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Technology Stocks : Semi Equipment Analysis
SOXX 306.040.0%4:00 PM EST
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To: Gottfried who wrote (11440)9/4/2003 8:19:23 PM
From: Sam Citron  Read Replies (1) of 95638
 
[Selling covered calls] is a better strategy in a falling market.

No. If you are long stock in a falling market, the better strategy is simply to sell the stock, not to sell ccs, which will usually have an unattractive premium insufficient to protect you from declining prices. I might sell naked puts, however, in a falling market as a substitute for a GTC buy order, if I'm not going to regret it too much if I don't end up owning the shares.

The best time to sell covered calls is in a sideways market, when premiums are still satisfactory and you are happy taking the money to the bank.

If you have to cry on your way to the bank because the market has changed direction and your beloved stock is suddenly in fashion, wipe your tears and remind yourself that you're better off than if you had simply sold the stock at the strike. You say the calls are now too expensive to buy back, but look again -- there's probably very little time premium in them if they are deep in the money. If you really have decided you don't want to disturb your long position in the stock, swallow hard and buy back the calls at a loss. Otherwise get ready to say goodby to your stock in January, when it will probably be even more expensive than it is now.
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