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Strategies & Market Trends : The Covered Calls for Dummies Thread

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To: rydad who wrote (1944)	8/12/2001 12:16:42 PM
From: Mathemagician	Read Replies (1) of 5205

I just spent a good 15-20 minutes typing out a reply/rebuttal to your analysis and by the time I finished and was proof reading it, I realized I came to the same conclusion as you. Been there, done that. :) However, I would like you to verify the validity of an additional statement that I feel should be mentioned. Maximum loss occurs when the share price reaches zero. When we talk about the maximum loss occurring when the share price reaches zero, we are really talking about the maximum possible loss. We make no judgement about the likelihood of this actually occurring. It is just a calculation of the most we can lose which helps us understand what the risks are for a given position. After this stock market thrashing we have taken over the past year or so, how much further can we go down? I know that everyone tells me this is dangerous thinking and I realize that even another 20% or more is very easily possible. We can go down to zero. That is the only minimum which anyone can set that cannot be violated. 20% is possible. 80% is possible. 100% is possible. 101% is not. However, nobody knows which will actually happen. But what is the probability that a stock will go to zero? Anyways, wouldn't you think that we are closer to the bottom of the market than the top and if we did get a substantial further dip, eventually we will head upwards again. I don't know. In fact, I have yet to meet anyone who can demonstrate to me the ability to assess the probability of a given percentage rise/decline consistently and accurately. That is called timing the market. Just out of curiosity, do people still believe the market will come back up again some day? Otherwise why are we putting our money in stocks if we think it is dead money forever? That's why we're here! If we thought stocks were dead money forever we would not be focusing on a strategy which is "neutral to slightly bullish". :) dM P.S. In the course of typing that reply, I happened upon a rather amusing (and rather telling) typo: "neutral to slightly bullsh!t"

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