>>I am investigating selling calls at breakeven or better, given that IR told me there will be no news on quals for as much as a quarter while they are in process. I am just filling out the paperwork, and am
not approved yet for options. Anyone got comments on this strategy? I could use a few pointers.<<
Since you asked...
1) Don't do it.
2) Do it with a small portion of your shares (<10%), see how it turns out, then do more, if you like the results.
Why?
Suppose IR was just kidding and they qualify something next week. Suppose the market returns to what passes in these precincts for rationality and -- after selling off DELL -- notices RDRT beat estimates by a mile, doesn't sell for 100 times next year's numbers and then piles into the stock. Suppose APM finally croaks (just my luck probably, since I have a few shares). In that case, what have you got? A couple of bucks of premium and a bunch of cash. Unless you buy back the calls, raise your basis, which in all likelihood would immediately be followed by a market pullback, or some glitch turning up in RDRT's heads, or Yansounsi showing up on Springer Live, or something other confounded thing.
In short, stock goes up, you don't gain; stock stays flat, you get a buck or two; stock tanks, you get a buck or two but not enough to meet margin calls. I just don't see the percentage, unless you have a lot of conviction that you can predict market action in the short term.
My feeling is that the time to sell calls is when you have a stock that's had a great run and you are basically planning on selling anyway. Then why not try to squeeze out a little extra? But it is so excruciating to buy beaten-down stocks that the last thing you need is to be dragged out of them when they actually do recover. You buy RDRT now at 12 because you think it's a good bet to go to 25 in a year or so. Why set up machinery to get youself out at 12.5 or 15?
That's my naive warning. I say naive because I'm an options novice too. Just one time I sold calls, the stock rose, I bought them back because I wanted to stay in, the stock tanked, then it came back by expiration date to about my original strike price. A lot of nerves for nothing. Now I'm trying to buy LEAPS and deep-in-the-money calls, with more success.
Let's talk again when RDRT is 25 and we're both sitting on some nice profits that we want to protect!
Good luck, Bruce
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