RE: "My only problem with scenario ii) is what about the the stock that was bought at ridiculous 00 prices? "
Regarding your stock strategy above, you can more than triple the number of shares you have in intc, if you just keep writing more after expiry.
Something which is possible when the stock price decreases for as much as it did.
It takes faith that eventually America's corporations will recover and do well. The one thing that got me through this downturn, was the comment by a student years ago (who was on an inner city exchange program working at a Dallas art museum), he was showing all of the beautiful impressionist paintings, and when asked how their museum received so many of them, he said the donors simply purchased them during the Great Depression when they were cheap. His educational comment (about how downturns can be used to invest to get ahead) gave me the ability to have the confidence to keep plowing through with this strategy even when the going was bad. It's not what happens to you (like a downturn), it's what you do with it (buy more).
But when you correct for inflation, this is still gloomy, because it could take years to reach the previous peaks, and if a bad case of inflation kicks in, then one could get seriously hurt with this methodology? Inflation is the biggest fear.
It also takes a huge amount of risk and almost a gamble on the direction of the economy - guessing the direction of the economy is something GV has wisely cautioned against doing. There are huge risks, but if one looks at the news (CNN, Yahoo, Mercury News, Inquirer, analyst reports, etc.) to get a sense of the direction of the economy, one could write covered calls based upon the mood of what is read. But it's scary to be financially dependent upon the accuracy of reporters one has never met or does not know!
And the risks are high, as GV has said, you really can't guess the direction of the economy. If you're right, it is likely you'll be wrong at some point (at a huge cost).
So after suffering horribly through this downturn, my biggest fear is inflation rips apart what has been salvaged, only to find inflation calling away my stock investments. It's probably time to go a lot lighter on writing calls.
But still haven't figured out an investment strategy for an inflationary economy. Are the premiums simply higher, or do you get totally hurt?
Regards,
Amy J |
