MCO - New Position

A new position was established today on MCO. The following is the trade information, including IB commissions:

28-Jun-07 - Initial Stock Position - BTO 100 MCO @ 62.41
28-Jun-07 - Initial Call Option - STO 1 Jul07 60.00 Call @ 3.49

Stock Investment: $6,241.00
Income Generated: $349.00
Percent Income Generated: 5.59%
Annualized Income Generated: 92.78%
Net Profit If Called: $108.00
Percent Return If Called: 1.73%
Annualized Return If Called: 28.71%
Days to Expiration: 22 days

This is a short-term position using my new criteria of 24% annualized return if called or not called. The position has only 22 days before expiration. It's about 4% ITM with downside protection of 5.59% (92.78% annualized) and an annualized return if called of 28.71%. Not bad for a short-term position in a solid company.

An Evolving Plan

We had another great discussion on the Yahoo Group. If you're not a member, and enjoy discussing covered calls, then I encourage you to join.

Someone ask how my results were affected by switching from short-term CC's to longer term CC's, so I spent a few hours calculating my results for closed positions established before March 2006 and after March 2006. The results showed that my average holding period and percentage of initial positions established ITM had increased, as expected. The percentage assigned on the first call vs expired stayed about them same, at 70% assigned 30% expired. However, my average annualized return had decreased. So, while I was getting more downside protection with the longer term CC's I was also sacrificing some returns.

After analyzing this data I decide to make another change to my trading plan to incorporate more short-term (1-2 month) positions to try to improve my annualized returns. I spent a few days running various scans with different criteria for short-term positions, most of the stocks I was finding were rated 1-2 stars by Morningstar. Having a margin of safety, by purchasing stocks below the estimated fair value, is a key concept that I learned from Ben Graham, and I just can't bring myself to buy an overvalued stock.

So, I decided to try a simple change to my existing criteria. Rather than require a fixed percentage of downside protection (e.g. 10-12%) I tried using an annualized percentage. I searched for positions that return 24% annualized if called and 24% annualized if not called over a 1-6 month holding period. That equates to about 2% downside protection (DSP) for a front month call and about 12% DSP for a 6 month call. The further out you go the more DSP you need to achieve a 24% annualized return if not called. This resulted in several short-term positions (1-2 months) and about the same amount of long-term positions (3-6 months) as my prior criteria. Downside protection varied based on stock price and days to expiration.

This new scan looks promising and would be a minor change, as far as procedure goes, to my existing trading plan. I was going to wait until after July expiration to implement these changes, but I had 2 positions that achieved over 90% of their potential profit today so I closed them out to free up some cash. I plan to use that cash to open 1 new front month (July) position tomorrow.

I'm also going to post my trading plan history so you can see how my plan has evolved. As I've said before, having a plan is critical to success, but your plan shouldn't be caste in stone. It needs to evolve as you gain experience and knowledge.

JNPR - Closed

The JNPR Jul07 17.00 Call was deep ITM and had already made 92% of it's potential profit so I decided to close it early to free up some cash. By closing early, I gave up $10 in profit but increased my annualized return by 2.70%. The following is the trade history and returns, including IB commissions. This is another case where buy & hold would have been more profitable.

Covered Call Results

Stock Investment: $1,809.00
Income Generated: $234.00
Net Profit: $115.00
Percent Return: 6.36%
Annualized Return: 23.20%
Duration of Trade: 100 days

Buy & Hold Comparison

Opening Price: $18.09
Closing Price: $25.49
P/L per Share: $7.40
Shares: 100
Dividends: $0.00
Net Profit: $740.00
Percent Return: 40.91%
Annualized Return: 149.31%
Duration of Trade: 100 days

Trade History:

19-Mar-07 - Initial Stock Position - BTO 100 JNPR @ 18.09 - Closed
19-Mar-07 - Initial Call Option - STO 1 Jul07 17.00 Call @ 2.34 - Closed
27-Jun-07 - Buy Back Call Option - BTC 1 Jul07 17.00 Call @ -8.59 -
27-Jun-07 - Sell Stock - STC 100 JNPR @ -25.49 -

CWTR - Closed

The CWTR Jul07 17.50 Call was deep ITM and had already made 93% of it's potential profit so I decided to close it early to free up some cash. By closing early, I gave up $11 in profit but increased my annualized return by 4.30%. The following is the trade history and returns, including IB commissions. This is another case where buy & hold would have been more profitable.

Covered Call Results

Stock Investment: $1,764.00
Income Generated: $184.00
Net Profit: $158.00
Percent Return: 8.92%
Annualized Return: 32.69%
Duration of Trade: 100 days

Buy & Hold Comparison

Opening Price: $17.64
Closing Price: $23.76
P/L per Share: $6.12
Shares: 100
Dividends: $0.00
Net Profit: $612.00
Percent Return: 34.69%
Annualized Return: 126.63%
Duration of Trade: 100 days

Trade History:

19-Mar-07 - Initial Stock Position - BTO 100 CWTR @ 17.64 - Closed
19-Mar-07 - Initial Call Option - STO 1 Jul07 17.50 Call @ 1.84 - Closed
27-Jun-07 - Buy Back Call Option - BTC 1 Jul07 17.50 Call @ -6.29 -
27-Jun-07 - Sell Stock - STC 100 CWTR @ -23.67 -

WFMI - Adjustment

The following adjustment was made today on WFMI:

WFMI stock dropped when the FTC filed suit to block the acquisition of rival Wild Oats Inc. The stock is down about 19% from my original purchase price. The company fundamentals haven't changed so it's at a more attractive priced then before. I did a DCA and bought another 100 shares and rolled the call option out to Aug at the same strike.

21-Jun-07 - Buy Back and Roll Out - BTC 1 Jul07 45.00 Call @ -0.03 -
21-Jun-07 - Dollar Cost Averaging - BTO 100 WFMI @ 38.44 -
21-Jun-07 - Combined Cost Basis - $8,563.00 200 @ 42.82 -
21-Jun-07 - Continued Trade - STO 2 Aug07 45.00 Call @ 0.29 -

Current Position Summary:

Stock Investment: $8,563.00
Income Generated: $162.50
Percent Income Generated: 1.90%
Net Profit If Called: $599.50
Percent Return If Called: 7.00%
Annualized Return If Called: 22.03%
Days to Expiration: 116 days

Trade History:

23-Apr-07 - Initial Stock Position - BTO 100 WFMI @ 47.19 - VICC
23-Apr-07 - Initial Call Option - STO 1 May07 50.00 Call @ 0.83 - Expired
21-May-07 - Interim Trade - STO 1 Jul07 45.00 Call @ 0.24 - Closed
21-Jun-07 - Buy Back - BTC 1 Jul07 45.00 Call @ -0.03 -
21-Jun-07 - Dollar Cost Averaging - BTO 100 WFMI @ 38.44 -
21-Jun-07 - Combined Cost Basis - $8,563.00 200 @ 42.82 -
21-Jun-07 - Continued Trade - STO 2 Aug07 45.00 Call @ 0.29 -

Note that as a VICC position the primary objective is capital appreciation. The stock will be held long term until it reaches or surpasses it's fair value. Front month OTM call options are sold to bring in a small amount of income while waiting for the stock to appreciate. The calls are sold far enough OTM to avoid assignment and the need to make any mid-month adjustments.

SHFL - Adjustment

The following adjustment was made today on SHFL:

SHFL is down about 33% from the original purchase price. I decided to dollar cost average by buying another 100 shares and rolled the call option out to Jan08 and down to the 20 strike.

21-Jun-07 - Buy Back - BTC 1 Aug07 25.00 Call @ -0.11 -
21-Jun-07 - Dollar Cost Averaging - BTO 100 SHFL @ 17.11 -
21-Jun-07 - Combined Cost Basis - $4,263.00 200 @ 21.32 -
21-Jun-07 - Interim Trade - STO 2 Jan08 20.00 Call @ 1.19 -

Current Position Summary:

Stock Investment: $4,263.00
Income Generated: $526.50
Percent Income Generated: 12.35%
Net Profit If Called: $263.50
Percent Return If Called: 6.18%
Annualized Return If Called: 6.82%
Days to Expiration: 331 days

Trade History:

21-Feb-07 - Initial Stock Position - BTO 100 SHFL @ 25.52 -
21-Feb-07 - Initial Call Option - STO 1 Aug07 25.00 Call @ 2.99 - Closed
21-Jun-07 - Buy Back - BTC 1 Aug07 25.00 Call @ -0.11 -
21-Jun-07 - Dollar Cost Averaging - BTO 100 SHFL @ 17.11 -
21-Jun-07 - Combined Cost Basis - $4,263.00 200 @ 21.32 -
21-Jun-07 - Interim Trade - STO 2 Jan08 20.00 Call @ 1.19 -

BJS - Adjustment

The following adjustment was made today on BJS:

BJS is down about 28% from my original purchase price. The Jul07 35 call had very little time value left so I rolled it out to Oct and down to the 32.50 strike. Although this would result in a small profit if called, I flagged it as an interim trade and will roll it out/up if it goes ITM before Oct expiration to avoid assignment.

21-Jun-07 - Buy Back & Roll Out/Down - BTC 3 Jul07 35.00 Call @ -0.11 - Closed
21-Jun-07 - Interim Trade - STO 3 Oct07 32.50 Call @ 0.79 -

Current Position Summary:

Stock Investment: $11,238.00
Income Generated: $1,995.75
Percent Income Generated: 17.76%
Net Profit If Called: $507.75
Percent Return If Called: 4.52%
Annualized Return If Called: 2.61%
Days to Expiration: 632 days

Trade History:

25-Jan-06 - Initial Stock Position - BTO 200 BJS @ 40.05 -
25-Jan-06 - Initial Call Option - STO 2 Feb06 40.00 Call @ 1.54 - Expired
21-Feb-06 - Continued Trade - STO 2 Apr06 40.00 Call @ 0.49 - Closed
20-Mar-06 - Buy Back - BTC 2 Apr06 40.00 Call @ -0.11 -
20-Mar-06 - Dollar Cost Averaging - BTO 100 BJS @ 32.29 -
20-Mar-06 - Combined Cost Basis - $11,238.00 300 @ 37.46 -
20-Mar-06 - Continued Trade - STO 3 Jul05 37.50 Call @ 0.94 - Expired
14-Jul-06 - Dividend Received - DIV 100 Dividend @ 0.15 -
24-Jul-06 - Interim Trade - STO 3 Oct06 35.00 Call @ 1.19 -
13-Oct-06 - Dividend Received - DIV 300 Dividend @ 0.05 -
23-Oct-06 - Interim Trade - STO 3 Jan07 35.00 Call @ 0.79 -
22-Dec-06 - Buy Back & Roll Out - BTC 3 Jan07 35.00 Call @ -0.11 - Closed
22-Dec-06 - Continued Trade - STO 3 Jul07 35.00 Call @ 1.66 - Closed
12-Jan-07 - Dividend Received - DIV 300 Dividend @ 0.05 -
13-Apr-07 - Dividend Received - DIV 300 Dividend @ 0.05 -
21-Jun-07 - Buy Back & Roll Out - BTC 3 Jul07 35.00 Call @ -0.11 - Closed
21-Jun-07 - Interim Trade - STO 3 Oct07 32.50 Call @ 0.79 -

Why Covered Calls?

If you ask any experienced options trader what he/she thinks of covered calls you're likely to hear something like this, "Why would anyone want to trade covered calls, since they're synthetically the same as naked puts, with unlimited risk and limited reward, when there's a myriad of other options strategies with much better risk/reward profiles."

It was opinions like those that led me to dismiss covered calls in the beginning and spend 2 years learning and trading other options strategies, without success. When I finally took a real good look at covered calls...well you know the rest.

So, my response to that question now is, maybe because it's a strategy that they're comfortable with, and successful at. Success has more to do with the individual than the strategy. Some people are just not comfortable trading pure options strategies, especially if they come from a stock buy & hold background. For them, covered calls is a small step, whereas complex options strategies is a giant leap. So, just because an experienced options trader would probably never touch a covered call, doesn't mean that everyone should dismiss the strategy.

An options trader related a story of how he's tried to get his wife to learn options, but every time he tries to get her to understand the synthetic relationships between stocks and options her eyes start to glaze over. However, she's comfortable with covered calls and is successful at it. It's hard to argue with that.

I can definitely relate to that story. Options strategies can make your head spin. That’s why I like the simplicity of covered calls. It's a strategy I'm comfortable with and successful at, and that's what you want in a strategy. Whatever works works, and people need to find what works for them, whether it's covered calls or any other strategy.

Today's Trades

You may have noticed on today's adjustments that rather then sell front month options I reverted back to trading longer term options. The reason is I'd rather bring in the extra cash now and spread out the options to different expiration months so I don't have too many trades to make in a single month.

You may have also noticed that I re-entered 3 positions that were called away this past weekend, CRI, FTEK & URBN.

Now I'm sure some will say why didn't I just roll out those calls rather than let them get exercised. I prefer to allow positions to get called away, since that was my goal when I opened the position. I'd rather book a profit first, then if they show up on the scan, I just re-enter them. This doesn't happen all that often. In fact, I think this is the first time since I started blogging that the same stocks that just got called away showed up again after options expiration.

On two of my new positions, FTEK & MFLX, I sold OTM call options. Every once in awhile I find OTM CC's that meet my criteria. I don't purposely look for ITM CC's but it just works out that way most of the time, due to my 10-12% downside protection requirement.

Lastly, you'll see that MFLX didn't quite meet the downside protection at 9.63% but it was close enough, and the annualized return was attractive at 38.03%.

I may have a few more adjustments to make before the month is out, especially on EXP which is currently ITM and would result in a loss if called. I'll probably split this position, like I did with KCI last month, and allow one half to get called at a profit and then do another dollar cost averaging and roll the other position.

URBN - New Position

A new position was established today on URBN. The following is the trade information, including IB commissions:

19-Jun-07 - Initial Stock Position - BTO 100 URBN @ 25.12 -
19-Jun-07 - Initial Call Option - STO 1 Dec07 25.00 Call @ 3.01 -

Stock Investment: $2,512.00
Income Generated: $301.00
Percent Income Generated: 11.98%
Net Profit If Called: $289.00
Percent Return If Called: 11.50%
Annualized Return If Called: 22.70%
Days to Expiration: 185 days

STLD - New Position

A new position was established today on STLD. The following is the trade information, including IB commissions:

19-Jun-07 - Initial Stock Position - BTO 100 STLD @ 43.38 -
19-Jun-07 - Initial Call Option - STO 1 Aug07 40.00 Call @ 4.72 -

Stock Investment: $4,338.00
Income Generated: $472.00
Percent Income Generated: 10.88%
Net Profit If Called: $134.00
Percent Return If Called: 3.09%
Annualized Return If Called: 19.11%
Days to Expiration: 59 days

MFLX - New Position

A new position was established today on MFLX. The following is the trade information, including IB commissions:

19-Jun-07 - Initial Stock Position - BTO 100 MFLX @ 16.51 -
19-Jun-07 - Initial Call Option - STO 1 Nov07 17.50 Call @ 1.59 -

Stock Investment: $1,651.00
Income Generated: $159.00
Percent Income Generated: 9.63%
Net Profit If Called: $258.00
Percent Return If Called: 15.63%
Annualized Return If Called: 38.03%
Days to Expiration: 150 days

FTEK - New Position

A new position was established today on FTEK. The following is the trade information, including IB commissions:

19-Jun-07 - Initial Stock Position - BTO 100 FTEK @ 28.39 -
19-Jun-07 - Initial Call Option - STO 1 Dec07 30.00 Call @ 3.29 -

Stock Investment: $2,839.00
Income Generated: $329.00
Percent Income Generated: 11.59%
Net Profit If Called: $490.00
Percent Return If Called: 17.26%
Annualized Return If Called: 34.05%
Days to Expiration: 185 days

CRI - New Position

A new position was established today on CRI. The following is the trade information, including IB commissions:

19-Jun-07 - Initial Stock Position - BTO 100 CRI @ 26.54 -
19-Jun-07 - Initial Call Option - STO 1 Sep07 25.00 Call @ 2.99 -

Stock Investment: $2,654.00
Income Generated: $299.00
Percent Income Generated: 11.27%
Net Profit If Called: $145.00
Percent Return If Called: 5.46%
Annualized Return If Called: 21.21%
Days to Expiration: 94 days

CHS - New Position

A new position was established today on CHS. The following is the trade information, including IB commissions:

19-Jun-07 - Initial Stock Position - BTO 100 CHS @ 25.11 -
19-Jun-07 - Initial Call Option - STO 1 Nov07 25.00 Call @ 2.61 -

Stock Investment: $2,511.00
Income Generated: $261.00
Percent Income Generated: 10.39%
Net Profit If Called: $250.00
Percent Return If Called: 9.96%
Annualized Return If Called: 24.23%
Days to Expiration: 150 days

WGO - Adjustment

The following adjustment was made today on WGO:

19-Jun-07 - Continued Trade - STO 2 Jan08 35.00 Call @ 0.94 -

Current Position Summary:

Stock Investment: $6,455.00
Income Generated: $1,121.50
Percent Income Generated: 17.37%
Net Profit If Called: $1,666.50
Percent Return If Called: 25.82%
Annualized Return If Called: 10.32%
Days to Expiration: 913 days

Trade History:

19-Jul-05 - Initial Stock Position - BTO 100 WGO @ 34.92 -
19-Jul-05 - Initial Call Option - STO 1 Aug05 35.00 Call @ 1.09 - Expired
22-Aug-05 - Continued Trade - STO 1 Sep05 35.00 Call @ 0.44 - Closed
01-Sep-05 - Buy Back & Roll Out - BTC 1 Sep05 35.00 Call @ -0.06 -
19-Sep-05 - Continued Trade - STO 1 Nov05 35.00 Call @ 0.34 - Closed
03-Oct-05 - Dividend Received - DIV 100 Dividend @ 0.09 -
21-Oct-05 - Buy Back & Roll Down - BTC 1 Nov05 35.00 Call @ -0.06 -
24-Oct-05 - Interim Trade - STO 1 Nov05 30.00 Call @ 0.24 - Closed
14-Nov-05 - Buy Back & Roll Up - BTC 1 Nov05 30.00 Call @ -2.66 -
21-Nov-05 - Continued Trade - STO 1 Jan06 35.00 Call @ 0.99 - Expired
09-Jan-06 - Dividend Received - DIV 100 Dividend @ 0.09 -
23-Jan-06 - Continued Trade - STO 1 Mar06 35.00 Call @ 0.44 - Expired
20-Mar-06 - Dollar Cost Averaging - BTO 100 WGO @ 29.63 -
20-Mar-06 - Combined Cost Basis - $6,455.00 200 @ 32.28 -
20-Mar-06 - Continued Trade - STO 2 Jul05 35.00 Call @ 0.69 - Expired
03-Apr-06 - Dividend Received - DIV 100 Dividend @ 0.09 -
10-Jul-06 - Dividend Received - DIV 200 Dividend @ 0.09 -
24-Jul-06 - Continued Trade - STO 2 Jan07 35.00 Call @ 1.39 - Closed
09-Oct-06 - Dividend Received - DIV 200 Dividend @ 0.10 -
22-Dec-06 - Buy Back & Roll Out - BTC 2 Jan07 35.00 Call @ -0.16 -
22-Dec-06 - Continued Trade - STO 2 Apr07 35.00 Call @ 1.19 - Expired
08-Jan-07 - Dividend Received - DIV 200 Dividend @ 0.10 -
09-Apr-07 - Dividend Received - DIV 200 Dividend @ 0.10 -
23-Apr-07 - Continued Trade - STO 2 May07 35.00 Call @ 0.54 - Expired
21-May-07 - Continued Trade - STO 2 Jun07 35.00 Call @ 0.09 - Expired
19-Jun-07 - Continued Trade - STO 2 Jan08 35.00 Call @ 0.94 -

NTES - Adjustment

The following adjustment was made today on NTES:

Note that I still have this flagged as an interim trade, although I'd make a 13% annualized return if called. The reason is the difference between the profit if called and the income generated. If I let it get called I'd give back about half of the income generated. I don't want to do that so I'll monitor this position and roll it out/up if it goes ITM before Sep.

19-Jun-07 - Interim Trade - STO 4 Sep07 20.00 Call @ 0.32 -

Current Position Summary:

Stock Investment: $9,694.00
Income Generated: $3,674.00
Percent Income Generated: 37.90%
Net Profit If Called: $1,980.00
Percent Return If Called: 20.43%
Annualized Return If Called: 13.55%
Days to Expiration: 550 days

Trade History:

20-Mar-06 - Initial Stock Position - BTO 100 NTES @ 96.94 - 4-1 Split
20-Mar-06 - Initial Call Option - STO 1 Jun06 85.00 Call @ 15.29 - 4-1 Split
28-Mar-06 - Split Stock Position - SPLT 400 NTES @ 24.24 -
28-Mar-06 - Split Call Option - SPLT 4 Jun06 21.25 Call @ 3.82 - Expired
26-Jun-06 - Continued Trade - STO 4 Jan07 22.50 Call @ 3.19 - Closed
23-Oct-06 - Buy Back & Roll Out/Down - BTC 4 Jan07 22.50 Call @ -0.16 -
23-Oct-06 - Continued Trade - STO 4 Jan07 18.75 Call @ 0.69 - Closed
17-Jan-07 - Buy Back & Roll Out/Up - BTC 4 Jan07 18.75 Call @ -0.41 -
17-Jan-07 - Continued Trade - STO 4 Mar07 20.00 Call @ 0.99 - Expired
19-Mar-07 - Interim Trade - STO 4 Apr07 20.00 Call @ 0.19 - Expired
23-Apr-07 - Interim Trade - STO 4 May07 20.00 Call @ 0.19 - Expired
21-May-07 - Interim Trade - STO 4 Jun07 20.00 Call @ 0.34 - Expired
19-Jun-07 - Interim Trade - STO 4 Sep07 20.00 Call @ 0.32 -

NFLX - Adjustment

The following adjustment was made today on NFLX:

19-Jun-07 - Continued Trade - STO 1 Sep07 22.50 Call @ 1.09 -

Current Position Summary:

Stock Investment: $2,292.00
Income Generated: $358.00
Percent Income Generated: 15.62%
Net Profit If Called: $316.00
Percent Return If Called: 13.79%
Annualized Return If Called: 21.06%
Days to Expiration: 239 days

Trade History:

25-Jan-07 - Initial Stock Position - BTO 100 NFLX @ 22.92 -
25-Jan-07 - Initial Call Option - STO 1 Jun07 22.50 Call @ 2.49 - Expired
19-Jun-07 - Continued Trade - STO 1 Sep07 22.50 Call @ 1.09 -

NDAQ - Adjustment

The following adjustment was made today on NDAQ:

19-Jun-07 - Continued Trade - STO 1 Jul07 32.50 Call @ 0.59 -

Current Position Summary:

Stock Investment: $3,410.00
Income Generated: $498.00
Percent Income Generated: 14.60%
Net Profit If Called: $338.00
Percent Return If Called: 9.91%
Annualized Return If Called: 20.56%
Days to Expiration: 176 days

Trade History:

25-Jan-07 - Initial Stock Position - BTO 100 NDAQ @ 34.10 -
25-Jan-07 - Initial Call Option - STO 1 Jun07 32.50 Call @ 4.39 - Expired
19-Jun-07 - Continued Trade - STO 1 Jul07 32.50 Call @ 0.59 -

KOMG - Adjustment

The following adjustment was made today on KOMG:

KOMG is down about 50% from my original purchase price. By dollar cost averaging twice I've lowered the cost basis of the stock, excluding option premiums, to $35.46. With the current stock price at 25.15, the stock is down about 29% from my new cost basis, but I've generated about 21.58% income from this position. The Dec07 30 call is an interim trade, although it would result in a small profit, but I don't want to let it get called at that strike. So, if the stock goes ITM before Dec I'll probably roll it out and up.

19-Jun-07 - Dollar Cost Averaging - BTO 100 KOMG @ 24.87 -
19-Jun-07 - Combined Cost Basis - $10,638.00 300 @ 35.46 -
19-Jun-07 - Interim Trade - STO 3 Dec07 30.00 Call @ 1.39 -

Current Position Summary:

Stock Investment: $10,638.00
Income Generated: $2,295.25
Percent Income Generated: 21.58%
Net Profit If Called: $657.25
Percent Return If Called: 6.18%
Annualized Return If Called: 3.52%
Days to Expiration: 641 days

Trade History:

20-Mar-06 - Initial Stock Position - BTO 100 KOMG @ 49.87 -
20-Mar-06 - Initial Call Option - STO 1 Apr06 45.00 Call @ 5.93 - Expired
24-Apr-06 - Continued Trade - STO 1 Jun06 45.00 Call @ 2.79 - Expired
26-Jun-06 - Continued Trade - STO 1 Dec06 45.00 Call @ 4.89 - Expired
18-Dec-06 - Continued Trade - STO 1 Jun07 45.00 Call @ 2.69 - Closed
19-Mar-07 - Buy Back - BTC 1 Jun07 45.00 Call @ -0.11 -
19-Mar-07 - Dollar Cost Averaging - BTO 100 KOMG @ 31.64 -
19-Mar-07 - Combined Cost Basis - $8,151.00 200 @ 40.76 -
19-Mar-07 - Continued Trade - STO 2 Jun07 35.00 Call @ 1.29 - Expired
19-Jun-07 - Dollar Cost Averaging - BTO 100 KOMG @ 24.87 -
19-Jun-07 - Combined Cost Basis - $10,638.00 300 @ 35.46 -
19-Jun-07 - Interim Trade - STO 3 Dec07 30.00 Call @ 1.39 -

GGC - Adjustment

The following adjustment was made today on GGC:

19-Jun-07 - Continued Trade - STO 1 Nov07 20.00 Call @ 1.39 -

Current Position Summary:

Stock Investment: $2,054.00
Income Generated: $389.00
Percent Income Generated: 18.94%
Net Profit If Called: $335.00
Percent Return If Called: 16.31%
Annualized Return If Called: 22.21%
Days to Expiration: 268 days

Trade History:

21-Feb-07 - Initial Stock Position - BTO 100 GGC @ 20.54 -
21-Feb-07 - Initial Call Option - STO 1 May07 20.00 Call @ 2.13 - Expired
10-Apr-07 - Dividend Received - DIV 100 Dividend @ 0.08 -
21-May-07 - Continued Trade - STO 1 Jun07 20.00 Call @ 0.29 - Expired
19-Jun-07 - Continued Trade - STO 1 Nov07 20.00 Call @ 1.39 -

EXPD - Adjustment

The following adjustment was made today on EXPD:

19-Jun-07 - Continued Trade - STO 1 Aug07 45.00 Call @ 0.87 -

Current Position Summary:

Stock Investment: $4,515.00
Income Generated: $1,057.00
Percent Income Generated: 23.41%
Net Profit If Called: $1,042.00
Percent Return If Called: 23.08%
Annualized Return If Called: 21.77%
Days to Expiration: 387 days

Trade History:

26-Jul-06 - Initial Stock Position - BTO 100 EXPD @ 45.15 -
26-Jul-06 - Initial Call Option - STO 1 Jan07 45.00 Call @ 6.69 - Closed
22-Dec-06 - Buy Back & Roll Out - BTC 1 Jan07 45.00 Call @ -0.16 -
22-Dec-06 - Continued Trade - STO 1 May07 45.00 Call @ 2.04 - Expired
21-May-07 - Continued Trade - STO 1 Jun07 45.00 Call @ 0.99 - Expired
15-Jun-07 - Dividend Received - DIV 100 Dividend @ 0.14 -
19-Jun-07 - Continued Trade - STO 1 Aug07 45.00 Call @ 0.87 -

CLHB - Adjustment

The following adjustment was made today on CLHB:

19-Jun-07 - Continued Trade - STO 1 Oct07 50.00 Call @ 2.49 -

Current Position Summary:

Stock Investment: $5,350.00
Income Generated: $834.00
Percent Income Generated: 15.59%
Net Profit If Called: $484.00
Percent Return If Called: 9.05%
Annualized Return If Called: 13.76%
Days to Expiration: 240 days

Trade History:

21-Feb-07 - Initial Stock Position - BTO 100 CLHB @ 53.50 -
21-Feb-07 - Initial Call Option - STO 1 Apr07 50.00 Call @ 5.32 - Expired
23-Apr-07 - Continued Trade - STO 1 May07 50.00 Call @ 0.34 - Expired
21-May-07 - Continued Trade - STO 1 Jun07 50.00 Call @ 0.19 - Expired
19-Jun-07 - Continued Trade - STO 1 Oct07 50.00 Call @ 2.49 -

URBN - Closed

The URBN Jun07 22.50 Call was exercised and the stock was called away for a profit. The following is the trade history and returns, including IB commissions.

Covered Call Results

Stock Investment: $2,382.00
Income Generated: $324.00
Net Profit: $192.00
Percent Return: 8.06%
Annualized Return: 21.01%
Duration of Trade: 140 days

Buy & Hold Comparison

Opening Price: $23.82
Closing Price: $25.35
P/L per Share: $1.53
Shares: 100
Dividends: $0.00
Net Profit: $153.00
Percent Return: 6.42%
Annualized Return: 16.75%
Duration of Trade: 140 days

Trade History:

26-Jan-07 - Initial Stock Position - BTO 100 URBN @ 23.82 -
26-Jan-07 - Initial Call Option - STO 1 Jun07 22.50 Call @ 3.24 - Exercised
15-Jun-07 - Option Exercised - EX 1 Jun07 22.50 Call @ 22.50 -

UPL - Closed

The UPL Jun07 50.00 Call was exercised and the stock was called away for a profit. The following is the trade history and returns, including IB commissions.

Covered Call Results

Stock Investment: $5,056.00
Income Generated: $545.00
Net Profit: $489.00
Percent Return: 9.67%
Annualized Return: 25.04%
Duration of Trade: 141 days

Buy & Hold Comparison

Opening Price: $50.56
Closing Price: $57.70
P/L per Share: $7.14
Shares: 100
Dividends: $0.00
Net Profit: $714.00
Percent Return: 14.12%
Annualized Return: 36.56%
Duration of Trade: 141 days

Trade History:

25-Jan-07 - Initial Stock Position - BTO 100 UPL @ 50.56 -
25-Jan-07 - Initial Call Option - STO 1 Jun07 50.00 Call @ 5.45 - Exercised
15-Jun-07 - Option Exercised - EX 1 Jun07 50.00 Call @ 50.00 -

NTGR - Closed

The NTGR Jun07 25.00 Call was exercised and the stock was called away for a profit. The following is the trade history and returns, including IB commissions.

Here's a example of a position that would have been much better as buy & hold position. This happens at times when the stocks shoot up. This is the lost opportunity risk involved in covered call writing. However, I'm after consistent returns (i.e. base hits, not home runs).

Covered Call Results

Stock Investment: $2,777.00
Income Generated: $409.00
Net Profit: $132.00
Percent Return: 4.75%
Annualized Return: 19.72%
Duration of Trade: 88 days

Buy & Hold Comparison

Opening Price: $27.77
Closing Price: $37.76
P/L per Share: $9.97
Shares: 100
Dividends: $0.00
Net Profit: $997.00
Percent Return: 35.90%
Annualized Return: 148.91%
Duration of Trade: 88 days

Trade History:

19-Mar-07 - Initial Stock Position - BTO 100 NTGR @ 27.77 -
15-Jun-07 - Initial Call Option - STO 1 Jun07 25.00 Call @ 4.09 - Exercised
15-Jun-07 - Option Exercised - EX 1 Jun07 25.00 Call @ 25.00 -

KCI - Closed

The KCI Jun07 40.00 Call was exercised and the stock was called away for a profit. The following is the trade history and returns, including IB commissions.

This was a dollar cost averaging position that I split earlier this month. I let this half get called away for a profit, and did another dollar cost averaging on the KCI a few weeks ago. I temporarily went over my maximum position size in anticipation of this position being called away.

Covered Call Results

Stock Investment: $3,923.00
Income Generated: $585.00
Net Profit: $662.00
Percent Return: 16.87%
Annualized Return: 13.63%
Duration of Trade: 452 days

Buy & Hold Comparison

Opening Price: $39.23
Closing Price: $49.99
P/L per Share: $10.75
Shares: 100
Dividends: $0.00
Net Profit: $1,075.00
Percent Return: 27.40%
Annualized Return: 22.13%
Duration of Trade: 452 days

Trade History:

20-Mar-06 - Dollar Cost Averaging - BTO 100 KCI @ 39.23 -
20-Mar-06 - Interim Trade - STO 1 Sep06 45.00 Call @ 4.59 - Expired
18-Sep-06 - Interim Trade - STO 1 Dec06 35.00 Call @ 0.94 - Closed
05-Dec-06 - Buy Back & Roll Out/Up - BTC 1 Dec06 35.00 Call @ -3.69 -
05-Dec-06 - Continued Trade - STO 1 Jun07 40.00 Call @ 4.00 - Exercised
15-Jun-07 - Option Exercised - EX 1 Jun07 40.00 Call @ 40.00 -

HLX - Closed

The HLX Jun07 40.00 Call was exercised and the stock was called away for a profit. The following is the trade history and returns, including IB commissions.

Here's a good example of a long term position, held about 17 months. The stock ended up basically flat during this period, with an annualized return of only 1.02%. However, by selling covered calls I was able to get a 12.44% annualized return.

Covered Call Results

Stock Investment: $8,053.00
Income Generated: $1,442.00
Net Profit: $1,389.00
Percent Return: 17.25%
Annualized Return: 12.44%
Duration of Trade: 506 days

Buy & Hold Comparison

Opening Price: $40.27
Closing Price: $40.84
P/L per Share: $0.57
Shares: 200
Dividends: $0.00
Net Profit: $114.00
Percent Return: 1.42%
Annualized Return: 1.02%
Duration of Trade: 506 days

Trade History:

25-Jan-06 - Initial Stock Position - BTO 200 HLX @ 40.27 -
25-Jan-06 - Initial Call Option - STO 2 Feb06 40.00 Call @ 1.91 - Expired
01-Mar-06 - Continued Trade - STO 2 Mar06 40.00 Call @ 0.64 - Expired
20-Mar-06 - Continued Trade - STO 2 Jun06 40.00 Call @ 1.49 - Expired
26-Jun-06 - Continued Trade - STO 2 Jan07 40.00 Call @ 2.34 - Closed
19-Dec-06 - Buy Back & Roll Out - BTC 2 Jan07 40.00 Call @ -0.16 -
19-Dec-06 - Continued Trade - STO 2 Feb07 40.00 Call @ 0.49 - Closed
03-Jan-07 - Buy Back & Roll Out - BTC 2 Feb07 40.00 Call @ -0.11 -
03-Jan-07 - Continued Trade - STO 2 Jun07 40.00 Call @ 0.59 - Exercised
15-Jun-07 - Option Exercised - EX 2 Jun07 40.00 Call @ 40.00 -

FTEK - Closed

The FTEK Jun07 25.00 Call was exercised and the stock was called away for a profit. The following is the trade history and returns, including IB commissions.

Covered Call Results

Stock Investment: $2,467.00
Income Generated: $359.00
Net Profit: $392.00
Percent Return: 15.89%
Annualized Return: 33.92%
Duration of Trade: 171 days

Buy & Hold Comparison

Opening Price: $24.67
Closing Price: $28.99
P/L per Share: $4.32
Shares: 100
Dividends: $0.00
Net Profit: $432.00
Percent Return: 17.51%
Annualized Return: 37.38%
Duration of Trade: 171 days

Trade History:

26-Dec-06 - Initial Stock Position - BTO 100 FTEK @ 24.67 -
26-Dec-06 - Initial Call Option - STO 1 Jun07 25.00 Call @ 3.59 - Exercised
15-Jun-07 - Option Exercised - EX 1 Jun07 25.00 Call @ 25.00 -

CRI - Closed

The CRI Jun07 25.00 Call was exercised and the stock was called away for a profit. The following is the trade history and returns, including IB commissions.

Covered Call Results

Stock Investment: $2,602.00
Income Generated: $299.00
Net Profit: $197.00
Percent Return: 7.57%
Annualized Return: 19.74%
Duration of Trade: 140 days

Buy & Hold Comparison

Opening Price: $26.02
Closing Price: $26.80
P/L per Share: $0.78
Shares: 100
Dividends: $0.00
Net Profit: $78.00
Percent Return: 3.00%
Annualized Return: 7.82%
Duration of Trade: 140 days

Trade History:

26-Jan-07 - Initial Stock Position - BTO 100 CRI @ 26.02 -
26-Jan-07 - Initial Call Option - STO 1 Jun07 25.00 Call @ 2.99 - Exercised
16-Jun-07 - Option Exercised - EX 1 Jun07 25.00 Call @ 25.00 -

SNDK - Adjustment

The following adjustment was made today on SNDK:

The SNDK Jun07 45.00 was ITM so I rolled it out and up to the Oct07 50.00 call to avoid assignment. I decided to go up to the 50 strike to give it more room to move and out to Oct07 since it had the best premium at that strike.

15-Jun-07 - Buy Back & Roll Out/Up - BTC 2 Jun07 45.00 Call @ -1.46 -
15-Jun-07 - Continued Trade - STO 2 Oct07 50.00 Call @ 2.60 -

Current Position Summary:

Stock Investment: $10,854.00
Income Generated: $2,968.50
Percent Income Generated: 27.35%
Net Profit If Called: $2,114.50
Percent Return If Called: 19.48%
Annualized Return If Called: 13.10%
Days to Expiration: 543 days

Trade History:

24-Apr-06 - Initial Stock Position - BTO 100 SNDK @ 59.56 -
24-Apr-06 - Initial Call Option - STO 1 Jul06 57.50 Call @ 7.09 - Closed
06-Jul-06 - Buy Back & Roll Out/Down - BTC 1 Jul06 57.50 Call @ -0.16 -
06-Jul-06 - Dollar Cost Averaging - BTO 100 SNDK @ 48.98 -
06-Jul-06 - Combined Cost Basis - $10,854.00 200 @ 54.27 -
06-Jul-06 - Continued Trade - STO 2 Oct06 55.00 Call @ 3.39 - Expired
23-Oct-06 - Continued Trade - STO 2 Jan07 55.00 Call @ 2.14 - Closed
19-Dec-06 - Buy Back & Roll Out/Down - BTC 2 Jan07 55.00 Call @ -0.16 -
19-Dec-06 - Continued Trade - STO 2 Feb07 50.00 Call @ 1.69 - Closed
06-Feb-07 - Buy Back & Roll Out/Down - BTC 2 Feb07 50.00 Call @ -0.06 -
06-Feb-07 - Interim Trade - STO 2 Apr07 45.00 Call @ 1.39 - Expired
27-Apr-07 - Interim Trade - STO 2 May07 45.00 Call @ 0.84 - Expired
21-May-07 - Interim Trade - STO 2 Jun07 45.00 Call @ 0.98 - Closed
15-Jun-07 - Buy Back & Roll Out/Up - BTC 2 Jun07 45.00 Call @ -1.46 -
15-Jun-07 - Continued Trade - STO 2 Oct07 50.00 Call @ 2.60 -

MDT - Adjustment

The following adjustment was made today on MDT:

After watching MDT trade around the Jul07 52.50 strike price all day I finally decided to roll it out and up to Jul07 55.00 call during the last 15 minutes of trading when it went ITM. Of course, as soon as I rolled it the priced dropped back down and ended up closing OTM.

15-Jun-07 - Buy Back & Roll Out/Up - BTC 1 Jun07 52.50 Call @ -0.06 -
15-Jun-07 - Continued Trade - STO 1 Jul07 55.00 Call @ 0.49 -

Current Position Summary:

Stock Investment: $5,272.00
Income Generated: $121.00
Percent Income Generated: 2.30%
Net Profit If Called: $349.00
Percent Return If Called: 6.62%
Annualized Return If Called: 27.46%
Days to Expiration: 88 days

Trade History:

23-Apr-07 - Initial Stock Position - BTO 100 MDT @ 52.72 - VICC
23-Apr-07 - Continued Trade - STO 1 May07 55.00 Call @ 0.19 - Expired
21-May-07 - Continued Trade - STO 1 Jun07 52.50 Call @ 0.59 - Closed
15-Jun-07 - Buy Back & Roll Out/Up - BTC 1 Jun07 52.50 Call @ -0.06 -
15-Jun-07 - Continued Trade - STO 1 Jul07 55.00 Call @ 0.49 -

Note that as a VICC position the primary objective is capital appreciation. The stock will be held long term until it reaches or surpasses it's fair value. Front month OTM call options are sold to bring in a small amount of income while waiting for the stock to appreciate. The calls are sold far enough OTM to avoid assignment and the need to make any mid-month adjustments.

Mauboussin on Strategy

I just discovered the writings of Michael Mauboussin, Chief Investment Strategist of Legg Mason Capital Management. Michael is a veteran of the investment industry and has been an Adjunct Professor of Finance at Columbia’s Graduate School of Business since 1993.

This is some of the most thought provoking material I have read and I highly recommend it. You can read Michael's material at Mauboussin on Strategy and CAP@Colombia.

Articles I've already read include:

• The Importance of Diverse Thinking
  
• Decision-Making for Investors
  
• Capital Ideas Revisited - Part 1
  
• Capital Ideas Revisited - Part 2
  
• Contrarian Investing
  
• Ruminations on Risk
  
• Turtles in Omaha

Michael also published More Than You Know: Finding Financial Wisdom in Unconventional Places and co-authored Expectations Investing: Reading Stock Prices for Better Returns, which I've just ordered and can't wait to read.

You may also want to visit the Expectations Investing website.

Enjoy!

Recommended Articles

I added a new feature on the blog today that has a list of recommended articles from the various blogs and websites I follow with Google Reader. Whenever I come across an article that I think you'll find interesting I'll add it to my shared items in Google Reader. The top 10 headlines will then appear in the Recommended Articles section on the sidebar of this blog. You can also go to my shared items page and bookmark it. There's also a feed available that you can subscribe to.

Hope you enjoy this new feature.

A Consistent Approach

Another good question posted on the Yahoo Group asked "Should your strategy be consistently applied or vary depending on your overall stock market outlook?"

The following is an excerpt of the discussion that followed.

I prefer a consistent approach. I have no idea what the market, or any stock, is going to do in the short term, and don't believe anyone else does either. Therefore, I don't trust my own market outlook, let alone anyone else's. So, if I can't trust my outlook, why would I want to vary my strategy based on it? I designed my strategy to work regardless of market conditions. At least that was my plan. Whether or not it will work in all markets only time will tell. So far I've only traded my strategy in a bull market, where throwing darts at a stock list probably could have been profitable ;-) So, until the next bear market comes along I won't know how my strategy will perform. I do know that I've survived stocks that have declined substantially, so I believe I could survive a bear market, but until it actually happens I won't know for sure. In the meantime, I'll continue to consistently apply my strategy. If it ain't broke, don't fix it ;-)

The only belief we can have in any individual stock or the market in general, is that it can and will do anything at anytime. We can not presume to know what the market will do today, tomorrow or in the future. Now, this doesn't mean I don't have any opinions. Of course I have an opinion on each company I invest in and on the overall market, but I designed my strategy to be market and company neutral, just in case my opinion is wrong.

Positions that meet my criteria will profit in 4 out of 5 cases (assuming I sold ITM):

1. If the stock stays the same.
2. If the stock goes up a little.
3. If the stock goes up a lot.
4. If the stock goes down a little.
5. If the stock goes down a lot.

The only case where I lose is #5, if the stock declines substantially. However, since I only invest in solid companies using a value investing approach, I just manage those positions until they can be closed at a profit. So, I have yet to take a loss.

I have confidence in my trading plan and my ability to follow it, not in my ability to pick winners or in my short term market outlook. I do believe that over the long term the market will rise, because it always has, but I have no idea what the market, or any stock, will do in the short term.

That's why I never try to pick a direction. I don't buy stocks for my CC portfolio because I think they will rise. I buy stocks because the underlying company is solid and it meets my criteria for a CC position that profits in 4 out of 5 cases. It's the 4 out of 5 chances to make money on an ITM CC position that drives the success, not the prediction of direction. I have no idea how each position will work out but I like the odds.

Now, I didn't always think this way. For many years I studied and used technical analysis, which attempts to determine direction from past price action. I studied Elliot Wave, regression channels, Bollinger Bands, MACD, Stochastics, Relative Strength, etc., etc. Too many indicators and chart patterns to mention.

I've always heard the saying "past performance does not guarantee future results", however, when you see a pattern on a stock chart, whether it's there or not (research studies have shown that people see patterns where they don't exist. It's just the way our brains are wired), you believe that it will repeat. So many who follow technical analysis to pick direction believe in their outlook. I used to believe in my outlook also, but my results told a different story. I learned the hard way that nobody can predict, with any degree of certainty, what a stock or the market will do at any given point in time, regardless of how much analysis you do. The future is unpredictable.

Now I no longer try to determine direction, of a stock or the market, and no longer use technical analysis. Instead, I use fundamental analysis and value investing principles to analyze the company. My main concern, when choosing stocks for my CC portfolio, is whether or not the company will survive, not what its stock price will do, which is why I only invest in solid companies. My CC positions are such that I profit from little or no movement of the stock price. Even if the stock goes down substantially, I have confidence the company will survive and that its stock price will eventually rise. But even if it doesn't rise, I have confidence in my trading plan and my ability to manage the position to eventually exit at a profit.

In essence I've evolved over time as an investor to find the approach that works best for me. Investing is an evolutionary process. I've tried, and failed, with many different approaches until I finally found what works for me. It's a personal journey and everyone will travel a different road. Those who are willing to change and evolve will eventually be successful, assuming they don't lose all their money along the way.

38 Steps to Becoming a Trader

To continue with the topic of what it takes to be a successful investor, here's a list I found some time ago, which I'm sure most traders/investors can identify with.

1. We accumulate information - buying books, going to seminars and researching.
2. We begin to trade with our 'new' knowledge.
3. We consistently 'donate' and then realize we may need more knowledge or information.
4. We accumulate more information.
5. We switch the markets we are currently following.
6. We go back into the market and trade with our 'updated' knowledge.
7. We get 'beat up' again and begin to lose some of our confidence.

Fear starts setting in.

8. We start to listen to 'outside news' and to other traders.
9. We go back into the market and continue to 'donate'.
10. We switch markets again.
11. We search for more information.
12. We go back into the market and start to see a little progress.
13. We get 'over-confident' and the market humbles us.
14. We start to understand that trading successfully is going to take more time and more knowledge than we anticipated.

Most people will give up at this point, as they realize work is involved.

15. We get serious and start concentrating on learning a 'real' methodology.
16. We trade our methodology with some success, but realize that something is missing.
17. We begin to understand the need for having rules to apply our methodology.
18. We take a sabbatical from trading to develop and research our trading rules.
19. We start trading again, this time with rules and find some success, but over all we still hesitate when it comes time to execute.
20. We add, subtract and modify rules as we see a need to be more proficient with our rules.
21. We feel we are very close to crossing that threshold of successful trading.
22. We start to take responsibility for our trading results as we understand that our success is in us, not the methodology.
23. We continue to trade and become more proficient with our methodology and our rules.
24. As we trade we still have a tendency to violate our rules and our results are still erratic.
25. We know we are close.
26. We go back and research our rules.
27. We build the confidence in our rules and go back into the market and trade.
28. Our trading results are getting better, but we are still hesitating in executing our rules.
29. We now see the importance of following our rules as we see the results of our trades when we don't follow the rules.
30. We begin to see that our lack of success is within us (a lack of discipline in following the rules because of some kind of fear), and we begin to work on knowing ourselves better.
31. We continue to trade and the market teaches us more and more about ourselves.
32. We master our methodology and our trading rules.
33. We begin to consistently make money.
34. We get a little over-confident and the market humbles us.
35. We continue to learn our lessons.
36. We stop thinking and allow our rules to trade for us (trading becomes boring, but successful) and our trading account continues to grow as we increase our contract size.
37. We are making more money than we ever dreamed possible.
38. We go on with our lives and accomplish many of the goals we had always dreamed of.

Successful Investing

Someone on the Yahoo Group asked a very important question, "What skills are needed to be a successful covered call investor". I thought I'd post my response here as well, for those readers who have not joined the group.

I don't believe it takes great intelligence to be a successful investor. In fact, sometimes too much knowledge is a bad thing. Success is not a function of how smart you are or how much you have applied yourself academically. Look at me, I never went to college and yet I have a successful career as a programmer, and I'm having success as an investor, and I ain't that smart ;-)

Skills can be learned, but I believe that success in investing comes down to the following personal attributes:

Passion

You must be passionate about investing and enjoy analyzing companies. You should do it because it's fun, not because of the money you can make. Don't let the money blind you. This is serious business and if you're not passionate about it, you won't give it your all. Be an avid reader and learn all you can about investing from those who have been successful, like Benjamin Graham, Warren Buffett, Joel Greenblatt, David Dreman, Mohnish Pabrai, etc. You'll gain invaluable insight learning from these successful investors and begin to develop your own market philosophy.

Confidence

You must have confidence in yourself, your methodology, and your ability to succeed. Research different methodologies and modify them so as to make them your own. Self-confidence comes from developing a methodology that YOU believe in. It doesn't come from trading someone else's methodology. It's easier to have confidence and be able to follow your own rules then someone else's.

Attitude

Attitude is how you deal with the inevitable adverse situations that occur in the markets. Not all trades will work out as planned. You must have a positive attitude, even in the face of adversity. Never give up. Once you've dug yourself out of a hole, no matter how long it takes, you know that you can do it again. If you've done something once, it's a repeatable act. That knowledge is a powerful weapon and can make you a much stronger person and better investor.

Self-Belief

You must believe that you can actually do it. Everyone is capable of being a successful investor if they truly believe they can be. You must believe in the power of belief. If a person's will is strong enough, they will always find a way. If you admit to yourself that you truly don't have the will to win at this game, then put your money into an index fund and go do something you love.

Discipline

You must have the discipline to control your emotions and follow your trading plan without question. This is the culmination of all the previous attributes. If you are passionate about investing, have confidence in your method, have the right attitude, and believe in yourself, you'll develop the discipline to follow your trading plan.

That's it. Sounds easy doesn't it? But it's not. Making personal changes is probably the hardest part of being a successful investor.

WMT - Adjustment

The following adjustment was made today on WMT:

Last week Walmart announced its plans for a share buyback, which was good news for shareholders. The stock closed up almost 4% on Friday. Today, the stock continued to rise about 3.50%. With the stock price above $51, the Jun08 47.50 call was deep ITM and had very little time value left. I needed to make an adjustment to avoid assignment. As always, I try to roll the calls for a net credit. With the Jun08 47.50 call at $3.80 ask, this was not going to be possible, since I couldn't find a further out higher strike for that price. So, since Walmart is still rated 5 Stars by Morningstar and is still a good buy at this price, I decided to add another 100 shares and sell 2 Dec08 52.50 calls for a net credit.

04-Jun-07 - Buy Back & Roll Out/Up - BTC 1 Jun07 47.50 Call @ -3.81 -
04-Jun-07 - Dollar Cost Averaging - BTO 100 WMT @ 51.19 -
04-Jun-07 - Combined Cost Basis - $10,045.00 200 @ 50.23 -
04-Jun-07 - Continued Trade - STO 2 Dec07 52.50 Call @ 2.54 -

Current Position Summary:

Stock Investment: $10,045.00
Income Generated: $196.50
Percent Income Generated: 1.96%
Net Profit If Called: $651.50
Percent Return If Called: 6.49%
Annualized Return If Called: 9.78%
Days to Expiration: 242 days

Trade History:

23-Apr-07 - Initial Stock Position - BTO 100 WMT @ 49.26 - VICC
23-Apr-07 - Continued Trade - STO 1 May07 52.50 Call @ 0.10 - Expired
21-May-07 - Interim Trade - STO 1 Jun07 47.50 Call @ 0.59 - Closed
04-Jun-07 - Buy Back & Roll Out/Up - BTC 1 Jun07 47.50 Call @ -3.81 -
04-Jun-07 - Dollar Cost Averaging - BTO 100 WMT @ 51.19 -
04-Jun-07 - Combined Cost Basis - $10,045.00 200 @ 50.23 -
04-Jun-07 - Continued Trade - STO 2 Dec07 52.50 Call @ 2.54 -

Note that as a VICC position the primary objective is capital appreciation. The stock will be held long term until it reaches or surpasses it's fair value. Front month OTM call options are sold to bring in a small amount of income while waiting for the stock to appreciate. The calls are sold far enough OTM to avoid assignment and the need to make any mid-month adjustments.