Susie, another beautiful thing of options is that you can get the same results of a running BB stocks very frequently...
When you write options against your current long position, then if the stock goes up, the options you wrote will decrease in price, however, since your stock is going up at the same time, so you didn't really lose anything...
However, if your stock tanks, you can buy back the options at a lower price... like covering your shorts, and you make money by doing so, which should be able to cover your paper loss in the stock value. Since you're long on the stock, that means you're actually making money from the options, despite all the paper loss. Remember you don't care about the short term up and down of your long and strong stocks... I suppose.
I think that's what Wayne said about lowering your risk and gaining liquidity to buy other stocks in play.
Wayne, correct me if I'm wrong, I ain't an options expert... so let's get Wayne to teach us one by one, only on this thread! Shhhhh...
Bernard |
