Call me a contrarian, but here goes.
I appreciate you concern, but I wonder if it's based on experience with cc's or just a general distrust of all derivatives?
I don't trade options as a rule. Never have. None of my portfolio is marginable, which makes me an anomaly on SI. I would ever use margin is for what it actually is -- a low interest personal loan with equities as collateral. Since my favorite broker right now is Sharebuilder, which specializes in dollar-cost averaging where you can buy all the stock you want for $8 a month, I guess my philosophy is a bit different than that of many posters here. I think of my portfolio in terms of years down the road, while CCs still leave you plotting strategy on a daily or weekly basis.
In many ways, Frank, I'm a lot like you. I spend a lot of time up front looking at companies I might want to own, dismissing almost all of them until something jumps at me. Then I average in at various points when I think the price is right.
Where we diverge is that you sell covered calls, which means that you can wind up selling off part of your position and losing the chance at long-term gains. A call with value has a chance of being in-the-money at expiration. If you look at the possibility of owning Gorillas over time with tax-deferred growth, do you want to give up your position?
Also, I see the CC people talking about how they're following a conservative strategy or buying an insurance policy or whatnot. It just looks like plain-old leverage to me, the banana peel at the feet of many an otherwise savvy investor/trader. I don't think CCs are morally wrong or anything like that, but surely you must count the costs. In ten years, you might wish you still had the shares. |
