pekos: you are absolutely CORRECT. But, one would not buy RMBS as a stock pick, and CERTAINLY not as a Coverd Call candidate with a view to just sitting and HOLDING.
As I tried to illustrate, perhaps to quickly (and perhaps not too clearly), that this bad boy has VOLATILITY.
And one who likes this stock knows it going in. THAT is the attraction.
One could play with a RMBS or CMGI and take the 31 pct up front (nothing wrong with that, so far . . . ) and opt to BUY BACK (out of your 31 % FRONT END money) the call if it DROPS in a wild swing (for which it is known) And, perhaps accept 7 or 8 pct in a VERY SHORT time(days to weeks) without putting up the entire price of buying a stock
Then, one could roll out and DOWN . . . and sell ANOTHER call (which would, combined with the previous closed-out call, could easily meet the 10% a mo criteria . . . with proper market conditions.)
Obviously, if you think the stock may possibly sky rocket UPWARD, unexpectedly . . . you would want to use PART of the 31 % for UPSIDE protection . . . aka : do a side show, as Herm says . . . and buy a call one or 2 strikes upward (while the underlying stock is still down) on the CHEAP.
While, this DOES, for the moment take away from your initial 31 pct. , the positive viewpoint would be that you are being given a WARCHEST.
A warchest with which you can arm yourself to protect your investment on the up or down swings. To give you some seed money to buy protective puts or calls, as the need arises.
And, understand, you have 2 YEARS (january 03 leap x date) to REPEAT THE PROCESS MANY TIMES OVER.
But, as I illustrated in the original post, if all trends (short, intermediate, and long) are looking DOWN for RMBS, at this time (see the url I posted to corroborate). . . the covered call seller appears to be in the proverbial catbird's seat.
I, myself, would be HAPPY if my biggest problem was that I had to go spending a fraction of my (upfront money )31% to capture certain, smaller, quickie premiums (by covering my covered call every chance I got , after a wild mood swing on the part of RMBS) , These, collectively, upon your closing out an old call . . . and setting up a new one WITHOUT HAVING TO WAIT for expiration)could easily meet the 10% criteria.
And if these "mood swings" didn't come, I got 31% UPFRONT to work with elsewhere in my "garden".
If I had to spend a little seed money to plant for ADDITIONAL PROFITS (i.e: side shows of upside calls and downside puts) I would see that as a GOOD problem to have.
I think the leaps have alot to offer, including this money up front, which properly used, can be a handy little first aid kit if you were wrong on your chart reading with the rest of the market.
Not to mention, you have lowered your cost basis, and are sitting in the high clover, compared to those that bot the stock outright.
time to stop blabbering
jaytee |
