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Strategies & Market Trends : The Covered Calls for Dummies Thread

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To: rydad who wrote (2173)	8/23/2001 2:04:43 PM
From: Allen Furlan	Read Replies (1) of 5205

Rydad, this may be of use to you. These are my opinions only but I have been playing options for about 20 years and consider myself a conservative investor even though I have consistently written so called "dangerous" naked options. From about 1990 until 1995 I wrote options for my father's small retirement account to supplement his social security pension. Here are the approximate parameters that you could expect. A. Volatile stocks with shorter term(4-5 weeks) out of the money calls. Profit of X about 80% of time and loss of 3X about 20%. Net .8X-.6X=.2X or 2% per month if your options bring in 10% of margin set aside. Example is a write made today of nvda Sept 100 call at 1. Initial margin is 8.5 and yield is 1/8.5=11.7% Risky high volatility stock extremely over priced but with backing by momentum players and hence large time premium. B.Non volatile stocks with 8-9 week time frame and about 5% yield. Expected value with 90% success and 10% loss of .3X (.9X-.3X=.6X) or net .05*.6=.03 over two months. So you can see that about 1.5-2 % per month is about your best expectation given that your losses though less frequent than gains can be significant. In the case of my father's account he had a 60K Treasury for margin and earned about 10% per year on option writes and 5% on the T bill. Don't get to confident that you can do 3% a month. Make sure you factor in the sizeable losses you can expect. The strategy I use in my accounts is to write both covered calls and naked calls in a way that the portfolio is balanced(ie upward movement in stocks compensate for losses in call positions. My last 4 naked writes have been 7 vjgao(brcm) at 2.2 on 7/31;10 vxlah(elnk) at .6 on 8/07;10 viwal(ets/rstn) at .55 on 8/17 and 5 rvuit(nvda) at 1 on 8/23. As you can see the leaps are low yield but also in my opinion relatively low risk. Again in my opinion the write of naked puts on a stock like GE is considerably more risky than far out of the money calls on overpriced stocks. Hope this helps.

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