Dan,
Thanks for the very thorough response to my post. Extremely helpful.
On my second alternative, buying back the calls, your point that whether I buy back the calls or let the shares go depends on my view of the future of the stock, is what I came to see. It helps me a great deal to think this through before I get to that point (no doubt, the future always being reasonably unpredictable, whatever appears will be something I haven't thought about, however. But one can always try).
On my third alternative, rolling up, I misstated myself and you correctly objected, when I said I would lose the premium. I understood the money was mine. I should have said more clearly that the premium minus the cost of the buyback would produce a loss. Sorry about that.
As for writing ITM calls, I keep looking at that alternative in the case of buy/writes. Still doesn't look attractive. At the moment, I find the close in OTM calls the most attractive because they tend to give me the best ratio between the exercised and not exercised gains.
As for the issue of preferences for short month writing, I got about half, at best of your points. You write very clearly and pack enough information into your post so I've wrestled with your text. And I get the following conclusions. Tell me if I'm wrong.
First, that your last two sentences in the next to last long paragraph summarize the meaning of the paragraph. Those are:
Writing close month calls is better if the stock makes a nice steady climb and you repeatedly capture premium w/o ever having to pay up for a stock you want to own or lose money on the calls. It is not better for stocks that make wide excursions.
I assume the same could be said for downward trend as well. Risks are different but the result would be comparable.
That discussion of writing calls further out than the immediate month intrigues me. I've printed your post out, marked it up several times, and will go back to it again.
I think, for the moment, one of the advantages of short time limits is to make it easier for me to get a good grasp of the option market dynamics by limiting, at least a bit, the number of variables in play. I'm feeling more comfortable with each purchase and each post. Once I reach a bit more, I'll begin experimenting further out.
Second, the paragraph which begins with "Finally, . . ." I understand to mean that one should not write ccs on stocks in which you have reasonably serious expectations of sharp downward movement (just sell the stock, instead) or sharp upward movement (step aside from ccs, just hold the shares). McMillan makes this point quite frequently. Thanks for making it again.
However, just to remind myself why I made the post in the first place, it was to sketch a scenario in which I was surprised by, had not anticipated, a sharp upward movement.
I understand that paragraph save your reference to holidng half a position rather than writing ccs. I think I get the point of the paragraph without getting that point. So, unless you consider it essential, never mind.
Again, thanks for this extremely helpful post. Its archived for a good many future references.
John |
