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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: Alias Shrugged who wrote (1695)7/31/2001 12:57:54 PM
From: Mathemagician  Read Replies (2) of 5205
 
Writing the maximum time premium will not trap me in a synthetic long term position - I can always unwind the position. I basically have the same options/decisions that someone writing shorter dated calls has, except I have more premium - a larger cushion.

The case can be made that you actually have less premium, as a function of time. Writing calls is a study in compromise. In all cases you must give up something to get something. Am I willing to trade upside potential for higher premiums? Am I willing to trade downside cushion for the possibility of higher annual returns? The list goes on and on. That is why each one of us must understand our goals to the point where we must be able to clearly and succinctly elucidate them. Otherwise, we cannot effectively resolve these issues and there is no way to prevent being whipsawed not only by the market but by our own emotions. Oh, yeah, it also helps us give the other participants in this forum a context in which they can interpret and evaluate our comments fairly (and politely).

In that context, what you are really saying (I think) is that though you recognize the higher potential annual returns of short-term writing you prefer the downside cushion provided by long-term calls to the potentially higher aggregate premium offered to a short-term writer. Am I close?

dM
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