I would be glad to discuss basics....
covered calls generate income and hedge a position.
Lets say you had dell, it runs to 98...you dont want to totally sell it buy you want to hedge the run, concerned about a pullback.
you sell some in the money calls, lets say the 75s, you get atleast the 23 intrinsic value and afew bucks premium. If the stock pulls back 5 pts, you are protected. If it moves higher you collect premium.
Writing calls workings in a market that moves sideways or slightly higher. If the stock jumps 100%, you didnt need the 3 points premium that badly and if it tanks you shouldhave sold it.
But all this is hindsight, after the fact.
70% of calls expire worthless.Thats a pos for writing calls. If they dont expire worthless, you can "roll them out" buy back the short ones your wrote, take a short term loss, maintain position in stock, and possibly write calls going farther out. All you have to do is get it right once, you keep allthe premiums you collected along the way and the stock. You just dont want the "getting right" being that the stock tanked 80%.
Regards,
Steve |
