What if the stock really plunged? If your basis of SEG long is higher than 40, do you still sell 22.5 or 25 call? Say you do, and SEG moves back to 30 or even 40 next week. Then, you may have missed the only chance to recover your capital. And what if your covered call doesn't pay you faster than the stock plunges (just like SEG) and you end up having to pay capital gain tax at the year-end, what would you do?
IMO, there's no money machine! But, I admit that the strategy works best if you intend to purchase the shares no matter what. People used to think there're easy money on Wall St. but there's none. The strategy is simply having, just like you said, relatively low risk and relatively low potential return.
People have studied extensively various strategies involving combination of calls, puts, long and short position. But, so far I am not aware of any sure-win strategy. |
