Frankly, the no-fuss, no-muss aspect of buy-write appeals to me. After establishing the arrangement, you can pretty much go fishing and simply let the contract expire, whatever the outcome. Very conservative in my estimation and low maintenance too. (When I write on my existing long position I just think of it as though I bought the shares today -- that let's me quickly estimate the various outcomes.)
On the other hand there are a couple of cases when I may liquidate early:
One: If things are varying enough and I feel like paying reasonably close attention, I might liquidate and try to move back in again if the opportunity arises. Any further contract write can certainly be thought of as a completely new buy-write arrangement with the various outcomes clearly understood. My generally neutral Point Of View does not change in this case, I just go to more of a hands-on mode.
Two: If I get cold feet and just can't bear the thought of losing all that wonderful money when the underlying stock heads for the stars next week. <gg> Then, I'll liquidate so that I can sleep. In a very real sense, at that moment I stop being a seller of calls and essentially, by banking on a strong rise, act like a bullish "call-buyer" as it were. My POV sharply changes.
As call sellers, we base our actions on a neutral or even slightly pessimistic POV -- pessimistic in the sense that we believe, "Yeah, it's up a bit (and premiums are looking better today), but just wait, it will hit resistance and stall or even fall back." I think as soon as you leave this camp and take a more optimistic POV you are joining the call-buyer's mentality (that's #2 above). Notice that #1 does not change your POV on the stock behavior, to me it just means I'm willing to get more actively involved.
Like several others posting here, I am skittish about writing calls on QCOM. Someday (someday!) it will break out and I want my long shares to work hard for me. I won't actually lose with the outstanding call contracts but missing that homerun on the long shares is hard to accept when a strong rise looms in my mind. So I try sitting on my hands. Then during the months of up and down, up and down rollercoastering and all the while knowing how easy the buy-write method is, I start fidgeting. After a couple of months of this I resume writing call contracts. Sure, nickels and dimes but still, money I didn't have last week.
I hold my breath when I write on a large percentage of my QCOM position. Lately I've only been writing on 20% of it and I feel comfortable with that.
--dfl@youcandowiththisoryoucandowiththat.com |
