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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study! -- Ignore unavailable to you. Want to Upgrade?

To: Casaubon who wrote (11649)	10/9/1999 11:56:00 AM
From: Dan Duchardt	Read Replies (3) \| Respond to of 14162

Casaubon, It is an interesting question you pose, and it approaches some thoughts I've had running around in my head lately; namely, why buy the stock at all? Buying and selling only is not CCing, so I guess it's a bit off topic for this thread, but there is a connection because of the timing techniques common to both strategies. If the objective is to buy a good stock as a vehicle for several rounds of call writing, waiting for it to pull back to the lower BB/RSI set-up to enter, and then waiting for the options prices to follow the stock higher before writing the call, what have you gained compared to simply buying the call when the stock is down and selling it when the stock rises? The obvious answer to this question is that the calls have decaying time premium, so there is an inherent advantage to selling them BEFORE you buy them (or they expire). But when you look at the price swings of most stocks these days, you see that changes in near ATM call prices are driven primarily by the change in inherent value. Of course if you don't buy the stock you miss out on any net gain of the stock trending higher, but you also avoid the (at least on paper) loss if it trends lower. The gains you miss by not owning the stock can easily be offset by buying an extra call contract or two. Plus, if the stock does fall apart, your loss is slowed by the diminishing delta, and ultimately limited to your initial cost. I'm not "dumping" on call writing as a viable strategy. It has stood the test of time and is clearly appropriate for many investors, some of whom (Herm and others here) have achieved very nice returns. But I am thinking that if you have the time and inclination to actively monitor the market, adopt the timing techniques from the WINS approach, and just trade the calls (and maybe even buy puts when the stock is up to play both sides) you can risk less and make more. What you are proposing is, I think, basically what Herm has done recently with ROST, buying and selling Oct calls as a "sideshow". At the same time, based on the heads-up from Herm several weeks ago, I have made my first foray into simply buying the calls and later selling them (well, I might exercise the ones I still have.. who knows). In effect, I sneaked into the sideshow without paying admission at the main gate. I bought no more contracts than I could afford to exercise, which seems to me prudent considering the incredible leverage involved. Your strategy imposes the same limitation on the size of your position. Dan