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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: FaultLine who wrote (171)4/23/2001 8:53:29 AM
From: tekboy   of 5205
 
I read it and liked it, and had actually been thinking of something similar. The distinction I was going to use was between CC as a strategy and CC as a tactic--that is, writing CC's continually, trying to derive a constant small stream of income off the side of one's LTB&H portfolio, and writing them because you think a particular trade is likely to pay off in a particular time frame. Sort of corresponds to your two categories.

One thing I'd like to hear more about is what the ideal circumstances are for the two types of CC writing to pay off well. I mean, with LTB&H, your stuff just sits there and at the end of the day you pocket or lose the difference between your start point and end point. This strategy works best if there is a nice rise eventually between point A and B. With regular options, you're more into short-term gambling, profiting hugely if you guess right about where a stock is going to go next (and losing if you're wrong about that).

If regular options increase volatility, however, writing CC's seems to have the opposite effect, acting as some kind of insurance if the underlying drops and capping the gains on the upside if it rises. So--is this correct, and if so, what are the conditions/expectations under which such a strategy would be the wisest choice?

dtb
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