- Some people fear cryptocurrencies.
- Fear doesn’t play well in finance.
- The back door into cryptos.
For reasons beyond all sane logic and wisdom…
Some of you won’t dive into cryptocurrencies.
It’s hard to figure, honestly…
Despite the fact that virtually every cryptocurrency is enjoying triple-digit advances — it happens daily — a handful of readers remain on the sidelines. (Don’t believe me? Click here.)
If you’re such a reader, please take notice…
When fear drives investing decisions, it seldom ends well.
Passive decision-making can be equally as bad.
Nonetheless, I’ll try to throw these folks a lifeline.
NVIDIA (NVDA) makes high-performance graphic processing units (GPU) — ones that crypto-nerds use to “mine” coins.
In fact, NVIDIA’s line of cards was specifically manufactured for digital mining efforts.
As you can imagine, shares are going vertical.
Since the stock will likely remain in an aggressive ascent all year, I’ve got an idea…
Sell a covered call on shares of NVIDIA.
Covered calls are among the very safest ways one could possibly ever invest in cryptos! (The far better move, however, is buying the hottest ICO on Earth.)
Hutch’s full report is below.
Ahead of the tape,
Chief Investment Strategist, Wall Street Daily
Martin Hutchinson: Good morning, this is Martin Hutchinson, senior analyst.
I’m building a library with you of all the concepts that you might need when investing. The core concepts that help you become a better investor.
Today, I’m going to talk about covered calls.
In a covered call strategy, you write call options against stocks you hold as long-term investments.
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So that means that you give somebody else the right to buy the shares of stock from you, generally at a modest premium from the current share price.
Now, why would you do that? Well, writing covered calls is a good way to add income to a portfolio of blue chips.
You don’t want to do it on growth stocks, because they may zoom up further than the strike price of the call option, and then you lose the growth.
But with stable income stocks, it makes a lot of sense because the call option premiums add to the dividend. If you get, say, four call option premiums a year, you can easily make a return of 10% or so.
Of course, this does have some downsides.
Generally you’ll find that your portfolio weeds itself out so that you lose the real winners. That’s another good reason for doing it mostly on income stocks.
If the market overall is very strong, you’ll lose out because your call options will all get called and you’ll end up with nothing in your portfolio in a strong market. And same is true if you’ve got a stock with real growth and upside.
The other problem is that a call option locks you into the stock.
Once you’ve sold a call option on it, it’s dangerous to sell the stock if you suddenly discover some bad news. You’ve then got difficulty selling. You’ve really got to buy the call option back as well. So if the stock looks riskier or the market turns downward, you can get trapped in it.
But on the other hand, you can get dividends and the call option premiums, which is ideal, and it gives you an additional return on your portfolio if the market is flat or moderately declining.
You can also combine a covered call selling strategy with a put selling strategy. The way you do that is to first sell puts on stocks you want to own, generally at prices below the current level so it would be attractive to buy them at those prices.
And then if you get the stocks put to you, you sell calls on them, and then revert to puts if the calls are exercised, so you can flip between calls and puts.
This gives you lots and lots of income, but over time it will tend to erode your capital, because the stocks will be put to you, and then may go down further, and others will be called from you and then you won’t get the benefit of the increase.
So the bottom line is if you think the market is flat and you’re income-oriented, selling covered calls is a good strategy, but you want to be careful, because over time it will erode capital somewhat, as you’ll tend to keep to losers and lose the winners.
This is Martin Hutchinson, signing off.
Senior Analyst, Wall Street Daily