I've been doing buy/writes for a little less than a month. There are two obvious risks I'm trying to avoid.
1. Biggest risk at these low share price levels is still getting stuck with the stock of a bad company or of one whose price sinks precipitously. So, I try to do it on companies in which I already hold shares, have some serious sense of the fundamentals, and, just as important, of the trading ranges.
2. Next biggest risk is that I'll miss the next big upturn in the bear market. Here I've tried to write them only two months out at the most. Right now I'm looking at the Sept prices. Of course, if I write them slightly out of the money, I have no problem with getting called out. But I would like to avoid the pain of being called out at 12.5 with the share price at 25. That could easily (well, that might be overstating it, just a bit(g)) happen with the stocks many of us follow.
3. So I'm writing them, presently, on Juniper, Ntap, and Siebel, but not on Qualcomm. I'll wait until after the report tomorrow to decide once again what to do. On it, right now, I'm holding January 25 calls, bought at 5.80, which look very good. Right now might be a good time to look at buying calls since their prices are so low. But, I've decided to only do it if I see something specific which is likely to give the stock a pop. In Qcom's case, it's the buildout of 1x. |
