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Technology Stocks : Dell Technologies Inc.

DELL 122.46

-8.5%

Nov 17 3:59 PM EST

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To: Andy who wrote (58164)	8/13/1998 10:26:00 PM
From: DoggieDude	Read Replies (1) of 176387

Covered Calls are an unpredictable tool for an investor and there is a downside. Example: You have 100 shares of Dell you bought at 100. You sell one call contract with a strike of 110 and instantly collect the cash. One of 3 things can now happen. 1) Between the time you sell and option ex date Dell goes to 150 and you are called out. You've collected the option premium and you've been paid 110 for your stock but lost out on the move to 150. 2) At ex date there has been little or no movement and Dell ends at 103 or 97. You win. You've collected the premium and made some money while Dell was going nowhere and you can sell another contract. 3) Sometime during the time you sell and ex date something BIG and BAD happens. Dell drops to 90, then 80, then 70, etc. You still have an obligation to deliver those shares if by some chance it comes back up. So you may not be able to sell your shares while this is going on (rules of your account in regards to having a naked call). There are ways to get around this but it will cut into your profits. After selling the call you can buy a put at a different strike to hedge against a drop. (I'm to drunk & tired right now to work those numbers for ya) The big question about selling COVERED calls is you are essentially betting on the stock NOT moving. If you feel that's the direction of the stock then why are you holding it in the first place?? The only semi safe way to play selling covered calls is to sell only 1 month out and sell a strike price that is really unreasonable for the stock to get to. You won't get much for the premium but if you do get called out then the stock would've moved to such a big extent that you'd still be getting a major profit.

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