Costly Mistakes That Covered Calls Writers Make

Everyone makes mistakes. In life, our challenge and goal are to correct them and learn from them, so that we don’t repeat them. That is what will make us successful investors who become financially independent and Masters of our own money.

Here is a list of the most common errors made by covered call investors and how to eliminate them:

DO NOT……

Simply create options on stocks that are already in your portfolio.

These stocks may not be appropriate for covered call investing. Only create options on stocks that are sound fundamentally and technically and are in a great performing industry.

Select an option to create predominantly because of the high return it offers.

High option returns most times mean great volatility and therefore high risk. Don’t get greedy! I say this time and time again to all my members around the world. Don’t even calculate your return until you have determined that you have a quality stock in a solid industry.

Sell only out of the money strikes.

Many experts advise this strategy because of the stock appreciation it may potentially generate in addition to the option premium. There are times when you want the downside protection of an in the money strike. Each situation needs to be evaluated on its own merit. Do not paint every option premium with the same brush.

Sell an option and then ignore your stock and options positions until expiration Friday.

Monitoring your position is part of the game plan. Your positions must be monitored throughout the contract period in case your stock decreases in price or moves above the strike price near expiration Friday. A system must be in place to manage these positions in an accurate and time-efficient manner.

Enter a covered call when there is an upcoming earnings report in that same contract period.

An earnings report creates tremendous volatility. This event increases the risk we Fokas Beyond Investors refuse to take. There is increased downside risk with little upside profit potential. Avoid earnings reports!

Use a broker whose commissions will influence your investment decisions.

A successful covered call investor may be buying and selling many contracts per month. You need a quality broker. In addition, there will be trading of the underlying stocks. Since we may be taking action during the month to maximise our profits, we must use an online discount broker whose fees are reasonable and can get us in and out at the right time and at the right price without any discrepancies.

Use a system that requires excessive time.

I believe in setting yourself up for success. In order to succeed your system must be time-efficient and easy to navigate. This will require a portfolio manager of easy-to-access lists of accurate information regarding your stocks and options. Organisation is critical to making the best decisions that will generate the highest returns.

Sell options in markets that are increasing exponentially or depreciating hastily.

This is a great investment strategy in moderately bullish, moderately bearish, and neutral stock markets. I write covered call options about 95% of the time.

Have more than 20% of your portfolio invested in one particular industry.

Diversification is so important in reducing risk because if one industry takes a sudden downturn, the others can pick it up.

Invest in stock options or any other investment strategy without being fully educated.

Who is more likely to succeed at blackjack? The player who is familiar with all the nuances of the game OR the person who sits down at the table praying for good cards? The difference between blackjack and covered call investing is that the former will be a long-term losing proposition while the latter can lead to your financial independence.

Invest without the right money management and risk management tools in place.

Before you enter the market, you must have the right money management and risk management tools to understand the return on investment and the risk before you put your hard-earned money in the market.

Invest for short-term gains.

The stock market is not a sprint sport, you have to be in it to win it, yet you need to be in the market for the long run. Having a 3-to-5-year plan will help you work towards your plan, slow and steady. As we all know, slow and steady wins the race.

For over a decade, I have been teaching my members from all around the world a better stock investment strategy using all of the methods above plus more. I conduct a free Stock Investment Strategy and also offer a detailed course where you will have your own personal coach who will take you through the steps to successfully generate an income from covered calls using the Fokas Beyond methodology which can protect up to 99% of your capital.

 

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