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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!
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To: jim clabaugh who wrote (5131)10/1/1997 4:35:00 PM
From: Herm   of 14162
 
Going out a few months and down a strike price does not mean you have to wait all that time with a locked in limited profit. The extra time and lower strike price brings in more money to help offset the "potential or actual" drop in the stock price as it dips. Thus, more price erosion will take occur in your call buyer's CC. Hence, eventually you will need to cover your CCs and wait for a price increase. The major technical point is this! Someone plays you $1,000 (premies) while your stock drops by $1,000 in value. Result: your $ even! Now, three weeks later that stock starts to reverse and climb. That CC your holding is now only worth say $500. If you cover your CCs and the price continues to go up you are ready to start writing CCs once again while lowering your net cost basis(nut). In no way are you locked in to the two or three months of time! Also, the $1,000 will help you maintain your margin % to equity % balance in your portfolio. Thus, it lowers the interest $ paid out, maintains cash on hand you can borrow if you need to move, and allows you to remain more confident because you are not really losing money! If you are highly leveraged, this is a must in order to maintain control of your working assets. SUMMARY: Selling long CCs does not mean you have to wait until the expiration. It only serves to bring in HUGH premies that you use in your portfolio as leverage and cheap downside insurance protection.
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