Monday, October 17, 2011

Covered Call Trading Plan History

The following is a history of changes to my covered call trading plan.

Jan 2018 Version 15 - Updated objective, stock selection, and entry/exit strategies.

Jan 2014 Version 14 - New objective and reporting methodology which focuses on the monthly return of invested capital, excluding univested cash, which may be used for other strategies or transfered to other accounts.

Dec 2012 Version 13 - New income and capital appreciation objective and will no longer measure results against a market benchmark. Instead the results will be measure based on whether the objectives were met or not. I'll also be simplifying the format of the monthly returns to reflect this change. In addition, I also updated the stock selection with specific criteria for each type of stock used, and eliminated all non-critical information.

Oct 2011 Version 12 - Added screening process and minimum monthy premium requirement for CSP's and CC's, and made some minor changes to other sections.

Jul 2010 Version 11 - New objective of income generation and capital appreciation, and a new investment strategy. This goes along with the new format for reporting returns using financial statements that track Return on Assest (ROA) and Cash Return on Invested Capital (CROIC).

Oct 2009 Version 10 - Positions will now be held long term, alternating between covered calls (CC) and cash secured puts (CSP), as one continuous position. Positions will only be closed if the company no longer meets the requirements.

May 2009 Version 9 - Added two cash secured put strategies to be used in lieu of averaging down.

Oct 2008 Version 8 - Changed asset allocation from 80-90% Equities and 10-20% Cash to 80% Equities, 10% Fixed Income, and 10% Cash.

May 2008 Version 7 - Refined my exit strategy to identify positions where there's been a fundamental breakdown in the company and to determine if the position is meeting the minimum Annualized Yield on Cost of 12%.

Feb 2008 Version 6 - Revised investment plan to focus on dividend paying companies and added detailed position management strategy. The Value Investing Covered Calls (VICC) investment plan has been deleted. Positions are limited to dividend paying companies. When looking for new positions, the ex-dividend date is used. Those companies with ex-dividend dates coming up before the next options expiration will be selected for further analysis.

June 2007 Version 5 - Lowered downside protection from 10-12% to a minimum of 2+% and added criteria for an annualized if not assigned percentage of 24%, in order to find more short-term (1-2 months) positions.

January 2007 Version 4 - Switch to Value Line Daily Options Survey and continued to use Morningstar for trade selection. Lowered downside protection and annualized return if called to 10%/20% in order to find more trades.

August 2006 Version 3 - Switched to a value investing approach using fundamental analysis. No longer used technical analysis. Used Morningstar and PowerOptions for trade selection.

March 2006 Version 2 - Switched to longer term covered calls providing 12% downside protection and 24% annualized return if called. Changed position management to average down (dollar cost averaging) on declining stocks to lower the cost basis.

May 2005 Version 1 - Initial investment plan. Sell front month covered calls. Used MSN Money Central and PowerOptions for trade selection. Used technical analysis, using a 3 year weekly MSN chart with price channel and On Balance Volume (OBV), to find stocks that were range bound or in an uptrend, near the bottom of the price channel and rising OBV.