I can't stand it anymore!
You know I just have to wonder why wall street is just passing out all this free money. Is there not one scenario selling covered calls with which one can loose money? I sure haven't seen it, yet. So, let me just try to imagine.
- you have $ 13,000.
- Buy 200 shares of JDSU on margin at $ 130.
- Sell CC April 135 at 8, collect 200 x $ 8 = $ 1,600.
- In 4 weeks stock goes to 110. Your loss = 2000 x 2 = 4,000 - $1600
Loss = $2,400 in addition to commission
You now have 10,600 equity minus commissions for both stock and 2 options.
Stock at $110 - value 22,000.
Now you sell CC May 115 at 7, collect 200 x 7 = $1,400
In 4 weeks stock goes to 95.
Your loss = 3,000 - 1,400 = $1600 + option commission for 2 options.
You now have $9,000 equity minus commissions for original stock purchase and 4 options.
Stock is at 95. - value 19,000
Sell CC June 100 at 6, collect 200 x 6 = $1,200.
In 4 weeks stock goes to $85.
Your loss = 2,000 - $1,000 = $1,000 plus option commission for 2 more options.
You now have $8,000 equity minus commissions for original stock purchase and 6 options.
Stock is at $85 - value $17,000
Sell $90 July calls at 5, collect 200 x 5 = $1,000
In 4 weeks stock goes to $125.
You are called out at $90.
You collect 1,000 stock gain, plus $1,000 for options. = $2,000 Minus option commission.
Your equity is $10,000. minus commissions for original stock and 6 options.
(rough estimate for commissions is about $250) so equity is $9,750.
Your loss is $3,250 which is 25% of your original equity. And it only took you 4 months to do it! To get back to where your started, i.e. just to break even, you must now make a 50% return on the equity you have left..... Just to get even.
Don't think about it. You don't need to! The market will teach you. Go ahead. Somebody tell me it can't happen.
After all what the hell do I know?
Steve 667
Neighbor of the Beast
** Chaos, panic, & disorder - my work here is done. |
