Uncle Frank-
Fair question. McMillian says that selling covered calls is always a high risk proposition, because your stock could go to zero. I'd be happier if I had made this play a week ago when EMC was at 13 and a quarter. But if you're comfortable owning a stock at a certain price (I am with EMC at 14.25) then there isn't any added assumed risk with buy-writes, and in fact I'm being paid to stick to a plan I should have had all along.
Right now, EMC is now being considered a value stock by some, and I can't see where I'll be under water for very long, if at all.
I think that I like selling CCs into this kind of strength, as it forces me to stick to a plan: buy low, sell high, decide from the start what my definition of success is and commit.
The 11% that I cite is for dead money- the stock stays flat. If it goes down, I will have a challenge breaking even. As of right now, my adjusted cost basis is around 13.80, so I've got a little breathing room. If it goes up, but doesn't hit 15, that's all gravy.
I post here because of the title of the Thread, any observations are welcome.
Hepps |
