How To Write Covered Calls - An Ongoing Real Case Study! Message Board

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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!

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To: J. P. who wrote (1512)	3/27/1997 11:45:00 AM
From: Don Lloyd	of 14162

Jim, << This has led me to question the validity of this technique, since if you buy the stock on the fundamentals, and buy it cheap, the stock will probably increase rapidly, and you lock out your upside potential.>> . Your answer is in your post. If you buy it cheap, you shouldn't be selling the calls until it advances and the premium increases. Before selling the calls ask youself if you will be satisfied with being bought out. If not, don't sell as being bought out gives the highest profit possible from the position, at least until other follow on trades become available. Missing part of the runnup of a stock is no worse than not owning shares in any random stock that runs up on a given day. Rather than a problem, this is one of the strengths of covered call writing. When you write a covered call you are predicting that the stock will neither advance nor decline very far in the short term. Can you name another investment strategy where being wrong produces the largest account balance in the short term? Regards, Don

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