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Make 3% per Month – Every Month

By Jeff Clark
Thursday, February 7, 2008

I love bear markets.
 
Bear markets create opportunities. Bear markets restore equilibrium and logic to stock prices. And the best part of all – bear markets cause option premiums to inflate faster than a rubber raft at a fourth-grader's pool party.
 
That's great news for folks who want to sell covered call options.
 
Selling covered calls is a strategy that creates income for investors who agree to sell shares of stock at a specified price by some future date. And selling calls creates a built-in insurance policy against downside risk.
 
For example, back in December, I told subscribers to Advanced Income – my covered call writing service – to buy shares of the S&P Homebuilders ETF (XHB) and sell the March 21 calls against the shares. The stock was trading at $19.73 at the time, and we sold the calls for $1.80. So basically, we got into the stock for $17.93 ($19.73 – $1.80).
 
We'll profit on the position as long as it stays above that level. Since the stock is currently trading for $20.79, I don't see much of a problem.
 
The best thing though, is that even if XHB falls below $17.93, we can sell additional calls against our shares and recoup any downside.
 
That's the beauty of covered call writing. You can buy a stock, create immediate income, protect your downside, and continue your income stream as long as you own the shares.
 
It's a fabulous strategy for dealing with bear markets. And it's a terrific strategy to use for generating income.
 
I started writing Advanced Income back in September. Since then, we've sold out two positions for gains of 7% and 8% in two months. We're sitting on four other positions (including the XHB trade) with current gains of 16%, 6%, 6%, and 4%. As we've been accumulating gains, the S&P 500 has lost 13%.
 
Like I said before, I love bear markets.
 
Selling covered calls on low-risk stocks is the single best strategy I know to profit when stocks are falling. Oh sure, you can buy puts and speculate on the downside – but there's risk involved in that (if you got caught short during the snap-back rally of the past two weeks, then you know what I'm talking about).
 
On the other hand, if you want to make 3% per month – every month – which is what we're currently doing with Advanced Income, then you need to sell covered calls.
 
Best regards and good trading,
 
Jeff Clark




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Telecom down in 08... LM Ericsson, Telkom SA, Telephone & Data, Nortel Networks, and U.S. Cellular hit new lows.
 
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Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%