|
How
To Make A Consistent
3% to 6% Every Month
(Covered Calls)
by Charlie Davis
No one can argue that one of the best opportunities for working America is the Roth IRA. The major advantage of the Roth IRA is that the interest earned in this type of account is not taxed - ever!
So, with this in mind, I set out to find a way to make 3 to 6 percent consistently every month so I could build a fortune in my Roth IRA, and I found a way to do it!
The process involves a relatively safe stock option called the covered call. Covered calls are calls that you sell to other people on stock that you own and they are allowed with Roth IRA accounts.
For example: Say I have 100 shares of Options Express (OXPS). That stock (at this writing) is about $27.71. So my 100 shares is worth $2760 after commissions if I were to sell it.
Now let's say I bought this stock last week at $26.90 per share and I'm ready to write a covered call. By the way, if you look at the date of this article (3/21/2006) and check Options Express's numbers against it, you'll find these are actual numbers for this stock.
I check the April $27.50 calls and see the bid is $1.40 per share. Since each contract is worth 100 shares, that means I'll receive $140.00 for writing the call on my stock. Let's subtract $12.50 for commissions which leaves my profit for the call at $128.50.
Now that alone is a return of 4.75%! This is how I calculate that percentage:
Option sold for $1.40 per share X 1 contract (100 shares) = $140.00 Minus the commission ($12.50) = $128.50 I bought the stock for $26.90 last week ($26.90 * 100) = $2690.00 Plus the commission on the purchase ($11.00) makes my total cost $2701.00
My net profit is $128.50 / $2701 = .0475749
If I get called out on the stock for $27.50, I'll make an additional $19.00 or so after commissions which brings my total profit to $147.50 or 5.46%!!!
Is there risk involved? Yes, as in everything you do in the stock market, but look at the reward! Also look at some other facts:
This is not some kind of penny stock or junk stock that doesn't make any money. This particular stock at the time of this writing has a 99 Earnings Per Share rating in the Investors Business Daily. That means it's outperforming 99 percent of all stocks in the entire IBD stock market database!
I usually run screens on the top 20% of stocks based on EPS when I do strategies like this. Why buy junk?
This method has proven itself very successful for me over the years. I use it in my Roth IRA and get a return of 3 to 6 percent per month consistently. With compounding added on, that's 42 to 101 percent per year! Tax Free!
If you would like some great prospects for stocks like this, visit the Stocks section of my website at
http://www.charlielovesstocks.com/stocks
I hope this article has been helpful to you. Good luck!
Disclaimer (You knew is was coming ;-) ) I am not recommending the purchase of any stock listed in this article. This article is for information purposes only!
About the Author: Charlie Davis is a Systems Development Analyst by trade, a stock investor at heart, and a web author in the evenings.
Every weekend he combs the top 20% of all stocks based on earnings and uses formulas such as covered calls, 52 week highs on high volume, rolling stocks, etc.... to make money in the market. He provides this information for free at
http://www.charlielovesstocks.com
|
