Tom, I am just mentioning that there is risk involved with every option play, and that includes writing calls. The naked call can become a covered call but not called at expiration (OTM). Now you are holding the stock. What if the stock keeps moving south? Therefore, I cannot stress enough of an having an exit startegy by always carry an umbrella.
Here is an example of the risk of a covered call :
I take $75,000 add $50,000 margin, pick up 1400 shares at todays close or what ever it happens to be and write the April 95's paying 13.50. 1400 x 13.50 = $18,900.
ELON is going to be one huge stock. Unlike my pal J.W., I do not see a huge retreat in this stock. Think we will see 300 in 12 months.
The stock was ELON, at that time it closed at 87, and at expiration date, April 19, it closed at 33+. To compound the problem, the play was leveraged using margin. Even if it was not, and you still hold the stock, you are holding ELON which currently trades at around 40.
I have no doubt that the person who did that had closed the position way before the landslide took place. He is a benevolent and astute investor.
The point is: can we say a newbie will be quick on his feet and prevent a breakeven/small loss to become a huge loss?
Paul |
