DAn, I've pasted they answers underneath your questions
you refer to an "upstrike" call.
If you plan to sell a 37.5 call on stk you own, then beore the 40 call gets expensive , try to buy it at 1/4 to 1/2. You only need this upstrike call to protect you from big announcements. SO, if you sell the 37.5 call and they announce earnings and it goes to 43. you still profit in therise of 40 to 43 and aren't limited to the 37.5
This startegy is not in any book unless I write one.
1. Buy stocks you like; pick stocks with good fundamentals.
the fundamentals are all that count. buy solid stks not high flyers.
Try to watch them and buy a a pullback not of a massive rally.
2. When volatility is high, especially near announcements, wait for upswings in price to
buy protective puts with strike price below current price to take advantage of cheap insurance.
Buy insurance puts chaep when the stk is rallying. pay around 1/4 to 7/16.. maybe alittle more if earnings report can tank the stk.
3. Also when price is high, sell calls at a high strike price and long future date to get
a large premium. This improves profitibility.
yes
4. If this is all we do, we have locked in a loss point (puts), and gain (long sold calls),
but are exposed if we put the stock and the sold calls are still outstanding since we no
longer own the stock. If the stock price subsequently rises to make the calls in the
money, we're in trouble! (Of course, we can sell the puts and keep the stock, and just
pocket the profit.)
It's for the times that the stk can run well above your strike that you sold the calls at that you need this upstrike call.
5. On price dips, buy calls with same terms as #3 to close out the position. Cost will
be less than revenue from original sale.
Yes, after you sold calls try to buy them back at good profit , so when it rallies again you can sell again.
6. If stock just shoots up, puts become worthless. Is this where the "upstrike
calls" become useful?
if it rallies up and the puts are worthless, this is where the upstrike calls are good since you sold the calls you still win on upstrikes.
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