We wanted to talk a little more about covered calls because we really want you to broaden your horizons when it comes to investing. It’s no secret how much money buying the right call or put option can make you if you pick the right option on a stock but everyone should have an investment strategy where they have “safe” money and “speculative” money. The safe money earns you double-digit gains, the speculative money tries to hit the triple-digit gains.
Option traders love fast triple-digit “homerun” gains in a day or two or even a week but many of them overlook the “singles”. Vivus (VVUS, $20.00, up $10.00) has been a name that not many traders follow but we can bet they are trying to trade the options and stock today. It is all over the news on how the company won pre-approval of its obesity drug, Qnexa, but we have been doing our homework on this company for years and although we just missed a huge trade for our Daily, here is how we played the stock in our Weekly Wrap all last year and into 2012.
In May 2011, we recommended Vivus at $7.93 and sold 2 call options for a total of 80 cents which lowered our cost basis to $7.13. We were called away in August at $9 for an 18% gain.
In September, we recommended shares again at $8.45 and we sold October and November 9 call options for a total of 75 cents to lower the cost to $7.70. In mid-November, shares were called away at $9 as the stock was at $9.84. Our return was 17%.
The next week, we recommended shares again at $9.78 and sold the December 10 calls for $1.00 which lowered our cost basis to $8.78. In mid-December, Vivus was called away at $10 as the stock was at $10.09 on expiration day. The trade made 14%.
That same day, we recommended buying the stock again at $10.09 and selling the January 11 call option for 90 cents. This lowered the cost basis to $9.39. In mid-January, Vivus was at $12.04 so we were called-away once again. The return was 17%.
Knowing we might get called away in January, we also suggested on January 12, 2012 with the stock at $12.60 to reload the position and to sell the March 15 calls (VVUS120317C00015000, $5.10, up $4.15) which were going for $1.75. This lowered our cost basis to $10.85 but we will likely have to sell the shares at $15 if they maintain a price above our “strike price” until mid-March.
So here is our point.
If you had $8,000 and started taking these trades, the first trade would have made $1,250. The second trade $1,300. The third trade would have made you $1,220. The fourth trade would have made $1,610 and our current trade will make $4,150 if shares are called away at $15 in mid-March.
The total profits would add up to be $9,530. The return on the $8,000 investment would be 120%. So yes, we may have left a little on the table but by writing covered calls, we lowered our risk. If shares would have fallen to $5 on a negative vote, you still would have banked $5,380 from selling call options and we could have closed the trade out on the bad news and still made money.
This is another reason why the Wall Street pros who bash covered call writing have no clue what they are talking about. It was one of the reasons we started the Weekly Wrap newsletter to prove these knuckleheads wrong and to make you money.
Remember, we brought you the Dendreon (DNDN, $14.42, up $0.69) story at $4 before shares made a run past $50. We told you to get out at $40 last summer. We now like the stock again at current levels. We also gave you the Imax (IMAX, $24.69, up $0.73) story at $3 and was bullish up until the low $30’s which is when we told you to get out.
These two stocks are another reason we started the Weekly Wrap. Owning stocks require a little more trading capital and they don’t provide the leverage options do but when you use these two strategies together, man, can they be a powerful combination.
For those of you who do not subscribe to the Weekly Wrap, it is the SAFEST way to play options if you are a new trader and just learning or if you have a trading account under $2,000.
You can sell an option by owning just 100 shares of a stock so the above trades would have yielded the same returns if you would have started with just $800.
Our Weekly Wrap trades were 16-0 last year and we are 12-0 for 2012. We could have up to 10 more positions called away in March. We just added 2 new trades this week where we are expecting profits of 50% and 100% over the next 6-12 months.
If you are not a subscriber to this publication, we have ran specials in the past but we have come to the point where we are on the verge of exploding as subscribers take notice and trading firms find out about our research.
We have kept the price low for those of you who took a flyer and believed in us and we want to offer one more special to everyone who is not a subscriber. One trade will probably pay for this low introductory offer so take notice.
We are offering a special 3-month membership to the Weekly Wrap that we will probably never offer again because the publication is starting to speak for itself. This special rate is for current members and new subscribers and for those of you visiting the website today. We will not advertise this rate either and it will only last through the weekend.
As far as the 2 trades we entered this week, one stock is priced at $9 and we have a 6-12 month target of $15. The other is a stock that could go from $4 to $8 in 1-2 years.
You can sign up for a one-time 3-month membership to our Weekly Wrap newsletter for only $129 to get these 2 new trades which are still at these low levels. This is a 50% savings off our regular subscription price and averages out to just $43 a month. Use promotion code A0FB422004. Please associate with Weekly Wrap 3 month Subscription (Reg. $261).
3-month Weekly Wrap membership – $129 – use coupon code A0FB422004 and go here:
As far as the market, the bulls have finally showed some strength after Monday’s big pop at the open and are pushing our fluff targets once again.
The Dow is higher by 44 points to 12,982 while the S&P 500 is up by 4 points to 1,362. The Nasdaq is higher by 20 points to 2,953.
We also have profits to take in another call option trade as shares have fallen below our Hard Stop. We were able to book profits of 36% but we will be back to trade the options again. It is a $12 stock that is going to $20 this year. Count on it.
Make sure you hit us up on our Weekly Wrap offer to start adding even more profits to your portfolio.
Subscribers, check the Members Area for the updates and we will be back in the morning with our next update.