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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: FaultLine who started this subject5/10/2001 1:13:39 PM
From: FaultLine  Read Replies (3) of 5205
 
Thread,

Last month Uncle Frank and I were discussing the basis of one of my stocks with relation to where I wanted to write the call contract. He made a comment which puzzled me so I brought this issue up again today. We decided to troll for some other opinions.

duf wrote:

I rarely consider cost basis when writing cc's. I take the current price as the only one that counts, and try to trade off revenue possibilities against short term upside potential.

I thought about it for a month (!) and responded with this today:

During our CC4D discussions, I have always used the current market price of the underlying stock to calculate the various revenue possibilities. This seem to be in the spirit of what you wrote back on April 11. Right? Although I prefer to think about each write transaction as a fresh, clean slate, it does seem obvious that I would be stupid to write a contract at 20 when the market is 16 and my basis is 30. ONLY if I am willing to buy-to-close and prevent assignment would such a contract work. So even though I may have done my computations using today's quote, I clearly have a little guy on my shoulder whispering the basis in my ear to help formulate the actual strategy to implement. Is this the way you look at things?

In my posted calculations here on the CC4D thread, I do not mention my basis but I do keep track of it along with any discounts from contracts I may have written.

So I guess I am claiming that the current basis must always enter into one’s strategy considerations.

How do you folks think about and handle this issue?

Thanks,
--fl
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