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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: rydad who wrote (1859)8/9/2001 10:46:49 PM
From: Thomas Tam   of 5205
 
A few assumptions to be made.

1) You have the extra money (roughly 50% of a one's portfolio to be in cash, in order to fulfill assignment if that occurs)

2) You have an account that can do it (I guess IRA's can't - in Canada our RRSPs are equivalent and no naked/short puts allowed)

3) You buy a company that continues to lead its market, etc., blah, blah, blah (buying the wrong company can really screw things up- we have all done this in the past year - imho)

4) You need to have bought near the low (how hard is this? Very! If you tried this with SEBl as it bottomed at 80, or 60 or whatever, things got very tight and your portfolio value isn't any higher, which I think should be the true gauge of whether a strategy is successful). The loss of capital is the single most damaging act that we can do when we invest/trade. A loss of 50% requires a gain of 100% in the future, just to break even. Major gut check time when I was short the July QCOM 60s puts and Oct 50's puts when QCOM was trading at 42. These transactions do not help one's sleep.

5) Tax consideration - can eat into returns, but this does not deter my trades. If I'm paying taxes, I must making some money doing this then, which in the greater scheme of things is why we doing this.

Any other assumptions other?

later
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