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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: Thomas Tam who wrote (1540)7/23/2001 12:45:15 AM
From: BDR  Read Replies (1) of 5205
 
You have received several responses cautioning you about the dangers of covered calls. Evidently you feel confident enough about the future price movements to have taken the positions to begin with, so perhaps you cannot be persuaded to take a more cautios approach. Let me just say what I think I would do if I were to go after the OTM call premiums without having to buy the equity. As insurance against unforeseen positive events I would convert those positions to credit call spreads by buying even further OTM calls. For example:

Sold 10 Aug 35 for 3.9
Buy 10 Aug 40 for 1.05. Max profit is reduced to 2.85 but the potential loss is now limited to a max of 2.15.

I would sleep better, but to each his own.
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