SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Strategies & Market Trends : The Covered Calls for Dummies Thread
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  
To: Gary E who wrote (2385)9/9/2001 12:03:32 PM
From: BDR  Read Replies (1) of 5205
 
You have it right: a small gain in option premiums and a much larger loss in the stocks. This observation points out two things. First, you need to understand that the investment strategy of a number of the posters here is to hold on to the equity for the long term and to trade calls for some additional income along the way. For those intending to hold for the long term the result you observed is acceptable. The loss in the stock is only on paper and, we hope, only temporary, although temporary may mean a year or more. The gain from the call premiums is real money in the bank now.

The second point is that covered calls are not very good at hedging against large drops in a stock's price. There are other option strategies to accomplish that goal and there are less volatile investments that you might find more acceptable if these price swings make you uneasy. Covered calls can reduce slightly the volatility of tech stocks but not eliminate it. The technique reduced but did not eliminate the losses that most of us have experienced in the past year. In retrospect cash was far superior to just about any position in the market, with or without covered calls.

Remember who you are dealing with here. If we had been smart enough to have gone to all cash in the summer of 2000, we wouldn't be posting on "the dummy thread", would we? (g)
Report TOU ViolationShare This Post
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  

HomeMailHotSubjectMarksPeopleMarksKeepersSettings
Terms Of UseContact UsCopyright/IP PolicyPrivacy PolicyAbout UsFAQAdvertise on SI
© 2025 Knight Sac Media.  Data provided by Twelve Data, Alpha Vantage, and CityFALCON News