How to use covered calls to increase yield (return) on your portfolio of stocks and ETFs. By selling call options on your existing positions you can add 6-10% per year to the dividends you already receive.

1. Increase Portfolio Yield
with Covered Calls
http://www.borntosell.com
Mike Scanlin | mike@borntosell.com | (800) 434-6980

2. Agenda
• Who is Mike Scanlin
• 5 minute review of Covered Call Strategy
• 15 minutes on Born To Sell
• Live demo of Born To Sell
• Q&A
Increase Portfolio Yield with Covered Calls at
5/6/2012 2
www.borntosell.com

3. Mike Scanlin Bio
• Trading covered calls since 1981 (31 years)
• Stock broker father taught me when I was 15
• My career
– 10 years software engineering (two IPOs, 1 acquisition)
– 4 years investment banking (raised $400M for 120 startups)
– 6 years venture capital (invested $86M into 10 startups)
– 3 years as CEO of Born To Sell
Increase Portfolio Yield with Covered Calls at
5/6/2012 3
www.borntosell.com

4. Options Popularity
• Option volume growing at 25% per year for 37 years
• 2010 volume more than 5x the 2002 volume
Average Daily Volume of Options 2002-2010
• At any moment, 300M open interest controls 30B shares
Increase Portfolio Yield with Covered Calls at
5/6/2012 4
www.borntosell.com

5. Resolution At Expiration
• For any given option series:
– 60% closed prior to expiration
– 10% exercised
– 30% expire out-of-the-money
• If you eliminate those closed prior to expiration, it‟s fair to say that
75% of those held to expiration expire worthless (good news for
sellers of options).
Increase Portfolio Yield with Covered Calls at
5/6/2012 5
www.borntosell.com

6. Covered Calls Are Popular
• Covered calls are "so popular that 84% of investors who trade
options at Charles Schwab are using covered calls these days.” –
WSJ, Jan 2, 2010
• “Covered calls are the #1 most popular strategy among our retail
accounts” – online broker TradeKing
• Attitude of fans of the strategy: “If you’re not doing covered calls on
stocks and ETFs you own then you’re leaving money on the table
each month.”
• Works well in sideways, slightly down, or slightly up markets. Not
optimal in strong bull markets.
Increase Portfolio Yield with Covered Calls at
5/6/2012 6
www.borntosell.com

7. What Is A Covered Call?
• Call Option
– 1 call option gives the buyer the right to buy 100 shares of stock at the
strike price before the expiration date.
– Conversely, the seller of a call option is obligated to sell 100 shares of
stock for the strike price if the buyer chooses.
• Covered call = long stock + short call option
– Buy 100 shares of stock (or ETF) and sell 1 call option against it.
• Free covered call tutorial at
– http://www.borntosell.com/covered-call-tutorial
Increase Portfolio Yield with Covered Calls at
5/6/2012 7
www.borntosell.com

8. Risk/Reward of Covered Call
• Buy and Hold • Covered Call
– Buy 100 shares @ 46 – Buy 100 shares @ 46
– Break even = 46 – Sell a 50-strike call @ 3
– Break even = 43, max profit = 700
– Unlimited upside
– At expiration, CC is better than
Buy & Hold for all values < 53
+ 700
profit CC P&L
B&H P&L B&H P&L
0
46 43 46 50 53
loss loss
Increase Portfolio Yield with Covered Calls at
5/6/2012 8
www.borntosell.com

9. Pros and Cons
• Pros
– Receive cash the day you sell the call options
– Creates additional yield on stocks and ETFs you already own
– Lowers your break even point
• More conservative than the Buy And Hold strategy
– Lowers account volatility
• First part of any drop in stock price is covered by call premium
• Cons
– Puts a cap on your upside
– You can still lose if your stock drops below your net debit
• net debit = stock cost minus call premium received
Increase Portfolio Yield with Covered Calls at
5/6/2012 9
www.borntosell.com

10. Covered Call Benchmarks
23 year study
• Robotic call writing indices
– BXM writes 1 month at-the-money
covered calls on S&P500
– BXY writes 1 month 2% out-of-the-
money covered calls on S&P500
• Both have lower volatility (smaller
std deviation and lower beta) End 12/31/11
• Both beat S&P in almost any time
frame
Increase Portfolio Yield with Covered Calls at
5/6/2012 10
www.borntosell.com

11. $100K Example
Data as of Nov 3, 2010
Sym Shares Price Value Sell Upside Premium w/comm Annual Yield
COP 400 61.25 24500 Jan 62.5 @ 1.85 2.0% 740 730 13.8%
DOW 700 32.77 22939 Dec 34 @ 0.77 3.8% 539 529 19.1%
GLD 200 136.03 27206 Dec 138 @ 2.77 1.4% 554 544 16.6%
IWM 300 73.36 22008 Jan 76 @ 1.81 3.6% 543 533 11.2%
96653 2376 2336 15.5%
• Average holding period of 2 months
• Repeat the process 6x per year
• Less volatile stocks require longer option duration (maybe 3-6
months instead of 2) to make the premium worthwhile
Increase Portfolio Yield with Covered Calls at
5/6/2012 11
www.borntosell.com

12. $500K Example
Data as of Nov 3, 2010
Sym Shares Price Value Sell Upside Premium w/comm Annual Yield
COP 800 61.25 49000 Jan 65 @ 1.00 6.1% 800 790 7.4%
DOW 1500 32.77 49155 Dec 35 @ 0.47 6.8% 705 695 11.7%
GLD 400 136.03 54412 Nov 138 @ 1.37 1.4% 548 538 22.6%
IWM 600 73.36 44016 Dec 76 @ 1.17 3.6% 702 692 13.0%
AAPL 200 318.00 63600 Dec 340 @ 4.30 6.9% 860 850 11.1%
INTC 2300 20.97 48231 Dec 22 @ 0.22 4.9% 506 496 8.5%
KO 800 62.45 49960 Nov 62.5 @ 0.63 0.1% 504 494 22.6%
PEP 700 65.35 45745 Jan 67.5 @ 0.72 3.3% 504 494 5.0%
PFE 2800 17.38 48664 Dec 18 @ 0.22 3.6% 616 606 10.3%
SPY 400 122.26 48904 Dec 125 @ 1.46 2.2% 584 574 9.7%
501687 6329 6229 11.1%
• Average holding period of 1.5 months
• Repeat 8x per year
Increase Portfolio Yield with Covered Calls at
5/6/2012 12
www.borntosell.com

13. Covered Call Web Site
• Born To Sell is a web site service that helps investors with the
covered call strategy:
– Screener sorts 230,000 covered call choices with custom filters
– Portfolio management & tracking for time premium optimization
• Not a trade recommendation service
• Not a broker (we don‟t handle client funds)
• Use-at-your-own-risk tools
• Offered as a subscription service (monthly, quarterly, annual)
• Free trial available
Increase Portfolio Yield with Covered Calls at
5/6/2012 13
www.borntosell.com

14. Two Ways To Use It
• Watchlist (top down, you already know the symbols you like)
– Enter symbols you‟re interested in tracking
– The covered call results are limited to only those symbols
– Can have candidate trades emailed to you after the close each day
• Search (bottoms up, you‟re looking for something new)
– Scans the universe of 230,000 covered calls that meet your criteria
(prices update during market hours, 15-min delayed)
– You can be as detailed (or not) as you want. Specify expiration month, how far
out-of-the-money you want (%), industry sector, P/E, etc.
– For example, you could say “Show me covered calls in the Basic Materials sector
that are 5% out-of-the-money, expire in 2 months, do not have any earnings
releases before option expiration, and have an annualized yield over 12%”
Increase Portfolio Yield with Covered Calls at
5/6/2012 14
www.borntosell.com

15. Watchlist Enter symbols
you like
Looking at Mar
expiration
Looking for 5-10%
out of the money
Earnings before
expiration in red
Ex-div before
expiration in green
• Watchlist is only shows covered calls for symbols you enter
• This list can be emailed to you after the close each day
Increase Portfolio Yield with Covered Calls at
5/6/2012 15
www.borntosell.com

16. Watchlist Email
Set the threshold to whatever you
like (only alerted when there are
matching returns available)
Increase Portfolio Yield with Covered Calls at
5/6/2012 16
www.borntosell.com

17. Still looking for 5-10% out of the
Covered Call Search money, but this time across the
entire universe of stocks
Earnings before
expiration are in red
• Scans 230,000 call options (all symbols)
• Sort by any column. Add/remove additional columns.
• For more control, additional filtering choices under “Advanced Filters”
Increase Portfolio Yield with Covered Calls at
5/6/2012 17
www.borntosell.com

18. Example Screen
• Filter 230,000 down to 38 candidates
Increase Portfolio Yield with Covered Calls at
5/6/2012 18
www.borntosell.com

19. Search Features
• Remove all candidates with earnings before expiration
(to remove earnings announcements risk)
• Limit results to only those with ex-div before expiration
(for dividend capture strategy)
• Limit results to only S&P 500, or only ETFs
• Include/exclude by industry sector (tech, healthcare, etc)
• There is an „excluded list‟ of symbols you don‟t like
• „Max Protection‟ page finds deep in-the-money candidates for
conservative buy-writes
Increase Portfolio Yield with Covered Calls at
5/6/2012 19
www.borntosell.com

20. Shows what other
Crowd Sourcing members have
invested in
Shows what other
members are watching
Click on any symbol
to see the covered
call chain
Increase Portfolio Yield with Covered Calls at
5/6/2012 20
www.borntosell.com

21. Covered Call Chain Select how much of the
chain you want to see
Enter symbol
Ex-div and earnings date
before expiration reminders
Increase Portfolio Yield with Covered Calls at
5/6/2012 21
www.borntosell.com

22. Portfolio Management
• Dashboard shows you how much time premium remains in each
position (tiny premium remaining means it‟s time to roll)
• Rolling Calculator helps modify any existing position
(buy back the call and sell a different one)
• Personalized calendar shows ex-div and earnings dates for only
symbols in your portfolio
• Diversify feature points out if you are over or under weighted in any
sector (compared to the S&P 500)
Increase Portfolio Yield with Covered Calls at
5/6/2012 22
www.borntosell.com

23. Diversify
Overweighted in
financials, use Show
Mine to see yours.
Underweighted in
tech, use Search to
find covered calls in
tech sector.
Increase Portfolio Yield with Covered Calls at
5/6/2012 23
www.borntosell.com

24. Offers
• Free
• Covered call newsletter (monthly)
• Covered call blog (weekly)
• Covered call tutorial
• Subscriptions
Plan Price Works out to
2 week trial Free Free
Monthly $59.95 $59.95/mon
Quarterly $149.95 $49.98/mon (17% off)
Annual $499.95 $41.66/mon (31% off)
Increase Portfolio Yield with Covered Calls at
5/6/2012 24
www.borntosell.com