How To Use Covered Calls To Your Advantage

| October 27, 2022

It’s very dangerous and scary trying to catch a falling knife or pick a bottom of any market, particularly this one. However, with the SPDR Trust (SPY) off some 25% and many individual stocks down 50% or more, it may be time for investors, especially younger ones with a longer term horizon, to start nibbling.

The rational approach is to use some form of dollar cost averaging, let’s say deploying 10-20% of your capital for every 5% decline in the overall market or individual stock’s price.

It also makes sense to employ an option strategy with the relatively high level of the VIX currently, which translates into pumped-up premiums across the options market.

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This post originally appeared at Option Sensei.

Category: Covered Call Writing

About the Author ()

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.