Covered Calls for Fun & Income

Cost Justifying CallWriter Service

Sometimes I get inquiries from readers asking me if I think CallWriter is too much to pay for their service. I would like to show you how I actually SAVE money using CallWriter in conjunction with Interactive Brokers, compared to just using, for example, optionsXpress.

I used to have optionsXpress as my broker. I had built Covered Call scans that were working relatively well for me. My problem was the low amount of shares/contracts I was trading, usually 100 to 500 shares and 1 to 5 contacts per trade. I was also trading around 2-5 Covered Calls per month. It didn’t take long to realize that the commissions were killing me on my returns.

Using the volumes that I was trading, each position I entered cost me $29.90 in commissions (14.95 for the stock and 14.95 for the options). Then, if the desired result happened and the stock finished ITM, they charged another $14.95! Worse, if the stock expired OTM and I wrote another Call and collected, say 0.80 premium on the call (a total of $240) I got dinged another $14.95, that reduced the premium collected to 225.05 and if it got assigned, knocked it down to 210.10! In the game of Covered Calls, reducing costs is one primary key to success. I will chart this out later.

I have had accounts at Interactive Brokers in the past, and once again looked to them as a possible broker, but they didn’t have the research I needed to screen for Covered Call prospects. So off I went looking for a free or paid service to provide me the research I desired.

After weeks of searching, I settled on CallWriter. I started with the free trial, then I moved on to monthly billing. Soon after I converted to annual billing at a significantly reduced rate. Right now that rate is $699.95, or $58.32.month (if you use the link provided on this page). Once you lock in that price, it will NEVER be increased. I don’t have to tell you about how useful and successful I have been using this service – this blog is full of evidence of that.

As most of you know, I now trade an average of 11 times a month. My average shares per trade are 300. Using this data, lets compare optionsXpress against the combination of CallWriter and Interactive Brokers:

20090630-ox-ib-cw-compare-table

I rest my case!

Granted, Interactive Brokers’ trading platform (Trader Work Station or TWS) is not the easiest to learn, but it is extremely powerful and fast. I also get price improvement frequently on my trades (better than the Limit price I have entered). To address the complexity, I have created several videos on using TWS for the purpose of trading Covered Calls and entering Buy-Writes. If there are some that you would like to see, just let me know.

booknCD-MedIf you are new or want to start with CallWriter but don’t know how, I would start with the Book + 2 Special for $129.95.

You HAVE TO HAVE HIS BOOK! His Ultimate Covered Call Book is my bible and rests next to my PC along with my Trade Plan for easy reference. Then, when your 2 months are about up and you want to continue with the service, use my link again, then go to the bottom of the page and click on “Pricing and Discounts” to get to the page with the quarterly, Semi-Annual and Annual special rates.

Readers, THIS IS THE LINK to Covered Call success!

Please, if you have any question or need any help, leave a comment or send me an email.

– Jeff

PS – Some additional IB data…

20090630-ib-commission-rate-compare20090630-ib-price-improvement-table

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11 Comments »

  1. […] Calls, Interactive Brokers — Jeff @ 1:09 PM Just a quick note to let you know I updated to Call Writer Cost Justification page . My first version was rather sparse and even looked bad to me, but I think you will find it worth […]

    Pingback by CallWriter Justification Page Update « Covered Calls for Fun & Income — June 30, 2009 @ 1:11 PM

  2. Jeff,

    Your picture #2 is too small for me to read and if I magnify it large enough to see, it is hidden behind ads.

    Can you briefly describe in words what Price Improvement is and what the technical basis is behind it?

    Thanks, Don

    Comment by Don Lloyd — July 1, 2009 @ 7:44 PM

    • Don,

      Price improvement means this: I enter a limit order to buy on a option with a Bid/Ask of 1.50/1.60. My buy Limit order is for 1.60, the current Ask. Normally it would be filled immediately at 1.60, but it turns out the debit was 1.57. So the price I was willing to pay was reduced, or ‘improved’ without me forcing it by lowering my Limit. This happens pretty often, especially on penny options.

      Price improvement could happen on options, equities, futures, etc. for buys and sells – although I have only witnessed it on options when I buy and don’t recall witnessing it on sells (for equities the bid/ask changes too fast for me to tell if I got improvement or not).

      Hope this helps.

      – Jeff

      Comment by Jeff — July 1, 2009 @ 8:08 PM

      • Jeff,

        Thanks.

        Who is giving you the accomodation and how/why?

        Am I correct that you couldn’t have entered a limit of 1.57 even if you wanted to? (nickels only)

        I sometimes see a few cents on a b-w or an unwind, but not yet on a option-only order at Schwab.

        Regards, Don

        Comment by Don Lloyd — July 1, 2009 @ 10:12 PM

      • Don,

        Here is a quote directly from IB’s web site on Smart Routing:
        Interactive Brokers offers its customers a software product referred to as “Smart” order routing. Smart Routing software continually scans competing markets and automatically routes orders directly to the best ECN or market center — based on price but also taking into account factors such as the availability of automatic order execution.

        Each ECN and market center administers its own set of trading rules. Accordingly, Customers that do not select Smart Routing should be sure to familiarize themselves with the various trading and order handling rules of those market venues to which they intend to direct route their orders. A complete listing of market venues along with website links is made available on the website under the Trading and then Exchange Listings menu options.

        I use Smart routing on all my order thus giving me the best chance for price improvement.

        Certain options (maybe all of them now – but I am not sure) are priced in penny increments. I suppose I could have entered a limit of 1.57, but really I was just using this as an example of price improvement.

        The few cents you are getting on the buy-write may be coming from the changes in the underlying and not necessarily the option.

        – Jeff

        Comment by Jeff — July 2, 2009 @ 5:50 AM

      • Jeff,
        Thanks.

        Schwab has something they call Smartex. This may or may not apply to options, but it seems to say that a similar functionality exists.

        Schwab agent said that a ‘penny pilot’ program has been in effect for 13 (stocks and indices) since 2007. Another 50 are close to being added. INTC and MSFT are included, so I may see penny bids and asks on a L2 option display . We’ll see, but this is a long way from being universal.

        When I see improvement on b-w or unwind orders, the improvement is on the net debt or credit, so it is real.

        Regards, Don

        Comment by Don Lloyd — July 2, 2009 @ 8:38 AM

  3. Jeff I use optionsxpress and have the same problem with them that you have.I am about ready to transfer to IB,But they tell me that they pay no interest on idle funds-since I would be transfering about 500K to them this becomes an issue.How do you deal with this problem? Thanks Don

    Comment by Don Campbell — July 13, 2009 @ 10:27 PM

    • Don,

      I don’t consider your situation a problem at all. First of all, is it your intention to have all 500k in Covered Calls? If that is the case, then I would suggest that you do what is called Portfolio Writing on 400k and short-term Covered Calls the the remainder. In portfolio writing you buy very good, dividend paying stocks with the intent to hold them. You then write Calls against them 6-8 times a year with the intent of not delivering the stock if they are ITM – although this may happen occasionally. You are not looking for high premium, so your Calls would be far OTM but close enough to provide a 0.5-1% return per month.

      I still have access to OX and I use their screener occasionally. I just ran a screen for just those types of portfolio writes, and came up with COS, COH, UPS, HON, YUM, CAT, NUE, TGT, XTO, AFL and BBT. For instance, if you were currently holding shares of BBT, you could write a AUG 25 strike for 0.35 (25 is above any sort of resistance and above all MA’s) that would give you a 1.6% return. Sweet, huh? Plus their annual yield on their dividend is 2.74%! AFL is another good example (AUG 37 is 0.35 with the stock currently at 30.66) – love that company and their duck!

      If you want to hold on to the stock and it is ITM at expiration, you can always roll up and out, roll out or let it be assigned and buy it back again – depending on several factors like Div-Ex date, earning dates, etc.

      My plan is to go into the portfolio writing mode once I have accumulated enough capital to live off the 1% per month, but for right now I am in a capital accumulation mode and doing higher risk, higher return short-term buy-writes. Besides, I have always been an active trader and I am a bit addicted to trading, so I may always do the sort-term CC’s.

      – Jeff

      Comment by Jeff — July 14, 2009 @ 7:22 AM

      • Jeff: Thanks for the info,I am going to go ahead and transfer to IB.I will be doing portfolio writing as you sugested but on 50% of my funds,and the other half will be short term covered calls. Don

        Comment by Don Campbell — July 15, 2009 @ 10:36 PM

      • Don,

        Sounds like a great plan. Let me know if you need anything else – always glad to help.

        – Jeff

        Comment by Jeff — July 16, 2009 @ 11:45 AM

  4. Hi Don-great site..very useful..thanks. Just signed up with CallWriter and use IB as my broker. Want to find out if IB has a way to set up for “contingent sale” so as to exit the CC entirely if the stop loss is triggered by the stop on the underlying. I have been using IB for years but am unable to find out how to set a contingent sale up on TWS. Any ideas?

    THANKS!

    Larry B

    Comment by Larry Barnes — October 1, 2009 @ 9:02 AM


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