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:
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.