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Strategies & Market Trends : cash flow investing for retirement
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To: GROUND ZERO™ who wrote (25)7/25/2011 8:15:08 AM
From: tyc:>Read Replies (2) of 94
 
>>"what would you consider the biggest risk in covered call writing?"

I guess we have to define "risk" to answer that. Does it mean the "permanent loss of capital" , because I accept the first principle of the Dividend thread that a declining quality stock will usually eventually return to current levels and that declines in price are usually temporary opportunities of lower prices. I believe this is particularly true of optionable stocks. There is risk, however remote, that this will not happen..... that loss of capital may be permanent. witness RIMM... However one cannot blame the selling of calls for the decline of the underlying common stock. If one chooses to hold the stock, the selling of calls reduces the effect of the decline, producing income that otherwise is lacking.

So the greatest risk is falling in love with stock, and being unwilling to risk its being called away, whatever the reward offered.... But that means the greatest risk is failure to sell calls ! I think you are right selling calls reduces risk ("volatility"). My reluctance to sell calls on RIMM and POW and some high yielding stocks in my PF is an example

I wish others would tell me where this summation is wrong-headed ! LOL.
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