Ask Mike:
How can I follow your options strategies with less money?

Question:

BJ from Portland, writes:

Hi Mike,

I'm on your Stock and Option Portfolio list and really like what you are doing. Your picks are really looking great. I have done covered calls for years and like the strategy, but I never had the tools that you have for looking at the trends. The trend analysis for picking the right covered call strategy looks to be a big winner. Congrats!

However, I have a problem with the Stock and Option Portfolio. You are working out of an investment basis of $100,000 and I only have about $40k to use for covered calls. That means I can't even get close to matching your portfolio because you are buying way more stock than I can possibly afford.

Do you have a Covered Call-1 or something like that? I want to follow your strategy, but would like to see you offer us little guys something.

I have been a subscriber for a couple of years and I tell all my buddies about TurnerTrends. I'm glad I can get you on the radio here on Saturdays, now. Without question, you offer the best service available anywhere. Keep up the great work!

Regards,

BJ

Mike's Response:

Hello BJ,

We have a lot of subscribers from the Great Northwest. Thank you for writing.

We have received a number of requests to offer a smaller covered call portfolio. You will be happy to see how we have responded to your request in this week's newsletter.

We have just launched a Covered Call-5 Portfolio.

This portfolio will focus on lower priced stocks and never (almost) buy more than one contract at a time. The Covered Call-5 has an investment basis of $50,000. And although that's a bit higher than the amount you have available, I suspect you will be able to follow most of the trades without any difficulty.

As you know, the concept of a covered call strategy is to buy a stock that you feel is more likely to move up in price than down. This is where our trend analysis really comes in handy. Then, you sell the calls on the stock at some future date and collect a premium, up front.

Hopefully, the stock will continue to move up in price until it exceeds the strike price of the future call. Then, the call is put to us and we are required to sell the stock at the strike price. We get money for selling an in-the-money call, and we get money for selling the stock. Plus, if there are any dividends paid before expiration, we get that benefit, as well.

We add another level of analysis to this process. First of all, our normal hold on a stock is 60 to 90 days. So, we only look at expiration dates that are within that window. Then, we look at the downside possibility for the trade and use our Expected Move calculation and our Stop Loss calculation to determine where we want to set our stop loss. If the upside gain is not significantly better than the downside risk, we pass on the trade.

This is a new strategy for TurnerTrends and time will tell if it is going to be as successful as our back-testing tells us. At this point, we are very excited about the covered call strategy and, by the number of people signing up for our Stock and Option Portfolio, it is resonating with them, as well.

We have added your email to the Covered Call-5 mailing list. Our first trade will be this coming Monday morning.

Let me know what you think about this new portfolio and if it fits your needs.

Also, I want to thank you for your very kind remarks. It means a lot to me and the whole TurnerTrends team!

Regards,

Mike