Two other points (after Steve's answer). Options can
work for an exit strategy. Say you're overvalued in
your long term portfolio, and you want to divest yourself
of half. You could write at-the-money options to generate
extra return. If your stock moves up, swell; you can
let it be called and you add the premium to what you
would have gotten if you sold it earlier. If it
stays in a range, you collect the premium. If it
retraces, you have the premium for a cushion. If you
are really playing it conservatively, you can use part of
your option premium to buy protective puts to guard against
a major reversal.
Or, if you want to play a bit differently, you can
roll up your options to a higher strike farther out,
or maybe to the same strike and generate additional
premiums.
And, as Steve says, if the stock fluctuates, you can
sell calls on the ups and buy them back on the downs.
Do this right, and you have a money pump.
Can you screw it up? Yep. But you don't have to
watch it anything like as close as day trading.
Here's another: Say you have a bunch of gain
you want to move to next year. Your stock
is up, and you want to hedge it, but you can set
an exit point. You can write a longer term covered
call (always with the ability to use some of the
premium to buy a put to protect your downside). If
it get's exercised next year, fine; you got what you
wanted and add the premium to your gain. If it pulls
back, you own the stock, you haven't paid tax,
and you write another round. If you bought puts,
you cash them in too for a little (or big) kicker
and start the whole thing over.
Tame for day traders, I guess, but plenty exciting
for the likes of me.
Regards,
Spots |
