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

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next

To: Ken Adams who wrote (11899)	11/25/1999 4:29:00 PM
From: Richard Gibbons	Read Replies (1) of 14162

Hi Ken, It still doesn't make sense to write covered calls on a stock you expect to go down. There are two ways I look at it. One is that a covered call is the equivalent of being short a put. So when you say that you're covered calling a stock going down, it's the equivalent of saying that you're selling puts when you expect the stock to go down. Obviously, that doesn't make sense. The other way to look at it is that the delta of the calls that you sell will be less than 1. i.e. for every point the stock falls, you'll make less than 1 point on the options. So, even if you can buy the options back for cheap and use the money to buy the stock, you probably could have done better just by holding cash, waiting for the stock to fall, and buying it after the fall. There are cases where it might make sense, like if you already own the stock, think the stock will fall only a tiny bit, and don't want to sell for tax-related reasons. But in general being short puts on a stock you think is going to fall seems like a bad idea. Happy Turkey day, Richard

Report TOU Violation

Share This Post

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next