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Strategies & Market Trends : The Covered Calls for Dummies Thread

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To: Jon Khymn who wrote (4261)	5/19/2004 4:05:29 PM
From: Dan Duchardt	Read Replies (2) of 5205

Selling DITM calls makes sense if you are very confident the stock will drop but don't want to sell it. The reasons for not selling are cloudy though. The IRS deems the selling of DITM calls to be a "consructive sale" and this has implications for taxes. When you sell DITM calls you negate just about all your upside potential. Buying puts is like buying insurance in case something goes wrong. If the stock keeps going up or stays the same, you are out the premium you paid, but you still enjoy the upside profits. If it does fall, you have locked in some gains, or at least limited your loss to a known amount ahead of time.

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