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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: FaultLine who started this subject10/31/2002 10:56:09 PM
From: Mathemagician  Read Replies (2) of 5205
 
Ran across an interesting excerpt of an interview with Blair Hull and thought it would be interesting to the group. He's talking about buy-writes, of course. Jack D. Schwager is asking the questions in bold...

Covered calls are frequently promoted as trading strategies. As we both know, doing a covered call is identical to selling a put. Is there ever any strategic rationale for implementing a covered call instead of a short put, or is the former promoted because it involves a double commission, or perhaps for semantic reasons- that is, even though the two trades are identical, the covered call sounds like a less risky proposition than a short put position?

I don't know how to articulate the fraud that is sometimes perpetrated on the public. A lot of strategies promoted by brokers do not serve the interest of their clients at all. I almost feel guilty when taking the other side of a covered call position, because it's obvious that the customer is operating under a misconception.

Then you agree that anyone who wants to do a covered call would be better off simply selling a put, assuming that he plans to initiate and liquidate the stock and call positions simultaneously?

Right. If you want to guarantee an inferior strategy, do covered calls.

I could never understand the logic...

You've got the game.

From the book "The New Market Wizards", pp. 384-5.

M
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