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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets!
LRCX 159.13-4.4%Nov 11 3:59 PM EST
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To: Mason Barge who wrote (4373)1/11/1998 9:49:00 PM
From: LLCF  Read Replies (1) of 10921
 
Don't mean to be arguementative...but:

1.) <Don't like to play against a house percentage that comes with buying them, and don't like the huge risk of writing them.>

I assume by house % you mean the "spread" between bid and offer... since if there was a markup (too expensive) you could sell them instead and vs versa... so it really depends apon what stocks your talking about. Rather large spreads do exist on the equips right now because of the volatility in the market...these options are also on the "high" side in absolute terms...ie. IMO a better sale than purchase.

By huge risk I assume you mean writting options against stock you don't own...otherwise a "buywrite" is by defenition less risky than a naked stock position.

2.) < However, a deep-money covered call can make money. It's effectively a straddle but entirely to the upside. That is, it wins if the issue rises by less than the strike price. It also buffers the downside a little if you're going to hold the issue long -- it gains a little on a decline, like any short call.>

A "deep in the money call" means that the strike is way below the current stock price.. and by defenition gives the same profit as long as the stock finishes above the strike weather the stock goes up or down. The key is how much "premium" was captured selling the call. With "deep" calls there is generally little or no premium...hence to potential profit.

3.) <To me, given the impossibility of accurately predicting future stock prices, covered call sales are a suckers' bet, like playing the side bets in a craps game.>

Given the first part so is any "playing the market" with the stock itself unless your investing long term.

4.) <But it's still better than simply churning -- if you pick the stock price right, you can hit a winner.>

Its NOT better because writting "deep in the money" calls have no premium...all your doing writting these is protecting the downside and giving away THE ENTIRE UPSIDE (minus the premium which by definition is very small and in many cases 0)...so in deciding what to sell (stock or deep in the money) look at the spread of the respecitve choice...the stock is usually better.

DAK
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