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Strategies & Market Trends : The Covered Calls for Dummies Thread

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To: BDR who wrote (1284)	7/1/2001 12:51:38 PM
From: Dan Duchardt	Read Replies (1) of 5205

Dale, I am just referring to the fact that the same instinct that would move me to sell calls should make me consider buying puts. I think there are differences in circumstances that make one or the other more favorable. As Uncle Frank said it so well Strategies should differ based on circumstances and your vision. If I think a stock price has nearly topped and is likely to retreat in a reasonably stable fashion, then capturing the premium by selling calls is preferred. An example would be a stock that has been gradually pushing higher but appears to be about to roll over, something like MCK (I know nothing about this stock... Just looked at some charts of stocks near 52 week highs). Most of these stocks have low volatility, so the time premiums are not very high, but are nice steady stocks for repeated near month CCs. siliconinvestor.com Frequently a stock will approach a level of support or resistance, and it's very uncertain if it will break through or reverse. Moves away from these levels tend to be more dramatic, and in these cases buying a put at a decent price makes more sense to me. That was my thinking on DELL. The peak in May at 27.39, and the subsequent peak at 26.52 in early June are resistance levels. If they hold, DELL could easily fall back to the recent low of 22.65.. or lower. If the resistance breaks it could easily run back to the April high of 31.32, or beyond. The roughly $1.50 time premium for a slightly OTM call 7 weeks ahead of expiration is less attractive than buying the put in view of the high probability the stock will move at least 4 points one way or the other in the next several days to few weeks. siliconinvestor.com Dan

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