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Strategies & Market Trends : The Covered Calls for Dummies Thread

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To: edamo who wrote (1787)	8/8/2001 10:41:35 PM
From: PAL	Read Replies (3) of 5205

Ed ... fortunately options give some relief and the ability to gain cash flow from the stock held in inventory....as long as the underlying still is attractive and has liquidity in the overall market sense... Your statement should hit home in the current uncertain market. We dummies should be able to gain decent return on our money and investment. There is no need to apply complicated strategies a la Nobel Prize winners and their hedge funds (Long Term Capital Management). A simple strategy would do. And if that strategy proves to be a winner and is to our taste, just repeat it over and over like the cookie cutter approach. The main thing is not to be greedy and understand the risk. A person should be happy to get 3% to 4% monthly return. The Hare and the Turtle. The Hare boosted how many baggers it made in 1999 only to lose all the gains and then some the past 1 1/2 years. The turtle is steady with continuous stream of decent cash inflow. The buy/write approach is OK as long as the market just goes sideways. However with a sudden sharp downturn where fundamentals become more pronounced than momentum, buy/write poses a significant risk. Remember when someone suggested to buy/write elon when it was in the 80's. Even then the suggestion was that you leverage by using margin and write calls on the double number of shares. If someone took that advice and did not cover soon enough, the amount of beatings was severe. Buy/write calls and cover them on a dip requires timing. No one has been able to consistently time the market. This is amount to gambling: oh ... by predicting that the face card should now show up ... How would dummies like you and I get some reward? The answer is common sense in using option, and as you write them you gain cash. To begin with you have to operate on an excellent company which has great management, is dominant in the field with growing demand. Concentrate on that company and notice its fluctuation. There is no need to spread yourself to thin by monitoring many companies with the hope that one will hit home run. If the strategy sounds logical (there again is the common sense), try it by doing paper trading. And one important thing that everyone should listen is your advice: have the capacity to take assignment. Don't go on margin. If anyone is interested in that strategy, I will explain in the next few posts. Ed, you know the following already, but for those who are new, start reviewing what a straddle and what a strangle is. Once you guys know how it works, you might like to try it. This is not a complicated approach which I think is just right for dummies like me.

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