July Option Investing – FAS Covered Calls

Earlier this week,  I decided to reduce my exposure (i.e. smaller position size) in DRN and EDC, which is driving me into other ETFs in order to meet my cashflow goal.

I want to keep the risk from new trades small, because I do not have enough information on the debt debate to know (with certainty) what price changes will occur over the next few weeks.

With the markets in a correction (see commentary based on IBD from the Invest-Safely Blog), I am also keeping money on the sidelines, reducing my “trading” portfolio size.

I set a limit for my portfolio risk percentage at 5% or less  per trade, and the largest 1 month drawdown for FAS is 75%.  Those two figures work out to a position size of ~$5,000 or less.

After some research, I decided on FAS.   With the current price around $25 per share, it was one of the few leveraged ETFs with the liquidity AND option premiums I need to meet my cashflow goals.

I ended up buying 200 FAS shares at $25.18 and selling 2 August $25 calls for $1.66.


About T. Knight
Blogging about my journey to financial independence via investing for cashflow.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: