re: LU and covered calls, I made a purchase a couple days before the meltdown at 32.75, offset by 03 35 LEAPS calls sold for 11. When underlying fell to 21.875, bought back the calls for 4.625, then when underlying was at 22.5, I sold the 03 25 calls for 7.75. So cash flow looks like:
-32.75 (stock bought)
+11 (03 35 STO)
-4.625 (03 35 BTC)
+7.75 (03 25 STO)
______________
Net cash out: 18.625
Upside is callout at 25 in 2003, for potential gain of 34.2%. If I'd held the original calls (03 35), potential would have been for 60.9%. Given the events, rolling down seemed the prudent thing to do <g>.
I have been doing a lot of plays like this, selling calls (LEAPS if possible) immediately. My preference is to sell a good amount of time so as to get a substantial portion of the stock price back right away. Sometimes even ITM calls if the premium is high enough. For example, last week I bought GBLX at 21 3/8 and sold the 03 20 calls for 9.875, yielding potential profit of 73.9% in 2003.
The thing I like about this strategy, in addition to its providing a downside cushion, is that by rolling down (and thereby reducing potential return), I am pulling cash out of weak positions, so that the ones with the lowest potential will tend to have less funds in them, while the "winners ride". Assuming one can find a winner or two in this market <g>. |
