Ausdauer, SNDK is so volatile that covered calls would be anything but a "conservative" investment. They would be "perfect" only if you think that SNDK will linger at its current price.
However, there are some interesting options bets worth considering. For example, you could sell actual SNDK shares and then buy some SNDK $25 calls and sell an equal number of SNDK $30s with the same expiration date. If the stock never hits $25, you lose all of your options investment. But if it surpasses $30, you will approximately double your call money!
Let's say you sold 1,000 shares tomorrow and invested just 20% of the proceeds in the call strategy. You'd have almost $20,000 earning interest in some money market fund plus a ~50/50 chance at making (or losing) an extra 20% by way of your options. Compared to holding all your shares and risking that SNDK could deflate by half or more, this is actually a "conservative" strategy. The cost is that you have capped your potential gains at +20% plus MM interest(the same idea as selling covered calls but my example offers more upside potential and less downside risk).
More hints: 1) call profits are taxable short-term income so selling shares to buy options presumes that you have a short-term loss on the shares that you can use; 2) commissions on options can be higher than on stock; 3) when options are exercised, your broker may charge you his 'full rate' commission; 4) in-the-money options are automatically exercised on the last day, then sold automatically on Monday ... with both transactions hit by your brokers undiscounted rate (NEVER let this happen!); 5) the difference between the bid and asked is an area where Internet trading works best (you bid about halfway between and keep moving your bid as the stock moves until you find a taker); 6) >80% of all options expire worthless; 7) it is generally better to sell options than to buy them; 8) premiums tend to increase when a stock rises and decrease when a stock falls ... exagerating gains or losses for the call buyer; 9) if you have a loss on actual shares, that you've owned 11 months and 29 days, it can make a lot of sense to sell them to capture the short-term write-off and buy January calls; and the wierdest one of all: 10) if you already own calls and fear a price drop, short selling actual shares has the same effect as selling your calls and buying puts (watch out for the margin requirements on this one!)
In short, options trading is complex. Happy trading!
Craig |
