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Hi,

Hello portfolio,firstly I don't try for 5% per month too aggresive for me,on the covered calls I sell otm with an annual gain if called away of 40-60% if I still like the stock I will roll up and out when hit increasing number of contracts if necessary all adjustments must put cash in my pocket.
Selling puts to buy stock on the cheap is a strategy I love again otm if you do credit spreads to limit downside there is no benifit (usually) to extending the time period beyond 3 months,however naked sales I sell maximim time to take in the highest possible premium and so downside protection,if hit on the naked sales if there is a lot of time premium still in the option I don't like paying for this ,as one thing thats guaranteed is the time premium will run out,so just short the stock (cfd or spreadbet)till you get another buy signal medium term then take off the short trade and decide whether to accept assignment or again roll down and out.
I generally use software which gives strike prices of 80% probability of profit assuming random price movement ie no allowance for fundamental or technical signals
I'll copy from another thread a share screen that I use to select stocks fundamentally hth

This provides a short list run technicals for buy/sell points,I like to sell options at 80% probability of profit using standard deviation of prices and making no allowance of any value from the fundamentals or technicals in practice early 90% probability of profit should be achievable, the sold options help to fund purchase of shares but I may roll options down and out and would wait for a T.A. buy sinal (puts)
Value Screen Low PER and PSR
PEG< 1
PER<= Ind avPER
PSR<= ind av PSR
ROE>Ind av ROE
5 yr av ROE > Ind av ROE
ROCE> Ind av ROCE
5 yr av ROCE > Ind av ROCE
Long term debt < Ind av LTD

Margins
sceen on business oriented components,if a company is weak in its core day to day business theres little chance it should be included in your portfolio
use operating margin then gross margin if op is not available
asset turnover shows how well a company is turning its physical asset base into sales(covers low margin high turnover companies)
ROCE(ROI)shows how well a company does in day to day operations
ROE depends on how conservative balance sheets are (debt levels)
First 3 lines are the primary screen which is value but there are likely to be too many dogs in there
Next 5 lines are secondary theme of quality to solve the problem,the size of the list should now be managable
with a high probability it contains few if any dogs
Don't get hung up on the fact that the number of secondary tests exceed the primary theme,the important thing is to articulate the main goal
To put more emphasis on primary theme
1 peg<0.75
2 ttm pe<=(Ind av ttm pe)*.75
3 ttm p/s<=(Ind av ttm p/s)*.75
4 ttm p/cf<=(Ind av ttm p/cf)*.75
5 ttm roce> Ind av roce
6 5 yr av roce>Ind av 5 yr roce
7 long term debt ratio<Ind av ltdr

Portfolio

At time of writing the following shares I am following are offering 5%+ for a covered Dec call (IOC, FXEN, SNDK, GLG, GSS).

Usually shares with such high premiums are in a strong uptrend, have no dividends and under $50 per share. If you are only interested in covered call writing and what stop levels to put in to protect your portfolio then I strongly recommend trend following strategies

http://www.turtletrader.com/

It comes down to what style suites you. Zulu uses a stock selection process to hold shares on a long term basis. If he gets the majority of his selection right he will beat my strategy hands down. Mine is essentially a trend following system which uses options to control risk.

Also have you considered ratio spreads,these would give you downside protection to zero if done for a credit,upside risk of course then has to be managed.And strangles by definition you can only lose on one side of the spread and often keep both premiums,but risk (and margin requirements might be too high) needs to be managed.

Zulu and Footsie,

Many thanks for the ideas you have posted. I have a long term portfolio on which I wirte OTM calls for some downside protection and income.

I am looking for a system which can identify shares for writing calls monthly with a view to having the shares assigned that month if possible. Also to protect the downside if the price tanking prior to assigment. Anyone subscribe to any of the covered call newlsetters that are around and are they any good ?

I use ratio spreads and it is one of my favourite strategies and I only do them for a credit. You only have risk to the upside and it is very easy to monitor and I always close the position if the the share price closes above the sold strike for more than 2 days. Is there any software that can screen ratio spreads for credit ?

I have also tried ratio spreads with a long term hedge like a leap which can be held as insurance in case the underlying goes through the roof. I wonder if anyone has a computer model for ratio spreads that can be used by buying a leap to cover long term risk to the upside?

Portfolio

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Hi portfolio,

Simple downside protection can be attained by buying a put at least twelve months out on the same underlying.  Of course you then divide the cost of the option by the number of months you have until expiration.  This reduces the % profit each month but if you are able to pick stock that should be called out and you are selling OTM calls the cost of the position should be absorbed by the additional profit.  Thats the basics anyway.

www.compoundstockearnings.com invested their own money into a covered call fund and have a service where you can not only observe their postions and learn why those positions were entered but there is also a way of mirroring the trades for yourself.  They are hitting about 4.90% return per month.  Their overal goal is to compound their fund to $5M in eight years.

You can also sit at your computer for the two hour tutorial which is streamed from the site.  They have close links with www.poweropt.com (who give picks and info for writing calls and constructing leaps and more) and have been speakers at some of Kiyosaki's investing conferences.

Having said all that if you done any amount of googling on covered cals you will have come across them anyway. 

Maybe worth reading these reviews on the book by the same people that built that compoundstockearnings.com website. 

http://www.amazon.com/review/product/0470044705/

As a software engineer, I'm familiar with understanding complex concepts and using a computer to earn a living but there seems to be a lot of too-good-to-be-true techniques being promoted. Any private tips on where to start with software / brokers / online accounts and above all balanced research and information would be greatly appreciated.