Covered calls have their place

At times covered calls can be very profitable. The most significant problem arising from covered call "mentality" (I say that because many firms used to let you do these in IRA's but not other strategies, the idea being that these were conservative) This was left over from the gaga nineties of markets always come back and buy and hold syndrome. Time has proven both of these absolutely wrong. (see my latest newsletter regarding why the myth lasted so long) Anyways, as we know now (at least the main stream media will finally admit) this flawed attitude made covered calls fall from grace. If the underlying is falling, you are now going to have to sell calls closer and closer. A bounce and the underlying is now higher than your strike price and you have not recouped any profit thereby locking in a loss.

But with the advent of a bear market, we can now buy many low priced and use the covered call strategy once again. It is not as good as the calendar for most cases, but if you are in an archaic broker that will only allow covered calls in retirement accounts, then this will work.

One of my favorites now is ERF. This is a Canadian trust in the energies. It has a 11% dividend. So if you hold it, you get at lest 11% (not bad in this environment) taking the strikes above, you now can enhance the return. Since oil has taken a severe beating, this should have found a bottom in the 22.00 area.