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Strategies & Market Trends : The Covered Calls for Dummies Thread

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To: Carl Worth who wrote (4736)	2/21/2007 10:59:00 AM
From: TimF	of 5205

whether you buy the stock at the same time you sell the calls, or already own the stock, is immaterial Its immaterial to the selling of the calls itself, and the selling of calls is bearish. OTOH if your doing a buy/write you aren't just selling calls. Your making a bullish investment/trade (buying stock) and a bearish trade (selling calls). You can consider the combined effect, rather then just considering each trade separately. Considered as one trade you get a slightly bullish trade esp. with OTM calls. I guess doing a buy/write with deep in the money calls could be looked at as something closer to neutral. Unless the stock crashes to be below the stock price (and you don't want it to crash that far because you own the stock), you expect to lose the stock, and keep the premium whether the stock goes down a bit, stays the same, or goes up. I guess if you figure on a slow steady decline (or even just stagnation) for a formerly high volatility stock, you could do a buy/write as a bearish trade. Believing in a slow steady decline is bearish. But really this is more a trade based on the belief in a decline in volatility and thus presumably implied volatility reflected in the option price.

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