I should have been a bit clearer about what Delta Hedging really is and how many different possible meanings any given trade could have, but my outrage that someone could promote such a conclusion based on such limited data clouded my judgement. Fortunately, any good book on Options makes it quite clear how various short option positions are hedged, and dynamically at that.
I started with covered calls, and did well by picking out of favor but good quality companies, until I came to understand first hand what you were saying about risking much to gain little. One of those good companies ended up bankrupt. The increase in volatility premium on the sold calls made rolling the positions down more difficult than theory suggested, as the underlying stock price collapsed.
I don't play much with covered calls any more, as I've adopted risk management strategies that, given my portfolio size, don't often allow big enough position sizes to offset higher transaction costs involved with opening and closing option positions. I don't care much for the slow execution, wide bid/ask spreads, and out of date quotes on many of the more thinly traded issues.
I will buy an occasional put or call, but not as frequently as I did a few years ago. As market conditions change, I have the education and experience to participate. I can thank quite a few people on SI, including yourself, for helping me to understand a wider variety of approaches to address situations as they arise. |
