF YOU", ignore all the advice from
soap box speakers,media spinners and stick to the plan ,who as most have seen over the past 2 years have no more chance of getting it right the you do if u go it alone,I am now back to my prior GFC levels about 12 weeks ago ,put 2 unemcumbered free title properties on the line 12 months ago,and spent every cent i could get my hands on and bought back into every "Bank" when they hit their low points did not time every entry point right but within 2% of the low,over the past 7 weeks that has paided very well,and as i have said a few times once the ASX break into above the 5000 mark you may well see the biggest run on the Australian equities markets in modern history..imho willair,,
"Stuff GoldSilver gives me a near belly bank anyday"
soap box speakers,media spinners and stick to the plan ,who as most have seen over the past 2 years have no more chance of getting it right the you do if u go it alone,I am now back to my prior GFC levels about 12 weeks ago ,put 2 unemcumbered free title properties on the line 12 months ago,and spent every cent i could get my hands on and bought back into every "Bank" when they hit their low points did not time every entry point right but within 2% of the low,over the past 7 weeks that has paided very well,and as i have said a few times once the ASX break into above the 5000 mark you may well see the biggest run on the Australian equities markets in modern history..imho willair,,
"Stuff Gold
Silver gives me a near belly bank anyday"I watch the brokers on the Biz channel and it is easy to see why so many struggle. They are always so correct and so safe but have no imagination.
Typical of their recommendations is LGL and NCM. They like gold so recommend these two but they are the worst performing gold stocks I know. 'Tis easy to know why: They mine and sell in A$s and gold is going nowhere in A$.
Now if you looked for miners in Ghana you should be doing well. They call it the Ashantii Belt and Ashantii is one of the worlds biggest miners so you have high class neighbours and their costs and margins would reflect those of US miners far more than ours.
But you are right. There are many ways to skin a cat: Just find one that works for you.
Typical of their recommendations is LGL and NCM. They like gold so recommend these two but they are the worst performing gold stocks I know. 'Tis easy to know why: They mine and sell in A$s and gold is going nowhere in A$.
Now if you looked for miners in Ghana you should be doing well. They call it the Ashantii Belt and Ashantii is one of the worlds biggest miners so you have high class neighbours and their costs and margins would reflect those of US miners far more than ours.
But you are right. There are many ways to skin a cat: Just find one that works for you.
Meanwhile I'm still playing around with my miners. I never knew it would be so easy.
I'm having some early luck buying silver futures, just going with momentum in the VERY short term. This started when I got up at eleven to watch some cricket. As always I look at the gold price first thing, and noticed that it had collapsed but was recovering nicely. Silver had collapsed too but had not recovered so I decided it was time I learnt the mechanics of my trading platform. I fiddled around a bit but made a nice profit an hour or so later. I think this is repeatable if you are selective about the moves you ride. It is just as easy to go short if the price is collapsing after a jump. Brokerage on a single contract is US$11 so much lower than trading covered calls.
I must repeat my disclaimer that this is pure speculation and is not investment advice.
Great work Sunfish, good to see things going well
Copperco was a fizzer for me, shouda sold out when I had the opportunity (wouda, couda, shouda)
Still have a few miners in the SMSF
- FMG
- AGO
- OZL
- TTY
- GBG
- AXO
- RMI
With Oct expiration nearing (this thurs) ive had to make some hard decisions.
The banking sector continues to fly based partially on hot overseas money (not good) and potentially rapidly increasing EPS from 2011 onwards (good).
A new lesson ive just learned the hard way:
When a share is approaching a dividend it effects both the option and the underlying shares. You have to be very careful during these months. If the strike price is in the money, you run the risk of being excercised by the market markers to arbitrage on the dividend (basically the market makers excercise you, take out a put to protect the position and then collect the dividend difference). This makes it harder to roll out.
Anyway basically ive come to the following decision:
I'm allowing CBA and ANZ to be exercised at $49 and $21.5 respectively.
I've rolled upwards on NAB and WBC for which i have to pay, but i will receive the dividends to compensate (hopefully it will depend on any future price movements in the next few weeks).
This has resulted in a big hit to my 'net profit' from writing options. (refer attached schedule, but not it doesnt include the dividends that i would otherwise not receive if i allowed the options to be excercised).
The reason for keeping NAB and WBC is my principle when uncertain to stick to the 'middle ground'. To be honest i dont know what the intrinsic value of the banking sector is at the moment because as explained in above posts, we are at a point of inflection change in earnings. Therefore the 'safest' outcome is to take some money off the table and leave some in.
WES looks like it could also be excercised ($28.5 strike price) however in this case my decision is much easier, one option will be excercised and one rolled, this will enable me to take 50% of my position off the table.
On the positive side though given my purchase prices, this action removes my capital from the positions. From here on its the markets money not mine.
The banking sector continues to fly based partially on hot overseas money (not good) and potentially rapidly increasing EPS from 2011 onwards (good).
A new lesson ive just learned the hard way:
When a share is approaching a dividend it effects both the option and the underlying shares. You have to be very careful during these months. If the strike price is in the money, you run the risk of being excercised by the market markers to arbitrage on the dividend (basically the market makers excercise you, take out a put to protect the position and then collect the dividend difference). This makes it harder to roll out.
Anyway basically ive come to the following decision:
I'm allowing CBA and ANZ to be exercised at $49 and $21.5 respectively.
I've rolled upwards on NAB and WBC for which i have to pay, but i will receive the dividends to compensate (hopefully it will depend on any future price movements in the next few weeks).
This has resulted in a big hit to my 'net profit' from writing options. (refer attached schedule, but not it doesnt include the dividends that i would otherwise not receive if i allowed the options to be excercised).
The reason for keeping NAB and WBC is my principle when uncertain to stick to the 'middle ground'. To be honest i dont know what the intrinsic value of the banking sector is at the moment because as explained in above posts, we are at a point of inflection change in earnings. Therefore the 'safest' outcome is to take some money off the table and leave some in.
WES looks like it could also be excercised ($28.5 strike price) however in this case my decision is much easier, one option will be excercised and one rolled, this will enable me to take 50% of my position off the table.
On the positive side though given my purchase prices, this action removes my capital from the positions. From here on its the markets money not mine.
Any update chilliaa? Looks like your WES won't be exercised, & rolling up/out on the banks will be a lot cheaper today.
Seems to be very high volumes going on in the banking sectors last few days, once some of the data on companies performance sinks in,imho willair.
Both positions, stock and long put (S+P), and the long call (+C), profit if the stock goes up and limit losses if it falls. Therefore, if one can in effect exchange the synthetic position (S+P) for its equivalent (+C), and the cost of doing so (ie. the cost of the call) is less than the interest earned on the funds received from selling the stock, the early exercise of the put is worthwhile.
Bought back Wes calls yesterday at 15c.
Rolled one cba yesterday to $52 Jan10, paid 50c for the privilege.
Basically im taking part profits on part of my banking portfolio:
1) letting all anz be called and 1 cba be called.
But i dont want to exit the whole position.
Will make for some interesting discussions later, especially as the 'profit' from writing the calls has essentially been wiped out by protecting the remaining positions.
But now i need to focus, the markets coming down nicely, so i need to concentrate.
My many thanks to your posts and it gave me a lot of learning experience. Please keep your activities open. Certainly I can learn.
giddyup my friend
Busy day today searching for opportunities (with underlying shares, not option writing).
For the record i just want to emphasise an important point i made at the start of this thread.
There are various purposes for writing covered calls.
The most popular is the traditional buy write covered call as a means of increasing income.
The other is as part of a trading strategy.
I am testing the first to analyse whether it can be used in conjuction with a value based portfolio to enhance income (ie choose the shares first then only consider if its worthy writing a covered call against them).
Hence this differs from a traditional 'milking the cows' strategy as suggested by Peter Spann.
Another point i would like to emphasise here:
Brokers love clients who conduct covered call strategies. They represent an additional income stream through increased transactions.
So take with a grain of salt comments made by your broker or if you are attending any seminars by a seminar that is linked to a broker. The ASX also likes covered call strategies because they also get a cut of the transactional cost.
continued
For the record i just want to emphasise an important point i made at the start of this thread.
There are various purposes for writing covered calls.
The most popular is the traditional buy write covered call as a means of increasing income.
The other is as part of a trading strategy.
I am testing the first to analyse whether it can be used in conjuction with a value based portfolio to enhance income (ie choose the shares first then only consider if its worthy writing a covered call against them).
Hence this differs from a traditional 'milking the cows' strategy as suggested by Peter Spann.
Another point i would like to emphasise here:
Brokers love clients who conduct covered call strategies. They represent an additional income stream through increased transactions.
So take with a grain of salt comments made by your broker or if you are attending any seminars by a seminar that is linked to a broker. The ASX also likes covered call strategies because they also get a cut of the transactional cost.
continued
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Ok now on to a bit of reflective thinking.
Whats the sought of profit potential:
Over 3 months the profit from writing covered calls was around $10,000 (before paying for purchasing back contracts on positions that were at risk of being called and for which i didnt want excercised). Capital at stake was around $450,000.
So this represented a return of around 2.2% over three months.
Be careful when people talk about returns of a couple of % a month and then annualise that (eg 2% a month which 'could' be 24% on an annual basis). There are several risks with this, firstly it might not include transaction costs.
Secondly its not always possible to keep writing the positions at 2% a month.
For example in the first month you might get 2%, but if the contract isnt out of the money at expiration you probably will receive a lower income in the second month when you try to roll it up and out.
For example: you write a covered call against XYZ for $25 in the first month for 50c (2%).
At the end of the month if the share price is say $25.5, you wont get that 50c as easily.
Now i compare this with my share portfolio (with of course most of the profits being unrealised).
My starting capital at 1 sept was a net position of $1,076k (ie gross minus debt).
My 'ending' capital as of today is roughly a net position of $1,385k. Hence an increase in capital position of $309k over the three month period.
For a 3 month return of 15%.
So whilst the income from covered calls is nice, i think the primary success of the investment will be determined by the stock selection process and not the covered call strategy (2.2% against 15%).
Now yes the market went up during this time, but there will be periods when the market goes up, periods when it goes down and periods when it goes flat.
The point here is that with a geared portfolio attention needs to be paid to the portfolio itself rather than to the covered call strategy.
With an ungeared portfolio a covered call strategy will have a greater impact.
Whats the sought of profit potential:
Over 3 months the profit from writing covered calls was around $10,000 (before paying for purchasing back contracts on positions that were at risk of being called and for which i didnt want excercised). Capital at stake was around $450,000.
So this represented a return of around 2.2% over three months.
Be careful when people talk about returns of a couple of % a month and then annualise that (eg 2% a month which 'could' be 24% on an annual basis). There are several risks with this, firstly it might not include transaction costs.
Secondly its not always possible to keep writing the positions at 2% a month.
For example in the first month you might get 2%, but if the contract isnt out of the money at expiration you probably will receive a lower income in the second month when you try to roll it up and out.
For example: you write a covered call against XYZ for $25 in the first month for 50c (2%).
At the end of the month if the share price is say $25.5, you wont get that 50c as easily.
Now i compare this with my share portfolio (with of course most of the profits being unrealised).
My starting capital at 1 sept was a net position of $1,076k (ie gross minus debt).
My 'ending' capital as of today is roughly a net position of $1,385k. Hence an increase in capital position of $309k over the three month period.
For a 3 month return of 15%.
So whilst the income from covered calls is nice, i think the primary success of the investment will be determined by the stock selection process and not the covered call strategy (2.2% against 15%).
Now yes the market went up during this time, but there will be periods when the market goes up, periods when it goes down and periods when it goes flat.
The point here is that with a geared portfolio attention needs to be paid to the portfolio itself rather than to the covered call strategy.
With an ungeared portfolio a covered call strategy will have a greater impact.
Very impressive, Mate. Is your portofilio geared? Do you invest in properties? (if not, why not) are you doing this part time or full time on your shares?
considering this is "just a side thing" for you, i would say 2.2% pcm is a great little side earner.
congrats. i wish i had your kind of capital
congrats. i wish i had your kind of capital
Yes the portfolio is geared, the level of gearing depends on
1) 'value' in the portfolio, cheaper the value higher the gearing because greater the discount to my intrinsic values
2) market stability, greater volatility lower debt
3) most importantly the size of the total portfolio relative to my total non-leveraged wealth.
I want to emphasise margin debt is bl**dy dangerous. It can more than wipe you out. I know on the grape vine a certain person who had a portfolio of $7million that was geared in 2007. Now i dont know the gearing level, but i heard the gross value of the portfolio in early 2009 was $1.5 million. In otherwords he 'blew himself up' through excessive leverage into an unforeseen downturn in the market.
Be very careful of margin debt and be very careful of a financial adviser who suggests it. That financial adviser is probably receiving a commission of around 0.5% of the value of the margin debt. A nice earner for him.
Yes i invest in properties. I have 5 at the moment, but they were all purchased at cash flow neutral or better positions (without tax effect such as depreciation, natural cash flow). Importantly they were cash flow neutral with 65% of the lending position fixed for 10 years.
I still have one business left that i spend around 20 hours a week in.
At the moment the stock market chews up around 50 hours a week, so yes its pretty much full time.
I didnt plan on this, its just that the market correction provided an opportunity that only comes around once every 20yrs or so. As discounts to intrinsic values become smaller i will take money off the table and reduce my hours.
If you are going to be an active investor you must do the homework (and homework doesnt mean watching CNBCAsia, or blindly following broker recommendations or research reports. You need to do your own homework and be comfortable why you are taking positions.
Otherwise you risk being a sheep at the slaughterhouse (being the market).
