Pay Day is Coming Up!

The next part of my system involves selling covered call options. Not only do I dollar cost average ETF's in my system, I further lower my risk by selling covered calls against my positions. I like to collect somewhere between 1% and 2% per month by selling calls. In most cases I can sell calls above my average cost per share and still collect 1% to 2% per month.

Which calls to sell do you ask? I always look to sell front month out of the money calls. I can collect enough premium and have theta work in my favor. Most front month calls expire out of the money. This means that most times I will be able to collect the premium and not be required to sell. If I do have to sell, two good things have happened: 1) the ETF has gone up in value and 2) I am forced to bank some profits. There is no such thing as taking a bad profit.

This is where the discipline comes in. The temptation will be there to buy back those options you sold if the ETF takes off in price. DON'T DO IT!! You are not smarter than the market. I am not smarter than the market. If the market tells you it is time to bank some profits, take them. No judgement calls. Stick to the system. You never know the future of the market.

Monday will be payday for me. Options will expire on the positions I own Friday and I will be able to collect more premium for July expiration. Of course the market has been a mess over the last couple weeks. No problems here. I just keep collecting the cash.