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Strategies & Market Trends : The Covered Calls for Dummies Thread

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To: Hepps who wrote (4707)	1/22/2007 3:29:02 PM
From: Uncle Frank	Read Replies (1) of 5205

>> In the end I held to my guns... or froze like a deer in the headlights. I thought that this was supposed to be an easy way to pick up some free cash. No, that's never been one of the premises. It's easier if you are a ltb&h, as it allows you to generate an income from core holdings without selling them. It can be very stressful as a buy-write strategy, because you have to buy-RIGHT, which means the price of the stock has to stay flat or go up. But before you panic, consider your cost basis for the stock you bought on Friday: Purchase price: 14.28 Premiums received: .65 Cost basis: 13.63 >> Considered buying back my calls for .20 and selling the APR 14 calls for .65. This would have locked in a return of just over 4% (assuming no more sliding on the part of my stock), annualized to 16+. It would have taken my breakeven point down to 13.40. That's a lot of work to bring your cost basis down by less than 1/4 point. At the moment, the stock is trading at 13.52, so you're under water by 11 freaking cents. If you can't handle that with aplomb, you shouldn't be involved with stocks, much less derivatives. duf

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