Profitable Trade: Lowe's (LOW) Covered Call

Today I closed out the following transaction in a Roth IRA:

08/02/2011  11:10:55 Bought 200 LOW @ 20.8495                                     -4,179.89

08/02/2011  11:11:26 Sold 2 LOW Oct 22 2011 21.0 Call @ 1.06                      200.50

10/18/2011  13:32:43 Bought 2 LOW Oct 22 2011 21.0 Call @ 0.48                -107.52

10/18/2011  13:34:02 Sold 2 LOW Nov 19 2011 21.0 Call @ 1.03                     194.47 

11/02/2011  03:09:46 QUALIFIED DIVIDEND (LOW)                                         28.00

11/15/2011  13:10:14 Bought 2 LOW Nov 19 2011 21.0 Call @ 2.15               -441.52

11/15/2011  13:11:31 Sold 200 LOW @ 23.1218                                           4,614.28

We made $308.32 on this investment in Lowe's a Dividend Champion. This is a profit of 7.74% on our initial investment which equates to 26.57% annual. I closed the position rather than letting it get assigned because it cost about the same in commissions and I've got access to the proceeds 4 days sooner. This is a meat and potatoes enhanced income transaction.

Long Term Secular Bear? How to Play It?

If you look at the S&P chart for the last 10 years a couple of things stand out. First, 10 years out and we're about where we started. Second, the S&P has been been making lower lows and lower highs. I would not be surprised to see the S&P reach the lowest low before the beginning of the next secular bull market. Historically a bear is finished devouring it's prey when the P/E multiples of stocks are in the low single digits and everyone and her cosmetologist has sworn off stocks forever.

Financials usually lead us out of bear markets and into bull markets. Do you see that happening anytime soon?

This girl thinks the best way to play this market is to write in the money covered calls (or out of the money cash covered puts) on select Dividend Champions or commodity ETFs, picking off short term dividends and option premiums. I think income investors should be patient, build cash reserves and preferably enter positions when the herd is scared.