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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: Uncle Frank who wrote (426)5/4/2001 12:30:27 PM
From: FaultLine  Read Replies (1) of 5205
 
My portfolio has "calmed down" since I started writing cc's a few weeks ago. The value of this portfolio, as Schwab computes it from the real-time market values, acts as if it has "shock absorbers" that smooth out the sharp ups and downs that I formerly was so used to seeing. This, of course, is exactly what one would predict when using cc strategy, but it is very interesting to me to actually see this effect in action.

For example, during this morning's NASDAQ 80 point dip, my QCOM, NTAP, and SEBL long positions were all off sharply. On the other hand, all my cc's on these positions were increasing at right about a ratio of 0.45 to 1 relative to the stock (a delta of -0.45). This reaction softened and stabilized the overall portfolio response to the more violent underlying stock actions. This is exactly what one would call a "negative feedback" loop -- the system I've constructed is compensating by trying to stay in the neighborhood of the setpoint (which loosely is my time-averaged portfolio value over my transaction cycle).

Naturally this cuts both ways but the next time I feel like grimacing when my upside gains are limited during a run-up, I'll try to remember the smile on my face this morning when I saw this damping effect in action.

--dfl
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