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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: Dan Duchardt who wrote (3659)4/13/2002 10:28:23 AM
From: Dominick   of 5205
 
Hi Dan:

My normal strategy is to find and sell expensive calls whose premiums will be enough to carry down to a support point. I use a portion of the premiums to also buy puts at that support price thereby collaring the trade.

If the underlying drops I buy back the calls as low as possible and ride the puts down until I decide to exercise them or sell the puts and write more calls, depending on the stocks behavior.

But, I didn't adhere to my plan and now am paying the price for it. I bought PSFT as it broke out for 36.78. It closed near the high on wide price spread and increasing volume indicating a further pop-up the next day. I had to leave early the next morning but expected to be back by 10:00 a.m. which is about the time the market would reverse. When I got back I was 12 points down. The rest is history.

It is always wise to keep your risk limited.

Dominick
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