Back Forty Crop
The Covered Calls Farm
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Planting and Harvesting Covered Calls for Fun and Profit using a Farming Strategy
Back Forty Crop

This crop contains short term positions normally in the 1-2 months expiration period.  Allan Ellman in his book does a great job of describing this strategy.  Basically, premiums appear to erode faster during the last few months of the life cycle of a call option.  Typically premiums are in the 1-3% range depending on the stock, speculation, volatility and other factors.  Since there is small downside protection with this approach it is very important that the call/write is carefully selected to ensure the highest chance of success. 

A wild card is when earnings are reported or there is other expected and unexpected news.  As we know they can drive a stock quickly in either direction.  If you have purchased the stock and written a low premium call an unexpected drop can
create a quick loss.  So, selection and timing of events is important to consider.

The key to making a solid annual return is to repeat this process many times during a year.  If you can achieve a 1-3% return with each position, the annualized return can be fairly high assuming you are hitting the right stuff each time you replant or rotate your harvested crops.

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