Bill,
On August 2, you were writing SEP calls 7 weeks ahead of expiration. I'm sure you did collect a decent premium, and gave NEWP some room to wander around a bit without feeling like you had to do something. Hope it works out well for you. My guess is that sometime in the next few weeks you are going to be very glad you picked September instead of August. Time will tell.
The case for writing even farther out is not based on a prediction of where the stock is going to be when those calls expire. It's a trade-off between getting maximum time premium if the stock goes flat, which is what you get with consecutive near term calls, or creating the possibility of doing better if the stock pulls back and a little breathing room if it goes up in the near term. On a stock that has moved 25 points in the last 3 months, and is capable of moving 10 in a few days time, higher premium and some breathing room are very attractive.
If you trade in and out of very long term calls you are giving up almost all chance of benefiting from time decay . The call simply tracks the stock at a nearly constant percentage, and you have the equivalent of a reduced size stock position. For people who do not want to sell their underlying stock, selling and buying longer term calls is another way to take advantage of market swings. I don't think it's the best way, but it is a way. I think writing 2 to 4 months out is a reasonable compromise for a volatile stock. It has a reasonable time decay benefit if the market goes flat, and still affords good opportunity to benefit from market swings.
I don't know about skinning cats, but there are many things one can do with options, including simply buying them when the time is right, bull and bear spreads, market neutral positions. Many of these have well defined limited risk with large potential rewards. But that's a topic for a different thread. CCs are a good place to start, and for many it's as much as they want to do. Some people do quite well with it. And I think some of them hang around these parts.
Dan |
