A most excellent post. If I follow your example, your account balance would be
a: $104,500 - tax gain if you had covered and got called
b: $105,000 if you just held the stock and not covered
c: $109,000 + gain from tax loss if you had rolled up and out
In all cases you win, though a and b are no-brainers, and c requires watching the stock. OTOH, if the price went down $10 instead of up $10, a would be about break even in account balance, and b would be down $10k. So a is a no-brainer with downside protection, which as V says is the best reason for CCs. However, as clapton and others pointed out, if the vehicle keeps dropping, you have to uncover and rewrite to stay ahead of the game.
I am beginning to understand better the risks involved, and why it makes more sense to do CCs on a conservative stock, or on QQQ, but not worry about watching the vehicle as closely. But, 2-3% per month is not bad. |
