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Strategies & Market Trends : Systems, Strategies and Resources for Trading Futures
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To: Tom Trader who wrote (6584)10/16/1998 10:59:00 AM
From: Vol   of 44573
 
Tom,

Thanks for the insight. Actually I like selling index calls against my portfolio better than individual covered calls b/c:

1) One commission instead of 20 or so.
2) The risk of a big gap up is less with the index than individual stocks, albeit yesterday was impressive. However, my DELL and other high betas shot up even more.
3) I think, possibly incorrectly, that the S&P is more predictable than individual stocks. This allows me to "roll for credits" more comfortably. For example, if SPX has shot up 15-20% in just a few months, I can buy back my ITM short call and sell 2 OTM calls for a total credit. I do this with the assumption that there will eventually be a pullback and my short calls will expire worthless.

I've done some "what if" scenarios and the market would have to skyrocket more than 30-35% in 3 months or less to generate a loss on the short calls. I think this would be a historical event if it ever happened. Of course, improbable is not impossible!

Vol
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