OX,
OT reply:
I don't usually post here because I don't have an account where NP writing is allowed, nor any significant resources to open one. I have written some covered calls over the last year, which should generate more or less equivalent results as writing NPs, and I have not been very satisfied with the experience. I find that I either get myself locked in to a situation of limited upside when stocks run up, or stuck with those calls covering stocks I'd like to unload. I seem to have been extraordinarily unlucky.
As I've learned more about options, I've become more interested in the long call approach. I currently hold some DELL FEB50s and FEB45s, both of which are getting crushed. But I'm still in far better shape than I would have been if I had bought DELL outright. Back when ROST was around 20, I lost 3/4 on some STRIKE 20 calls, a limited loss compared to buying the stock, which is now below $13.
For the most part, I am now looking longer term. I bought some 2002JAN10 KM, and some AUG15 ROST (no leaps available). Both of these companies are selling at single digit multiples of earnings. I'm looking for some other opportunities, and if DELL keeps dropping I will almost surely buy some LEAPS. As you and taxman have noted, my risk is bounded to not more than the premium I have paid, and the upside potential is unlimited, but I don't buy any more contracts than I have money to exercise, even though I probably never will. And obviously, the farther out the expiration date the better to avoid a near term downtrend like I have with DELL.
I haven't bought any puts, but I sure wish I had with my DELL calls. A nice straddle would have paid off in that case.
Dan |
