<point here is not to try and find a 10 bagger. It is to make low risk plays and maximize returns. >
Sure, it's a different style. It's merely not something that I actively do merely because it's been taken away from me often. I do not trade stocks, as you and many others do. So when I find a stock I like I tend to keep it unless it breaks down.
In your case you are trading it, not investing in it. I know several high net worth individuals who do the same thing. The ones I know, however, are mostly amateur traders with lot of time on their hands; they use such activity as a topic to draw on for cocktail chatter so it's a poor example. Yet they have done very well, buying stocks that they do not mind owning because of the fundamental underpinnings of the stock then writing out the calls, often LEAPs. It takes a minor amount of math to determine the "best" strike and month to write, but it isn't rocket science of course.
Serious traders that I know do it very selectively, as I presume you do. Particularly because you are trading a retirement account.
<if the stock does a big run, theoretically, I should be able to buy back my 30% premium calls that are suddenly WAY in the money, for a small premium, and write more near the money calls for another 20-30% premium, assuming I still want to own the stock.>
Yes, true. The only caveat there is the potential for whipsaw. Returning to the RMBS example, after cresting over $450 in a month's time it was down to the 130s one more month after that. It's an extreme example of course, but illustrates the potential pitfall.
<From what I've heard if I'm writing March calls today, it is highly unlikely that I would ever be called on the stock until Feb,>
Odd stuff can and does happen, but it is true that the probability is slight. |
