Covered Calls, Dividends & Passive Income

There are a ton of books on Options investing, but very few specifically on covered call writing. One book I recently read was Cashing in on Covered Calls, by Alan Ellman. I got this book off Amazon, but it was shipped directly from the author’s business / publishing company called The Blue Collar Investor.

So my initial impressions of the book were positive. It was a very easy read and provided a lot of real-life examples, which I find very helpful. The book contains a lot of basic practical advice on screening for stocks which could make good candidates for covered call writing. The book is laid out in a very logical format, it beings with all the basic definitions and “lingo” of options and call writing. It then moved onto how to create a watch list of stocks using fundamental and technical analysis. What I liked about this section is the author gives you exactly what he’s looking for when screening stocks and how he goes about his analysis.

The two most useful chapters in the book were Chapter 9 “Calculating Option Returns” and Chapter 11 “Exit Strategies” Nothing profound in these chapters, but I will follow his advice on how to calculate rates of return, downside protection and upside potential. I will reread the exit strategies chapter a few more times just to glean a few ideas. Even before I read this book I started developing an Excel spreadsheet. I hope to have it done soon and published on my Blog so you can download it.

Overall I would give this book a “B” and recommend it for someone who is new to covered call writing, like myself. If you are a seasoned investor skip this one. I would have rated it an A-, but there are a few things I didn’t like about the book. First, the book itself ends on page 187 and then there are 103 pages of appendices. That’s ok if the appendices were useful, but most of there were old email alerts from the author’s Blog and email “testimonials” from people who either took the authors seminar or subscribe to his email alerts. The only appendix I found remotely useful was VIII which lists some reference websites and books. You can tell these last 100 pages are just filler and advertising for the author’s business. Second, the book is self-published many of the charts are screen shot from Yahoo! and other websites. Finally it did not go into writing covered calls over a dividend period, using margin or the tax treatment of covered call writing. I guess those topics are more advanced and like I said this book is very basic.