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Lesson2: Why 5% are enough

In lesson 1 we have seen how writing covered calls can give you monthly returns of 5% and above. The downside is, that you won't participate in a large upward move of your stock, as you have to sell them for the strike price. But this isn't that bad, if you look at the magic of compund interest.

Let's assume you manage to make just 5% per month by writing covered calls and start with just 10,000$. Now see how your capital will grow:

Equity growth at 5% per month
 
 
1
2
3
4
5
6
7
8
9
10
11
12
1st year
10,000
10,500
11,025
11,576
12,155
12,763
13,401
14,071
14,775
15,513
16,289
17,103
2nd year
17,959
18,856
19,799
20,789
21,829
22,920
24,066
25,270
26,533
27,860
29,253
30,715
3rd year
32,251
33,864
35,557
37,335
39,201
41,161
43,219
45,380
47,649
50,032
52,533
55,160
4th year
57,918
60,814
63,855
67,048
70,400
73,920
77,616
81,497
85,572
89,850
94,343
99,060
5th year
104,013
109,213
114,674
120,408
126,428
132,749
139,387
146,356
153,674
161,358
169,426
177,897

In just 5 years your initial capital of 10,000 $ turned to over 177,000 $. That's growth by a factor of more than seventeen. This should be enough compensation for the missed upward move mentioned before.

Next we'll have a look at how www.CoveredCalls.de can help you pick a winning covered call in lesson 3...

If you have further questions feel free to write us at questions@coveredcalls.de.