How To Write Covered Calls - An Ongoing Real Case Study! Message Board

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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!

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To: micny who wrote (8425)	8/31/1998 2:37:00 PM
From: Douglas Webb	Read Replies (1) of 14162

You can do that, but it's a dangerous game to play. If the stock continues to drop, you could be hit with another margin call, and now you can't sell stock to cover the margin call because you've written options against it. You'll have to cover your options first, and then sell the stock, which will probably end up costing you more overall. Also, remember that margin doubles your percentage gain and also your percentage loss. That is, if you're at 50% margin, and your stock goes down $1, you've lost $2. Even worse is when you've got a margin call, because now you're at 65% margin or more, and losing money even faster. I lost a vast amount of money playing this game last year, most of it during the 'Asian Flu' downturn. Now we've got the 'Russian Flu' to contend with, and it might be even worse. Doug.

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