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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: 100cfm who wrote (2299)8/31/2001 7:43:34 AM
From: Road Walker  Read Replies (1) of 5205
 
PT & 100,

One of the inherent drawbacks of cc writing (on existing positions) is that as the market/stock goes down, the premium increases. So if you sell calls when the stock is high, and buy them back when it is low, on the premium portion of the call you are selling low and buying high. If you hold to expiration, this part goes away. I think the decision (closing the position or waiting to expiration) is based on your perception of the market, how far you are from expiration, and how far the stock is from the strike.

(In a buy write scenario you attempt to sell high the premium portion of the call)

John
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