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Strategies & Market Trends : The Covered Calls for Dummies Thread

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To: Bridge Player who wrote (4578)	11/20/2006 8:51:46 AM
From: alanrs	Read Replies (2) of 5205

All the calls are covered. If I own 1000 shares of something I will typically sell a call or two after an up day or two, and then sell another 1 or 2 if there are further up days. I rarely sell against more than 1/3rd of any one stock position. Since there are many months when some of my portfolio is not worth selling against at all, it is rare that I ever have 10% of my port. covered. (the eternal optimist in me). Most calls are bought back. Of the 219 transactions this year I've held 52 to expiration. Since I usually sell 1 or 2 options at a time (my max this year was 5), I'm guessing that I sold around 300 call contracts and bought 225 of them back early. I rarely go out more than 6 weeks. A very typical sequence of events would be that on Nov. 1st I would find the Qcom Dec 40 call selling for $100 and I would sell 2. Later that day it would fall to $70 and I would buy them back. The next day they go to $110 and I re-sell the 2. Then it goes to $125 and I sell a third. Subsequently it goes to $75 and I buy back the first 2. And so it goes. I think my record is selling the same option 8 times in a 6 week period. One of the reasons my returns are only 51% is that in the above example I would have sold 5 contracts for a total of $565. I will have gained $130, plus still be short 1 contract at $125. If I hold that one until expiration (never a sure thing) my max return will be $255 of the $565 I received. It often happens that I receive more than the original sale price of the contract while only being short a few days out of the six weeks. It also often happens that I sell one, buy it back, and the price continues to drop, never allowing me to sell it a second time. I don't have any idea if selling and holding to expiration would have put more money in my pocket. Even if it works out the same either way, I still feel I'm ahead just because I'm in the market (on these instruments) a lot less. Don't know if it's the best way to go about this. It works well enough for me, for now. It's pretty much just what I've fallen into (a rut) over the years. All of the above similarly with puts, except that I'm more likely to buy a put back a little quicker. I also try to buy back those options that have the most time left in them first. Sell the least time possible and buy the most time possible, assuming the situation meets my other vague criteria. Hope this answered your questions. ARS

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