Interesting points you've been making on cc tonight, V-man.
The seller always has the potential to repair. He is the house, he takes in cash (even though edamo sells puts and has a different approach in many ways than you do, you are essentially saying exactly the same thing) while selling insurance.
You sold insurance--your cc. Somebody is willing to pay you for your promise that should the stock rise above the strike price of that call, you will hand over your stock. Similarly, when you sell a put, you are selling insurance to a nervous nelly who thinks the stock will tank BELOW that price.
With the cc, if it turns out you weren't bullish enough, you have to buy back your calls if you want to keep your stock. (Maybe you do, maybe you don't.) But at the same moment, you can sell higher strike and further out covered calls, and cover all your costs and then some. All the call prices went up at the same time. Just as with puts--if for some reason the stock tanks near expiry, you can buy back the puts you sold, for more than you were paid, but you can sell more puts further out and higher strike, and cover everything. All the put prices went up at the same time.
You can ride out volatility that way. No stock goes down down down or up up up if it has good fundamentals. It's volatile, and if on occasion you happen to catch the wrong side of the volatility, you can just roll out. That's the privilege of a seller of options. |
