Well, never one to back away from a civilized argument.... (often wrong, but never in doubt<g>)
I understand the theory behind covered calls, and the way you've explained it sounds just like my ex-brokers explanation. I will concede there are scenarios where selling covered calls is a good strategy, especially in hindsight, but only by professionals that are adept at selling premium, not by the typical on-line investor who will probably not receive a good price for the option in relation to the price of the stock, due to the large spread on options, nasty option MMs etc.. Then you have transaction fees on top of the spreads. And suppose the stock does get called, then you have to buy it back if you want to stay long, and it may go down right after that, and all you will have for your troubles is a loss on the option and no gain or a loss in the stock, and a bunch of commissions for your broker.
You say it is good for the buy and hold type investor to protect them in down times. But the whole premise of being a Buy and Holder is that it is impossible to time the market. Covered calls is just another way of trying to time the market. Remember it's your brokers job to get a hold of as much of your money as possible.
Now selling naked option spreads to collect premium is another story, wish I had the time and inclination to get into that more, plenty of money there, as you are right, most options do expire worthless, and I know people that make money doing that too. But you have to be careful, one freaky day can ruin a lifetime of profits. Just ask a guy named Victor Neiderhoffer.
Just my opinion, feel free to set me straight. |
