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Anthony, you just had to do it - you just had to make me use my 5th and last note that SI will allow me today, didn't you (ggg). I'm aware of all the different options strategies - bull and bear spreads, long and short butterflies, long and short condors, long and short straddles, long and short strangles, call and put ratio spreads, call ratio and put ratio backspreads, boxes or conversions, and you name it. And, I can tell you the only good thing about them is that they make the brokers rich with the commissions that people pay them to execute these strategies. Over all my trading experience, I have found that just the simple buying and selling of calls and puts is all that is really needed to be successful. Of course, I'm sure the brokers won't see it that way - they would love to see me put on some of these trades with as many as 4 different options positions in one strategy to buy and then the 4 to sell for a total of 8 commissions. And, I would be so batty from trying to keep up with all of them, I'd probably end up losing money in the process (ggg). I don't have any problems with whatever option strategies you or others employ. That's your business. However, I'm saying that unless your timing is good, things can backfire big time on you. Examples: You sell the calls on your stock for 4 to 9 dollars and we have a 1987 type or even a slower going down of the markets that ultimately goes down more than the 4 to 9 dollars you received for the sold calls. Either way you have lost money - even though you will recoup at maximum up to the 4 to 9 dollars you received for the calls that you sold. Of course, you can always rush in there and buy them back at a lower price than you received. Fine, but since stocks drop more than options, you will still have lost money on your stock than you will clear on the buying back of your sold calls. So, the net is that you have paid 2 more commissions for the options to buy and sell and on top of it you are still out some money. Note: That when your stock falls one point, your option will fall less than that - hence, I say that you lose even when buying back your option. Then, you still have to sweat out that you have done the right thing and that your stock is in fact getting ready to come full blast upward again. Second scenario: Boy, this is a good one and I know people on this BB right now who have ran into this. You sell the calls and then the stock goes straight up. You have to rush in (or should) and buy them back at a higher price than you sold them for (anybody remember Intel gapping umpteen points a few times lately). Now, this little deal will also have cost you. Although you will have made more money from your stock going up; you will have to subtract from that profit the costs of your having to go back in and pay more for the calls that you previously sold. In summary, in selling calls or puts, I always say that there are many things that can happen and only ONE of them is good for you. If any of the other scenarios happen, you are a dead duck. Incidentally, the third scenario I gave you earlier in my note to you. But, I'll put it in here again as something bad that can happen: You sell the calls and things are not going like you thought, so you rush in there and buy the calls back. Two days later after the market has probably reversed again on you, you are notified by your broker that your sold calls were exercised for your stock - and that since you bought those calls to cover, you no longer have the stock and the calls are yours - no matter that the market reversed during the past 2 days and before you were notified and are now heading to be possibly worthless unless the markets reverse once more or you get out of them. The brokers love you people that pay them all of these commissions for these things. Again, one can obtain profits using them but timing must be very good. If not, the potential for disaster is there. I know other people on this BB that have held their Intel stock for a long, long time. I believe IDEXX has mentioned having for a long time. I'm sure that person would be furious to have the stock called away for a few dollars each share and then have to turn around and pay all those taxes on the profits secured over the years in Intel and then have to buy it back all over again. Like I've said before, commissions and taxes do not bother me. That's part of the territory that goes with being a short term trader. But, I'm well aware from the many notes that I've read even on this BB that long term investors are bothered by the commissions and taxes. Hope this note provides some info for everybody. And, no, I don't really recommend that anybody trade options. It's not for everybody. It takes lots of experience. I could say a whole lot more about the previous subject of selling the calls, but won't for now. I'm sure that others are about as sick of this subject for now as I am (ggg). Good trading. Jack |
