Volty, I still don't follow one thing in regards to writing CC's.
Pinhi Wrote/asked: Let's say you bought QCOM at 120 (I did and lots of it). Over
the next 5 months it drops to 60. Are you saying to write the calls at say 100, 90, 80, 70, 60 all the way down?
Remember, I'm SPENDING the call premium. I don't understand how I get my equity back. Granted I have more
money because I have written the calls all the way down, which I spent, but my vehicle has still been cut in half. I
don't really understand how you get your equity back if you are CONSUMING 100% of the call premium.
This is my biggest problem with this method.
If your stock/vehicle drops and drops and drops, and you continue to write and write and write, eventually you can get caught in a major upswing.
For instance, let's use EXTR instead of QCOM.
stockcharts.com[L,A]DACLYYMY[DC][PD20,2!B200!B50!B10][VC60][ILD20!LG!LC20!LH14,3,3!LK14!LJ[$SPX]!LM12!LF]
If you bought EXTR and wrote cc's at 120 right after expiration in March'00 the next month you wrote April 75's, and then you wrote May 45's.
Then, All of a sudden EXTR shoots up 20 to 25 points in just a few days.
You are holding May 45's and by expiration is at 100.
You got paid your 10% premium + $45 per share for a stock you paid $120 per share for.
If you tried to avoid getting your cc's called away by rolling out to the next month, EXTR went up to $150.
Now we are headed out of the summer selloff, into autumn, then Winter.
When do you ever recover from writing the May 45's?
EXTR is just one example. QCOM gave plenty of time to recover some of the loss by writing month after month.
BRCD, JNPR, SDLI, and many others did not give any time.
This is the part that I can not figure out.
Otherwise, I understand most of the writing cc's for monthly income strategy.
What am I missing?
I really want to learn this.
-ClappyTheStudent
P.S. This question is open to everyone for answers. |
