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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: Lonnie who wrote (3143)12/17/2001 9:48:35 PM
From: BDR  Read Replies (1) of 5205
 
Victoria is right, there is no right or wrong answer. It might make a difference which specific stocks are in question and whether they are in taxable accounts or not. But take Dell for example. Say you had bought at 18 in September and now it is at 28. Do you expect a quick fall back in a few months or a slow decay over the next year? You would tailor the options to match, though, as Victoria points out, near term calls don't offer much protection in the event of a large drop.

You could sell Jan '03 LEAPS calls, strike price 27.5, for $6.60. That would provide you with protection for about half the gain and still some upside if it continues to rise by a year from now. Or, if you are really paranoid about a sustained decline, you could sell the '03 15s for $14.60. Remember that you can defer recognition of capital gains with ITM options or LEAPS but you cannot convert short term gains to long term gains.

Feb 30 Puts at $3.20 would allow you to keep most of your gain in the event of a decline between now and mid February while allowing you to keep all but $3.20 of any continued rise in price.

Remember, as a covered call dummy, you are smart as everyone else here so give it your best shot.
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