i don't think we disagree on this point
a stock in a trading range is not a stock that is going down
it goes down after it hits the top of the range, but it doesn't go below the bottom of the range, hence the range
i take the opposite approach, but either is valid...i buy the stock at the lower end of the range and sell calls against it, or at least that would be my more likely approach
at the upper end of the range, it gets to a point where i can't get enough premium to be worth rolling the calls, so i let the stock get called away, and i wait for it to come back to the lower end of the range
as for getting called away every month on every call, that will probably only happen once or twice a year (october was an example), and in those months, you are likely to find that you would have made more (perhaps far more) if you had simply owned the stocks outright, sold no calls, and sold the stocks on expiration day (october was an example of that as well)...once again, the more bullish and faster growing approach is a non-hedged one...the rest of the months, you won't have everything called away, so the buffettesque performance, at least in this manner, is not possible
think of it this way:
if the market goes up rapidly, which approach will make more money? clearly long positions will make more than covered ones
if the market goes nowhere (is neutral), the covered positions are likely to match or exceed the unhedged ones in total return
if the market goes slightly down, the covered positions will once again outperform
if the market drops hard, at least you have the premiums to offset some of the losses, and more staid stocks are likely to drop less than faster growing, higher valuation stocks
as such, covered calls outperform in a neutral to bearish scenario, and limit your gains in a solidly bullish environment
there's nothing wrong with using the most attractive stocks you can find for your covered call strategy...my point is simply that by doing so, you will probably find a lot of them getting called away from you and going much higher, with no further benefit to your accounts
as always, JMHO |
