The Short-A-Ralls of The Investing Universe: Covered Calls

Covered Calls

Covered Calls are like coveralls, the best kind of coveralls … short-a-ralls. Short-a-ralls are the best kind of coveralls, a hybrid between coveralls and shorts. You have not truly arrived until you own a pair of short-a-ralls. This goes for both male and female.

As you can see, we have moved along our Evolution of Stock Investing Chart … down through mutual funds, single stocks, ETFs, dividend yielders, royalty trusts and REITS. You can see on our little chart on the next page that we have arrived at covered call options, the best of them all, the short-a-ralls of the stock investing universe.

Looking through our chart you can see the rates of return you receive on each of the respective stock investing methods. On a $10,000 investments mutual funds should return on average $83 a month in cash flow. Of course this means withdrawing capital gains, suffering the tax consequences and potentially eating into principle when markets droop. You can see that the same amount of cash flow is generated on single stocks, ETFs and REITs, each with their own varying pros and cons. When you drop down to royalty trusts you see that the cash flow goes up about $20 a month. A little riskier perhaps but not terrible cash flow. If you do not like rental, dealing with tenants or property repairs, this is an excellent way to go to generate cash flow. Just make sure to educate yourself on the risks and technicalities of these investments.

But, if you drop down a little further where you run smack into covered calls. According to our chart, we can expect 50% yearly rate of returns on covered calls. A $10,000 investment will deliver $417 a month in cash flow. Sound too good to be true? Our rule is, if something sounds too good to be true then it is worth checking out. I will go into great detail on these short-a-ralls in chapter seven.