Trading Covered Calls with ETFs

One of the many opportunities actively traded ETFs offer you is with covered call combinations. There are a number of covered call opportunities for you each day and you can be amply rewarded if you are in the correct ETFs to do this with.

For example, let’s say you are bullish on the financials (they’re below the 200 and I’m not, but we’ll use this as an example in order to understand the mechanics).

The 2x ProShares Financials are UYG. Most people believe UYG is mostly bank stocks, but in reality it holds a large diversified portfolio on bank, brokerage, insurance and real estate stocks. Unless they nationalize all those industries, the likelihood of UYG going to zero is very low (versus the likelihood of individual stocks in these industries going to zero). Friday UYG closed at 2.20. The June 3 calls were selling for 50 cents. That means that you could buy UYG at 2.20 and take in over 20% of premium for a less than 4 month call. And if the ETF gets above 3 by June (it was there 1 1/2 weeks ago), the return to call is $1.30 which comes out to be a better than 50% return after costs. Annualized, the return is above 150%. The risk is that the majority of the companies in UYG get nationalized (not likely). Also, if UYG is under 3 in June, you’ll get the chance to sell the OTM (out the money) calls again, likely at another healthy premium.

The above is not a recommendation. It’s simply shown as an example of the many opportunities ETFs offer you each day, especially in this market environment. These opportunities will likely last for years as ETFs become more popular and are rapidly becoming the market of choice for many professional traders.

I’ll be teaching strategies like the above at a 2 1/2 day High Probability ETF Trading Seminar I’m conducting in mid-March. If you’d like to learn about the Seminar, call 1-888-484-8220 ext 1 and register for one of the live online presentations I’ll be doing this Tuesday at 6 pm ET and Thursday at 1:30 pm.

Larry Connors is CEO and Founder of TradingMarkets.com and Connors Research.

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About Larry Connors

Larry Connors has over 30 years in the financial markets industry. His opinions have been featured at the Wall Street Journal, Bloomberg, Dow Jones, & many others. For over 15 years, Larry Connors and now Connors Research has provided the highest-quality, data-driven research on trading for individual investors, hedge funds, proprietary trading firms, and bank trading desks around the world.

 

Larry has been published extensively, with titles like How Markets Really Work, Short Term Trading Strategies That Work, High Probability ETF Trading, and The Connors Research Trading Strategy Series including our latest Guidebook High Probability Trading with Multiple Up & Down Days.

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