Actually Voltaire has addressed this. You are always at risk when you buy a stock: if you'd simply bought JDSU and went long, and it went down down down, you'd lose $. However if you sold cc on JDSU each month, you would recoup some of your losses. The cc is not the risky part, buying the stock is. Especially if you didn't do your DD or your entry point was at an overbought time. (And by the way, he doesn't suggest buying the entire JDSU on margin and neither did PAL in his example. I don't believe anybody should buy stock entirely on margin and sell cc. In fact I use margin very rarely.)
Nobody is saying the market is risk-free. In fact the interesting thing about this strategy is that traditionally you would sell cc when a stock was overbought. You own the stock, and when it gets overbought, you sell cc and when it retraces, you buy them back for much less. I've done this twice on QCOM altho both times I was nervous about it.
In this scenario, you do NOT buy a stock when overbought. You might even buy it when oversold, or at the very least, when just in the middle of a trading range. Your purpose is monthly income, and to keep your "vehicle" intact.
Make sense? |
