Covered Calls - Is it a surefire way to win on the market?

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1

Hello,

I have been trading covered calls for quite a while now and I like to know if this method has been tried out before and what the results are like.

I will be starting out a demo account to put into effect what I have learnt but the problem is that it is almost impossible to find a broking house that will take call orders. The few that I have found require a hefty account opening requirement.

Hopefully I can demostrate the profitability of this method of trading and can start up a group that can pool resources and take advantage of this.

Once the demo account is set up, I will post the trades on a regular basis and all can see if this is a good or bad method.

CallT

2

Demo account has been set up with $100,000 as start capital.

A covered call in the EUR/USD has been initiated, details as follows.

EUR/USD long 1.4091
EUR/USD Call short 1.4090 64 pips

Account value at start $100,000
Account Value present $99,875.00

3

Here is an attachment of the account statement to show the trades.

I will continue this each time a trade is done.

CallT


4

Covered calls can be a good strategy, but what happens when the market goes into a sustained down trend? The calls will defray your losses some, but not enough to counter a sharp move in the market against your underlying position.

5

Yes that may seem to be correct. Thank you for your feedback.

I have found that in actual trading, this is not an issue at all. As a matter of fact, this is exactly what happened with our demo trade and I have actioned our second trade and closed out our first.

Details of this to come later.

CallT

6

Here are the details of second trade. First trade has been closed out.

CallT


7

Ummm…Based on what you’ve posted you account is witnessing exactly the sort of thing I mentioned. Your account value is down over $1000 since your prior update! Don’t go by your “cash balance”. That doesn’t reflect you open position P&L.

8

Here is today’s screenshot.

The calls expire today so we will be setting up another pair.

CallT


9

You lost $6000 over the weekend!? And I notice you’re now up to 12 lots.

10

Correct.

This translates into a 7.5% drawdown.

Calls have expired and a new setup is in place. Details will follow later.

CallT

11

Todays screenshot.

CallT


12

Our first cycle has gone into profit of about 2.5% and will likely go into exercise assignment today.

We now set up for our second cycle with a single lot for expiration tomorrow.

CallT


13

The calls were exercised as anticipated and we now have just one lot left due to expire tomorrow.

We are now looking at about 5.9% profit.


14

Positions are squared off. New setup will be done after the weekend on Monday.

Account is in profit of 6.1% over a period of just a little over 1 week.

From the way I see pips being valued here I think this equates to about 613 pips in a week.

CallT


15

Just trade options on forex futures, or trade options on a currency ETF…you’ll have to look around for this, but it is out there, i know for a fact. you can probably open an account for about 5 - 10K

As a comment on your strategy… it seems that when you were losing, you essentially doubled or tripled your position… right?

Just FYI…i’ve been trading off an on for almost 6 years now, almost 2 full time, and have traded everything under the sun…including options. butterflies, spreads, condors, naked short, naked long, covered positions…etc. And i’ll tell you this, there are almost no surefire ways to make money in the market. And the very few ways that are basically surefire are well out of reach for anyone not trading institutionally (google “box option position” if your curious)

this type of covered call strategy will work most of the time…maybe even 95%, especially if you add more to your losing position to pick it back up…all you need is one win…and your good.

Problem is, that 5% of the time that you lose…you will simply lose everything in your account. period.

If you don’t have a method of “stopping out” your trade, you will, one day, have one losing trade…and it will simply keep losing…until your account is worth nothing (or a series of losing trades on one partiular market swing…etc)

Personally, I have a philosophy about trading without a stop. It’s either for the pathologically narcissistic, or for the unfathomably self destructive. I say this because trading without a stop…really without a stop, basically means that no amount of draw down from a losing position will cause you to close your trade. In other words… if you have 10,000 winning trades in a row, but your 10,001 trade is a losing trade… that one losing trade will end your career…because, remember, trading without a stop means at no point will you choose to close a losing trade.

So, one must either be pathologically narcissistic to believe they can trade as well as a god or other such perfect being, or unfathomably self destructive, knowing that a failure is ineveitable (because no one is perfect), and they will then acheive their goal of…well…financial self destruction.

i’m not sure if you have a stop loss rule…but without one, this strategy, as well as any other available to private individuals… will end, eventually, in total loss… that is, unless your hobby is walking on water, or turning water into wine :wink:

Jay

P.S. I highly recommend a book called “fooled by randomness”…it’s argueably one of the greatest business books ever written, by a professsional trader, and it includes many trading concepts.

you will find many examples of “success stories” who had “no-loss strategies” in that book…who did, lose everything inthe end… because their success was not really 100% guaranteed…they had strategies that were maybe 99% guaranteed under some multi-year market conditions that ended…and shortly after the market conditions ended…so did they.

Best of luck to you

16

Thank you very much for your comment. I have started another thread for comments such as yours and would like to
have this thread left uncluttered such that others can have an uncluttered track record from which to make their own judgements.

I am sure you are very successful in your trading and we have much to learn from you.

Thank you.

CallT

17

Call, didn’t realize this was a straight up public record thread. If you can acheive the track record you are aiming for, I have little doubt you will get all the money you could ever need to trade. I’m not really the managed money type these days, but with a track record worse than what your on track to post, I still turn down requests from friends/family want to give me money to trade for them. Seems you show one guy a good profit, and the world wants to give you their retirement to do the same for them.

So don’t worry about getting cash together… a good track record will literally get you more than you could even know what to do with…if you wanted that.

I wish you luck in this endeavor.

Jay

18

Thank you.

CallT

19

Maybe you should explain what is covered calls and how it really works.

20

Thank you for your comment. There is an existing thread that explains the covered call strategy’

It is here on this forum and titled
Covered Calls - Why it works (My opinion) - Why it will not work (Your opinion)

Just click on the link.

The reason for that thread is to try to keep this thread uncluttered for easy tracking of the trading record.

CallT