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Strategies & Market Trends : The Covered Calls for Dummies Thread

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To: Uncle Frank who wrote (448)	5/7/2001 2:26:47 PM
From: Mathemagician	Read Replies (1) of 5205

>> if writing CCs generates more cash, why would that be bad for young people with long investment horizons? Because it's a conservative approach that trades off some of the potential for appreciation in favor of revenue. That's the wrong weighting for beginning investors, who should take a more aggressive stance because of their long investment windows. Their emphasis should be on building their portfolios through saving and then accumulating stocks with excellent potential for growth. Imo cc writing is ideally suited for those who already have sizeable investment portfolios and are looking for ways to produce an income stream that doesn't involve liquidating long term holdings. UF, I am a "young" investor with an extremely long investment horizon. My goal is simple: To retire with as much money as possible without losing sleep. To my thinking, using puts to establish positions and then selectively writing OTM CCs against my (volatile, given my high risk tolerance) ltb&h positions is the best way to accomplish that goal. It is often possible to achieve returns that would be excellent on an annual basis for any ltb&h investor in just a few months -- with downside protection to boot! Remember, the market averages about 12% annually over the long term. Remember also that the majority of the time the market moves sideways, and this is the condition most well-suited to CC writing. I think we would all agree that it is not terribly difficult these days to beat 12% annually with CCs. There was even a post a while back that listed several LEAPS CC positions that would yield over 30% annualized with substantial downside protection. Whether this condition will persist over the long haul remains to be seen. For as long as it does persist, I will write CCs and dream of 30% annualized for 35 years... CC writers are the "house" in the world's largest and most crooked casino, selling get-rich-quick dreams to greedy option buyers. In a regular casino, it is the house that consistently makes the most money. In the equity markets, this is no less true. M@CynicsAnonymous.org P.S. Maybe it's because the last 18 months have taught me that opportunity cost isn't really that expensive.

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