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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: Tom Chwojko-Frank who wrote (1106)6/20/2001 12:29:46 PM
From: JohnM   of 5205
 
It looks like the biggest risk is RMBS plummeting rapidly. (I'll look at the G&K and RMBS threads for that analysis.)

Tom,

You might wish to consider using stop loss orders on rmbs. I suspect that's rather complicated since I assume brokerages would require you rebuy the options before they are willing to let you do the stop loss. But there could still be some serious market downside. Don't know about the rmbs specific downside.

I offer my experience with New Focus as an illustration. As some on the thread might recall, I bought 200 shares as a buy/write play. I wanted to put a few dollars at risk for a high premium as a way to learn some of the dynamics of option writing. I got it and double. I bought the shares at 14 and nufo is now in the 5s.

Nufo got hit by two things and I was prepared for only one. It got hit by a sinking nasdaq (which I not only was prepared for but expected) but also by the warnings from nortel and jdsu (which I did not expect and was not prepared for). Among other things, nufo manufactures tunable lasers which puts them at an intersection of genuinely bad news right now.

I'm trying to decide what to do about the shares--keep, write more ccs, or sell (will most likely keep since the company and the technology still look good). But, looking back, I should have considered some sort of stop loss.

Hope this helps,

John
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