The 2nd scenario

When you are looking to do covered call strategies for longer term wealth growth, this is generally done in an IRA, the key thing to remember is you have to evaluate every stock at the end of every option month. Stock price volatility and/or the belief the stock will rise rapidly in the short term is what gets us a higher premium and therefore a better return.

If in the case of an account where you leave all the call premiums in the account, such as an IRA, your outlook may need to be a little different. Lets think about the powerful investing tool of compound interest. If you make 6% per month and reinvest that profit every month, you will double your money every 12 months. If you start with $4000 and double every year with our 6% per month, in 5 years you have $128,000 and you have over a million dollars in 8 years. This is a very powerful tool when planning for retirement.

Since stock volatility changes over time, we need to reevaluate our portfolio each month to see what rate of return you are receiving from each stock and its call premium. In an account where all premiums are held and reinvested in the account and the account grows tax free, you can afford to take less risk and accept less return and still grow your nest egg quite nicely.

Talk to you tomorrow.