historically, the market is going to go up gradually over time, around 8 to 10% a year, including dividends
as such, if i think a stock is going nowhere or slightly higher, it's going to match or underperform the averages...to me that's a neutral to slightly bearish outlook on that stock...i don't see an expectation that a stock will rise 8 to 10% in a year as bullish...you can get that performance over time simply by owning an index fund
i have stocks in my portfolio that i am bullish on, and i would estimate that my average price target on those stocks one year out is 30 to 50% higher than the current price...obviously not all of them will get there, and most likely some will do even better than that, but those aren't stocks i would write calls against, because one piece of good news could move them up 20 or 30% in a month, and i would miss most of that gain, even though my original thesis turned out to be right
i have other stocks in my portfolio that i write covered calls against...i expect most of those stocks to perform about in line with the market, maybe a little better, maybe a little worse, but in the meantime, if i can earn 2% a month selling calls against them, i figure there's a good chance i will make more in a year doing that, than i would just owning the stocks...if one of those stocks suddenly surges 10% or even 20%, it will probably exceed my fair value for that stock, and i will let it get called away, and replace it with some other stock that i think is a "market performer," but has a more reasonable valuation...these stocks are quite interchangeable
as noted in the previous post, there can be times where i think a stock will outperform the averages, but probably won't suddenly soar, and i may choose to sell some OTM calls against part of that position, just to generate a little income...this would indeed be somewhat bullish, since i'm still counting on the stock's appreciation to provide the bulk of my gains...incidentally, this is usually my worst strategy, as the stocks usually gain enough that by the time the calls expire, they are way in the money, and i could have made more by simply owning the stock <g>
as such, i try to keep things more simple and stick to one of the first two scenarios |
