Importance of long term holdings...
While short term trading in its own right can be truly rewarding, I am still confident that long term investing is the most significant way to appreciate assets. For me, day trading should be used to complement your core position and long term holdings.
One strategy that I and many of clients have employed over the past few years has been writing covered calls against long positions. As an example, one of my longest term holdings has been Merk. The stock has appreciated significantly over the past few years. At certain points/times, the stock becomes over extended. While volatility is high and the stock is overbought, I will write call options against the stock. I usually find a strike price significantly out of the money so there is a relatively small change of the stock being taken from me. Then, as the market in the stock returns to more normalized valuations, or as volatility decreases (even if the stock remains dead flat), we look to buy back the options.
Often, many points can be realized writing the calls against the stock. Assuming I would not sell the stock unless faced with a fundamental change in the business, assuming that a move of 5, 10 points one way or the other doesn't effect my committment to the company, the downside for me is that the stock takes off and they end up taking the stock from me. In the end, I would feel comfortable if the stock so greatly appreciated that the deep out of the money calls I wrote became in the money (meaning someone will pay me that $$ for my stock) plus the premium.
Given the market's volatility and multi-hundred point day swings, this has provided an excellent way to generate income, TRADING OPTIONS, on a stock, with relatively little downside.
Just food for thought.....Struck me...similar to Xstuckey's shorting the INTC he has at lower levels....At very worst, he has the long stock to cover his short.
Regards,
Steve@yamner.com |
