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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: Gregory who wrote (55)4/19/2001 3:59:50 PM
From: Mathemagician   of 5205
 
I have SUNW in my account that I have bought at $60.00 on margin. It came all the way down to $13.00. It is about $20.00 now. The call premiums look very attractive and I am tempted to sell CC.. Specially , because I have a tendency to believe that price will go back to 13-15.
But I am scared that I will have to sell my position at price much less than $60 if by the expiration date price will be higher than strike CC strike price.

Gregory,

I would try (difficult as it may be) to forget about your $60 cost basis. CCs are not a strategy for one who is hoping to recover a sizeable past loss. They are more appropriate to someone who is concerned about generating income and hedging against future loss.

IMHO, the appropriate thing to do is to focus on making the best of your current situation. If you feel that SUNW will make it back to the 60s, then by all means keep it and don't write any calls, since the climb from 20 to 60 will likely be interrupted by assignment. Judging by your stated belief that it will retest its lows, it doesn't sound like you believe SUNW is the best way to recoup your losses. Why not sell it and put the proceeds into something you feel will go up and not down (even treasuries), or even buy some protective puts? If SUNW does retest lows and you feel comfortable owning it again, buy it back. Otherwise, move your capital to an investment with which you are more comfortable. Fear and greed are things you should work to remove from your investing decisions, though I freely admit it is nearly impossible to remove either completely.

M
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