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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: Ken R who wrote (4791)3/8/2007 11:42:54 PM
From: JGoren  Read Replies (1) of 5205
 
I have been selling covered calls on my Qcom since about 2002 in both my regular and tax-free pension account I usually sell a little out of the money. On good news, it can be pretty gut wrenching as to whether you have to buy them back at a loss.

Still, CC's are a good way to add a little income. Since they are in your IRA, you don't have to worry about capital gains taxes but it is a way to increase your return. I don't know how that affects the minimum distributions requirements.

If you have been a Qcom shareholder for years and watched the stock closely, you have a half-way decent idea of how the stock moves. As you know, it can be pretty volatile.

Since the shares are in your IRA, you can choose to let your stock be taken on a run up and then buy back if you wish when the stock price declines. Or take a distribution and use some of the money (e.g., the distribution less taxes if you don't need the money) to buy back some of the shares outside your IRA if you'd like to maintain your position in Qcom. There are lots of ways to play it.

The problem right now is that there is so much going on newswise with NOK and the so much litigation. You could wake up one morning with the litigation settled and the stock could jump 10 points or more in a day or two and you'd be "short" and not enjoy the big runup. At some point by December 31, 2008 (deadline for NOKIA to exercise its option to extend the current license), things should be decided and you could see the stock at 70. At least, that's what I hope will happen.

Be sure you have a broker who knows something about covered calls. If he has a lot of clients who bought Qcom in the late 90's, then probably a number of them are selling covered calls on the stock and he should have a decent feel for which ones to sell and when.

Good luck, whatever you decide.
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