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Strategies & Market Trends : The Covered Calls for Dummies Thread

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To: Uncle Frank who wrote (994)	6/11/2001 12:57:11 PM
From: adairm	Read Replies (2) of 5205

<<For those practicing buy-write, dips in the price of the underlying are more important.>> Indeed. Let's take my little paper trade of QCOM started last Monday. One week. At the time I "put on the trade" QCOM was selling for $61.75. I "sold" the $65 June option for $1.60. As I type, QCOM is selling for $59.60, or a loss of about 5%. This loss is of course partially offset by the option premium, but overall the total position is down about 2.5%. One repair strategy would be to roll down to the $60 strike price. I could buy back the 65 and sell the 60 for about $1 net credit. In effect this would lower my basis of QCOM by a dollar. If I get called at $60, I'd have lost $.75 per share on the capital, but gained $2.60 in premies. If QCOM still continues to fall, I'd have to decide to keep it and sell July's or get out of QCOM and pick another stock. (That's the second 'repair'...Get Out!) Thoughts? Adairm

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