if I followed Rule #1 I wouldn't be writing calls on most of my portfolio at this time. :(
That thought was lurking in the back of my head too. How one proceeds is not very clear to me other than just not writing cc's at all just as the books suggest! This flat-out exclusion, however, seems to cut out the very people who want to work a little harder/smarter and wring a few more bucks out of their holdings. Hmmm.
I think that buy/write is so easy it is like falling off a log. LTB&H writers have a much tougher problem -- how to get a decent return on their write transactions while never allowing exercise.
A high basis on the underlying makes the game even more dicey. You'll need to carefully plan all the angles in advance to prevent the underlying from ever being called. This requirement means that you either select far OTM calls (where you needn't worry too much) or it requires you to actively participate in the transaction by monitoring, closing out, rolling up, rolling forward, whatever it takes to dodge assignment. You could also employ something like the incremental strategy described by Thomsett (Table 5.3, p.176) and McMillian (pp.81-83).
I think it's even a little more complicated that this. Since LTB&H investors have varying portfolio and personal situations -- they actually fall into several classes. I'd be interested in identifying the covered call strategy problems faced by the members of each of these classes. Some holdings are underwater, some holdings above, some owners monitor the market almost all day, others cannot, some will treat a portion of their holding as a trading position, others will not, and so on.
There is no typical LTB&H investor, we are all over the place. That's why it is sometimes difficult to comprehend and critique each other's proposals -- the contexts and appropriate actions are not always clear.
--fl |
