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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: JGoren who wrote (29)4/19/2001 11:19:57 AM
From: FaultLine  Read Replies (2) of 5205
 
Going forward, it's hard to tell what's gonna happen. Those of us who own Qcom know how volatile it can be; therefore, I shall still sell way out of the money, especially because China contracts are expected to be announced in May and I don't want my stock called. I would have to expect Qcom to rise over the next few months.

This is precisely the issue I am facing with the Q. McMillian suggests that you should not write CC's in the face of a bullish market. This really boils down to the issue of whether or not you are ready to have the underlying stock called.

This is why I would suggest to beginners to develop the habit of always walking through (and writing down) the various possible scenarios before opening a new position.

If you are ready and willing to let the stock go, then why not sell an in-the-money call with a hefty premium. This is a simple, low-risk, strategy with good downside protection for the overall stock+cc position, You pretty much bank your money and forget about it

If one cannot bear the thought of parting with the stock for various reasons, then we have to be prepared to play out all the (sometimes distasteful) scenarios including taking a buy-back loss (just this one time, right?&ltg>).

I personally have found myself more constrained by situations where I do not want the stock called. I've been trying to "think bearish" or think neutral and take the lower strikes and higher premiums. But now, with this market upturn I must be willing to let the stock go if I am reluctant to take the buy-back loss.

Nice post, thanks for your contributions.

--fl
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