That is just not true, jmac. There are so many rules of good investing not followed in this example.
First of all, you're totally ignoring the cost of premium of the calls in a spiralling anywhere market. In a spiralling down market, you're going to have inflated cost because of volatility, and they'll wipe out faster that way.
Secondly, are you suggesting that you are a conservative investor who keeps 90K in cash, and spends 10K on jdsu? Someone who is buying calls as a strategy is likely doing so on various stocks and still using up their capital.
Thirdly, you don't mention if they are OTM or ITM calls, which makes a big difference.
Your example that you spent another 10K on calls and it returned to 100 does not make sense--the market doesn't go down and then up in equal measure. Also, how do you time those calls to make sure they don't deflate in time value premium before it supposedly returns to 100?
Calls make sense when there's upward momentum, a true uptrend, not a grinding upwards. And stocks once they have precipitous declines take a while of consolidating and basing before they start to rise again, which makes calls not such a good option. In such a case, if something has sold off sharply and is consolidating, you might sell puts, or write cc on your underlying. A better way to recoup $ |
