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Strategies & Market Trends : The Covered Calls for Dummies Thread

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To: Mike Buckley who wrote (1083)	6/19/2001 5:46:54 PM
From: Dr. Id	Read Replies (4) of 5205

I agree with Frank. The basis of your opinion is almost exactly the same as the basis you had a year ago. A year ago you didn't think everything was overpriced. Now you believe almost everything is oversold yet you don't explain why your opinion was wrong then and right now. Don't ignore the valuations that indicate stocks are still significantly overpriced. Mike, I've had more time to think about your arguments and I agree and disagree. First, as to what the basis of my opinion was a year ago and the assumption that it is the same now seems presumptuous and incorrect. A year ago (or should I say a year and 4 months ago) I felt that stocks were overvalued, but that that would continue indefinitely. That assumption was wrong. My opinion is very different now. The fact by itself that a stock is selling for one-half to one-third the price that it was selling at a year ago has absolutely nothing to do with its current relative value. As for trading ranges, you no doubt thought throughout most of 2000 and part of 2001 that the trading range was an indicator of risk, only to find out that trading ranges got lower and lower and lower. This is all true, but in absolute numbers there is less of a risk in selling puts on a stock selling at 14 than on a stock selling at 110. In the worst case scenario, selling 10 puts on the $14 stock can result in a 14k loss, as opposed to a 110k loss. This is true whether the stock is overvalued or not. I also have somewhat of a problem with your valuation arguments, when they don't seem to be related to any kind of selling strategy. When the question of selling comes up, you'll argue against it by bringing up tax consequences. So what difference does attending so closely to valuations make if you're so reluctant to ever sell? I agree that it can make a difference in buying strategies, but then if you attended closely to valuations you wouldn't have bought any tech stocks in the last 3 or 4 years. Dr.Id@awaitingyourdecimationofmyargument.uhoh

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