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Strategies & Market Trends : The Covered Calls for Dummies Thread

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To: Pat W. who wrote (604)	5/16/2001 7:53:30 PM
From: Mannie	of 5205

Pat... That is certainly not a dumb question. The Premium will remain the same, yes. But if the price of the shares drop, that drop erodes the value of that premium you received. If you buy ABC at 30, write June 30's ABC calls @ 2.75, that's a great premium. But, if at expiration ABC is selling at 25, or 23, 22, etc. at expiration, then that wasn't such a great deal. Buy/write is a great tool in a flat to rising market. In a falling market, the premiums give you some insurance to the downside, but in a market like we have had over the last 6 months, it is very difficult to keep up with the share prices as they drop. ( I have learned this lesson well.) As the market returns to an upward bias though, a buy/write approach works wonders. Scott

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