Swing Trading Covered Calls for Extra Monthly Income

There are several ways to generate extra monthly income using your stock portfolio.  One of those ways involves swing trading your covered calls.  The principle is the same as any other form of investing.  You want to buy low and sell high to maximize your profit.  In the case of covered calls, you want to sell the call when the stock is higher and buy back the call during times of weakness when the call is less than your original selling price.  Then you can sell the same call when the stock rises again. 

After following a stock for awhile, you should be able to get a sense of support and resistance which should clue you in to appropriate times to buy and sell calls.  I have had good success with this technique using Goldcorp (GG) in my retirement portfolio.  To give you a better sense of how this might work, allow me to share with you an example from this past week using Valero Energy (VLO) which is an oil refining company.

I own 1000 shares of VLO and sold 10 May $20 calls on April 7 for $1.01 per share.  About one week ago, VLO started exhibiting some weakness along with the general market and the price of oil.  I felt that this might be temporary and thought I would take the opportunity to swing trade the calls.  I bought back the calls on April 16 for $0.46 per share with the intention of selling again at a higher price.  I did this on April 20 for $0.60 per share.  This yielded net cash after commissions of $109.77.

I was able to repeat this process the following day on April 20 by purchasing back the calls a second time for $0.40.  Then on April 21, I sold the calls for a third time for $0.52 per share providing another $90.77 in cash.  I was concerned that yesterday might be a weak day for the market so I sold when I did.  Otherwise, I could have made even more.  But I am surely not disappointed.  I am still in the exact same position I was in one week prior holding VLO shares and being short VLO May $20 calls.

Thus in the course of 4 trading days, I was able to make an additional $200.54 for my stock portfolio all in less time than it took to write this article.  It will likely take me four to six months and a couple hundred articles to earn that amount with Google AdSense.  I am currently waiting for a little additional profit with some GG calls I repurchased in my retirement account.  I am hoping that Monday I can resell those calls with some additional strength in the gold market.

I will typically buy back calls when they have declined by about 50% from my initial sale price.  Then I will give it about a week to see if some strength to the stock returns.  Otherwise, I will often just sell calls for the next month out.  I tend to use just a sense rather than specific technical indicators especially with GG and the gold market since I have owned gold and gold shares since 2003.  This technique has worked well for me to generate extra cash in a retirement account that is no longer receiving any deposits so it is easy to gauge the impact over time.  If you trade covered calls, you also should consider swing trading them in order to generate extra monthly cash.