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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: i-node who wrote (881)6/1/2001 11:20:44 AM
From: Dr. Id  Read Replies (1) of 5205
 
I believe ccs offer a safer way to speculate on the random price
movements that occur on any given day -- just as the buyer of the call can. The difference is the cc writer has time on his side, where the buyer has
time working against him.

I wonder if this is a good argument for selling calls further out than most of us have. For the most part, we have been selling calls for the current month or the month after that. I wonder if it's a safer play for the call writer to write calls much further out (say Jan AOL calls rather than July AOL calls) with the plan to cover much sooner than January.

For example, (and these numbers are not real and purely theoretical), rather than sell July 55's for 2 and try to cover for .25 if the stock drops (and risk a short term run in which you have the stock called away), you sell Jan 65's for 4 and cover when the stock dips at some point and buy them back for 2.

It seems that this strategy is closer to what McMillan advocates, and would lend a lot more safety to those of us who want to sell calls and play the volatility but also want to hold onto our stock. It also would provide a better price for the stock should it get called away. It's not foolproof (and potentially ties up our money longer, but not necessarily), but it may be a safer play.

Dr.Id@BWTFDIK.com
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