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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!
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To: Deep IntheMoney who wrote (8291)8/19/1998 9:20:00 PM
From: Herm  Read Replies (2) of 14162
 
Hummmm? The whole idea behind the W.I.N. approach is that you write CCs near the top (or top) of a normal price upward cycle as determined by the BB and RSI for your stock. So, the drop in price is anticipated and the safety is in the CC premie you control. I would not just jump into a position UNLESS you are understand exactly what we are doing and your risk/reward situation matches this approach. Even then, you can be very passive CCer or an aggressive CCer.

I'm a little loss by you statement of a stoploss because I thought it was clear that writing deep in the money CCs a few months out takes care of a great deal of downside protection. In addition, the CC premies allows you to buy PUTs which then appreciates as the stock drops.

The reverse is also true! You write a round of CCs and the stock gaps up! I would rather buy at the money CALLs and go for the ride up over covering at a loss and rolling up. Seems to me, that if the stock stalls and reverses the CCs may still expire worthless. And, because my net cost basis is always under the stock price I'm always going to make money if called out!

So, you see! A stop loss is for those who really don't know how to 1. use options as a hedge 2. don't know when to leverage 3. don't use or know how to incorporate technical chart reading. Does that make sense?
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