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Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: Thomas Tam who wrote (48377)	11/7/1999 6:55:00 PM
From: Voltaire	Respond to of 152472

Don't worry guys I'm not going to do it. V

To: Thomas Tam who wrote (48377)	11/7/1999 9:04:00 PM
From: LLCF	Read Replies (2) \| Respond to of 152472

<If Q tanked on the earnings, and dropped 30% (to 154) yes he would preserve some of his portfolio, but no one would have exercised his calls and his portfolio still drops by 20%, not truly protected as you would think even with a 3 million portfolio or any size. <snip> He limited his upside to $242, by not buying his covered calls, on what was supposed to be an insurance policy initially.> Yes, as I posted earlier, calling buywriting 'insurance' is not only mislabeled but is actually the opposite. The buywriter is SELLING insurance into the market and using the proceeds to somewhat cushion the downside: Message 11789358 <If you worry about a catastrophic reaction then the simple put buy would have been better. > Exactly... true insurance is found here and only here. This is not to say that one should not ever 'sell insurance', or that one should always buy it, but understanding what you're doing is a great start to not making mistakes. Selling insurance before a larger 'event' than what is priced into the premium is a loser vs not having sold it plain and simple, regardless of whether you've actually lost money or not. In the world of derivatives trading a typical 'stupid' time to sell premium is into an uncertain earnings date in tech like Q's [as opposed to those with little uncertainty of either the earnings # or the market's reaction to it], important sales seasons in retailing, biotech healthcare conferences, etc. etc. you get the picture. Regardless what certain people on this thread say: Message 11835456 "I have a responsibility to protect other people's assets." Blindly selling premium is NOT in the best interests of the client and showing all the ways you made money 'anyway' doesn't mean you did the right thing. Here is a critique of the strategy in question: 1.) First problem is the month sold, selling near term calls around earnings are usually the most risky! They provide the least amount to protection to the downside and dollarwise go up more than the others on a moon shot. 2.) The performance 'claimed' by the strategist was basically the best possible outcome given what happened. If you were a busy money manager, spent your time visiting companies or doing actual research rather than 'tick trading' you could have easily given up much more of the potential in this situation than what is claimed here. 3.) There are other option strategies allowing one to take profits while waiting for a news event without paying taxes without betting on premium levels of the options... so this is no reason to 'buywrite'. 4.) The rest of the commentary 'tick trading' claims and has little to do with the initial decision of which option strategy to chose. Typically portfolio managers write calls adding up to a price where they would be happy to make a sale in the stock and don't try to flop around trading them racking up commissions. Hope this is of interest. DAK