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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: JohnM who wrote (840)5/31/2001 10:04:50 PM
From: LKO  Read Replies (2) of 5205
 

My choice in each is to write close in out-of-the-money calls to get the larger premium but with some protection.
My guess is that I don't run much risk of losing the shares but, since, again, I'm not writing a lot, yet; I can live with losing them. Will, in fact, just buy them right back.

Any thoughts?

Other have commented on your trades, I just have some views from the soapbox. <G>

I think in the above comments you show some ambivalence in being ready to accept the consequences of losing the covering shares and some notion that you can "just buy them right back". This ambivalence is common, not unsual but is not an honest evaluation of the risk and you are not capturing the worst case as a possibility. We all like to have our cake and eat it too, but the market moves can be very unforgiving. <G>

You cannot always "buy them right back" except with a loss on the overall investment since the price can move a lot and you can miss the stock upside before you "buy it back". And then come the losses...

They key to happiness in covered calls is the low risk case when you are happy with both outcomes (selling the shares OR keeping just the premium). Others are higher risk stratgies, and perhaps some other strategy (not writing covered calls) may be more appropriate unless you are doing it just to practice the covered calls technique (and not to invest).

Choose the right tool for the job (and sometimes that isn't writing covered calls). Analyze the worst case honestly before contemplating any sequence of trades.

LKO
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