Yesterday, Monday, January 16, was a New York Stock Exchange holiday. Hence we are reporting on Tuesday this week.

In previous posts, we mentioned that our fearless, intrepid investor lost $US10,990.00 in her “fun” portfolio over one year by writing (selling) just out-of-the-money covered calls on Novavax (NVAX) on Mondays, expiry dates on Fridays of the same week. How much fun is that?

She ignored habit number three, which recommends that investors buy the American market and not pick individual stocks. Investors can buy the American market by acquiring an exchange-traded fund (ETF) that tracks the S&P 500.

There are more ETFs now than there are individual securities, but only half a dozen or so track the S&P 500.  SPY is the best. It is the largest, oldest, and most heavily traded US ETF. It has the narrowest bid/ask spread, one of investors’ expenses that most tend to ignore.

All risk in selling covered calls comes from the market movement of the underlying security. When she owned NVAX, it dropped to a greater, far greater, extent than the premium income derived from selling covered calls on the security. So, no more writing covered calls on individual securities for her.

Further,  she decided to write (sell) covered calls sufficiently out-of-the-money to earn about 1% per month or slightly more. That would significantly reduce the possibility of being assigned while yielding a decent return!

In previous posts, we mentioned that our fearless, intrepid investor lost $US10,990.00 in her “fun” portfolio over one year by writing (selling) just out-of-the-money covered calls on Novavax (NVAX) on Mondays, expiry dates on Fridays of the same week. How much fun is that?

She ignored habit number three, which recommends that investors buy the American market as a whole and not pick individual stocks. Investors can buy the American market as a whole by acquiring an exchange-traded fund (ETF) that tracks the S&P 500. 

There are more ETFs now than there are individual securities, but only half a dozen or so track the S&P 500.  SPY is the best. It is the largest, oldest, and most heavily traded US ETF. It has the narrowest bid/ask spread, one of investors’ expenses that most tend to ignore.

All risk in selling covered calls comes from the market movement of the underlying security. When she owned NVAX, it dropped to a greater, far greater, extent than the premium income derived from selling covered calls on the security. So, no more writing covered calls on individual securities for her.

Further,  she decided to write (sell) covered calls sufficiently out-of-the-money to earn about 1% per month or slightly more. That would significantly reduce the possibility of being assigned while yielding a decent return!

We previously stated that writing (selling) just out-of-the-money covered calls on Novavax (NVAX) on Mondays, expiry dates on Fridays of the same week, our fearless, intrepid investor lost $US10,990.00 in her “fun” portfolio over one year.

The risk in selling covered calls entirely comes from the market movement of the underlying security. When she owned NVAX, it dropped to a greater, far greater, extent than the premium income derived from selling covered calls on the security.

What did she learn from that experience?

Two things!

First, pay attention to habit number three, which states buy the American market as a whole and do not pick stocks.

Secondly,  she learned to write (sell) covered calls sufficiently out-of-the-money to earn about 1% per month or slightly more. That would significantly reduce the possibility of being assigned!

Greetings members,

We previously stated that writing (selling) just out-of-the-money covered calls on Novavax (NVAX) on Mondays, expiry dates on Fridays of the same week, our fearless, intrepid investor lost $US10,990.00 in her “fun” portfolio over one year.

The risk in selling covered calls entirely comes from the market movement of the underlying security. When she owned NVAX, it dropped to a greater, far greater, extent than the premium income derived from selling covered calls on the security.

She ignored habit number three, which is to buy the American economy as a whole by using an exchange-traded fund that tracks the S&P 500. That means no picking individual stocks.

Additionally,  she learned to write (sell) covered calls sufficiently out-of-the-money to earn about 1% per month or slightly more. That would significantly reduce the possibility of being assigned!

Writing (selling) just out-of-the-money covered calls on Novavax (NVAX) on Mondays, expiry dates on Fridays of the same week, our fearless, intrepid investor lost $US10,990.00 in her “fun” portfolio over one year.

The risk in selling covered calls entirely comes from the market movement of the underlying security. When she owned NVAX, it dropped to a greater, far greater, extent than the premium income derived from selling covered calls on the security.

She ignored habit number three, which is to buy the American economy as a whole by using an exchange-traded fund which tracks the S&P 500. That means no picking individual stocks.

Additionally,  she learned to write (sell) covered calls sufficiently out-of-the-money to earn about 1% per month or slightly more. That would significantly reduce the possibility of being assigned!

Last Monday, November 21, our fearless, intrepid investor  wrote (sold) covered calls on SPY, strike price $6.00 out of the money, expiry date Friday of the same week, that is, November 25. (C 25NOV22 400.00)

During the same time, the market, as represented by SPY, went up 5.17%!!

Two points here. First, there will always be investments that are better than the ones you just made. And second, simply buying and holding an exchange-traded fund that tracks the S&P 500, SPY is ideal, is an effortless way to do well. With huge fluctuations. That is why the money which we will need in the next few years does not belong in the market.