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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: Allen Furlan who wrote (3386)2/15/2002 6:03:26 PM
From: andydaoust  Read Replies (1) of 5205
 
Allen,

I've been writing covered LEAPS calls for four years with mixed success. If the stock rises there is money left on the table. If jnpr goes back to $40 then you have lost $25 potential gain. However if it drops you are protected 45% on the downside. If it is flat you make 35%apr. Also any capital gains would be long term. This is the advantage of longer expiration, more protection and lower taxes. The annualized return is great if compared with the S&P. The question is would you buy this stock without the call premium. During the last bull I watched as some of my positions had huge gains left on the table. I also covered a lot when the market was dropping 1st Q 2001, which as it turned out, I removed protection and should have just let them expire. I also initiated stock purchases without selling calls because I felt we had to be getting close to a bottom. I wish I had sold calls now. I guess for me I need to decide how much of my portfolio should be covered and put on the trade and ignore it. Also remember the reason that the premium is high is that the stock is volatile. Means more risk. The calls I sold on csco helped but did not fully protect from losses.

Summary you are sad when your stock rises 1000% and you are stuck with a lousy 35%. Could you live with that

Lately I’ve been selling out of the money calls 6-9 months out hoping to keep my stock and the premium.

Andy D
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