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Strategies & Market Trends : The Covered Calls for Dummies Thread

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To: Mathemagician who wrote (439)	5/7/2001 8:30:09 AM
From: Uncle Frank	Read Replies (2) of 5205

>> When you write a CC you decide at which price you would buy, then you actually buy, and finally sell the call to collect a premium. You are referring to a specialized case of cc writing called buy-write. Imo this is primarily a trading technique that is unrelated to ltb&h. There is a world of difference between buy-write and the periodic sale of cc's against long term holdings. >> The difference is that writing puts requires much less capital up front and so you dramatically increase your ROI with an equivalent risk/reward profile. You're overlooking the fact that writing puts requires the use of margin, and which means the technique can't be employed in sheltered accounts. Following that thought, a badly managed short put position could result in a margin call. Writing cc's against core positions does not require assuming such a risk. >> Sometimes it makes me wonder why we bother selling CCs at all. If you haven't established long term core positions and don't have a need for income, I'm not sure I'd recommend it. For younger folks who are still adding to cash to their portfolios and have long investment windows, it may not be the right approach. uf

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