Amero 2009? World Economic Collapse? Who knows

World markets have been crazy, whether the Amero 2009 will be a reality or is just a conspiracy is a great topic of debate, I want to thank everyone for voting on the Amero Currency poll as we near 2000 votes, its been fun watching the results. I want to get a little off topic for one post and talk about the stock market, right now is a very difficult time for those invested or stuck in the stock market. If you must invest or are stuck HEDGE!!!!

I Wanted to explain one simple method to help. Using covered calls is a great way to generate income while you hold stocks. This method is best used if you think the market will be flat or down 6-8 months from now. Its also best if you find a nice dividend paying stock that you are comfortable holding long. Your covered call pays you to wait for a turn around.

I'm going to use a Canadian Bank in my example. Bank of Montreal(BMO) I do actually believe Canadian banks are safer than US counterparts as well, but there are plenty of US stocks ripe for covered calls. I prefer to write calls that yield less income but are only about 2 months out but for our example 5 months works best.

(Buy BMO @ 42.25) today, at the same time (Sell April 2009 48 calls@2.50) Your calls right away give you 5.9% back on your investment! Now lets look at what happens after that. Prices from TSE

Scenario #1) The stock closes above 48 on the 3rd Friday in April and your option is executed. You receive 5.95% from calls+you will have gotten a dividend 1.65%+capital gain on stock of 13.6% total return 21.2% for a little over 5 months. Not to shabby!!

Scenario #2) Stock close below 48, you receive 5.95% from calls+1.65% Dividend total 7.6% return over 5 months. Now the stock maybe down or could still be above your purchase price of $42.25. Worst case is you lowered your break even from $42.25 to about $39. Plus you are only a few trading days from another dividend which would take break even to $38.30 Now at this point you may want to write another call 2 or 3 months out or sell the stock if your in the black.

Obviously if your stock is a falling knife this will not save you, but if you believe you have a solid company, especially one paying a good dividend, writing calls can help a lot over the year. DO NOT USE THIS METHOD IF YOU ARE A PERMA-BULL! and believe the market is about to take off.

Why is this method so good right now? Simple Calls are trading at a premium because of the extreme volatility.