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Don't get me wrong, it can also be good time to be a stockholder if earnings numbers are really great, but I'm a little more conservative and to me it's just not worth risk. You can always buy back in afterwards anyway!
Always take a look at stock charts when choosing a stock to write covered calls on. There are 3 general patterns that I look for:
1) A moderate uptrend.
2) A sideways trend.
However most conservative/safe chart pattern for covered call writing (in my experience) appears after a stock has had a steep sell off and has begun to move sideways for a couple of months.
This is a type of 'bottoming' pattern where much of downside risk has already been 'sold' out of stock.
As covered call writers it's always important to remember that our risk lies if stock falls sharply, so we want to do our best to reduce risk as best we can. This is just one way that I have found to be effective.
If you go to http://www.stockcharts.com and pull up chart for QQQQ during early part of 2003, you'll see this exact pattern. I successfully wrote covered calls on QQQQ for about 4 months during this time before I allowed myself to be assigned and moved onto another opportunity.
There you have it. Hopefully these tips help you on your way to consistent profits and monthly cashflow writing covered calls.
Oh, it also goes without saying but I'll say it anyway, "Don't put all your eggs in one basket!"
For more information on how to write covered calls go to: http://www.callwriter.com
Happy option trading and investing!
James Thomas is a successful private option trader and has created http://www.option-trading tips.com as an informative no-nonsense resource full of useful tips and information designed for option traders to improve their trading results.