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Strategies & Market Trends : Options -- Ignore unavailable to you. Want to Upgrade?

To: PAL who wrote (5711)	3/28/2000 9:29:00 PM
From: Jill	Read Replies (1) \| Respond to of 8096

Very nice explanation. The reason it's so hard for most of us to do is it goes against basic human psychology: to accumulate stock, a portfolio, to "buy and hold", i.e. to "build something"--as I said, the way beavers build dams. And this is just to cut yourself loose and be free. You've got your "vehicle", you use it monthly to generate income. You have to ignore short-term panic (stocks are volatile, it could go up and then fall back and you wouldn't get called out--as soon as it goes up people get scared and buy back their calls for more, which ruins the whole point. As you said it's bat a single or double monthly. And just enjoy your life. But who really knows how to enjoy their lives? I brought this up on the thread a while back. We like the boxes we build ourselves. La dolce vita, as ed would say.

To: PAL who wrote (5711)	3/29/2000 4:14:00 AM
From: Steve 667	Read Replies (4) \| Respond to of 8096

I can't stand it anymore! You know I just have to wonder why wall street is just passing out all this free money. Is there not one scenario selling covered calls with which one can loose money? I sure haven't seen it, yet. So, let me just try to imagine. - you have $ 13,000. - Buy 200 shares of JDSU on margin at $ 130. - Sell CC April 135 at 8, collect 200 x $ 8 = $ 1,600. - In 4 weeks stock goes to 110. Your loss = 2000 x 2 = 4,000 - $1600 Loss = $2,400 in addition to commission You now have 10,600 equity minus commissions for both stock and 2 options. Stock at $110 - value 22,000. Now you sell CC May 115 at 7, collect 200 x 7 = $1,400 In 4 weeks stock goes to 95. Your loss = 3,000 - 1,400 = $1600 + option commission for 2 options. You now have $9,000 equity minus commissions for original stock purchase and 4 options. Stock is at 95. - value 19,000 Sell CC June 100 at 6, collect 200 x 6 = $1,200. In 4 weeks stock goes to $85. Your loss = 2,000 - $1,000 = $1,000 plus option commission for 2 more options. You now have $8,000 equity minus commissions for original stock purchase and 6 options. Stock is at $85 - value $17,000 Sell $90 July calls at 5, collect 200 x 5 = $1,000 In 4 weeks stock goes to $125. You are called out at $90. You collect 1,000 stock gain, plus $1,000 for options. = $2,000 Minus option commission. Your equity is $10,000. minus commissions for original stock and 6 options. (rough estimate for commissions is about $250) so equity is $9,750. Your loss is $3,250 which is 25% of your original equity. And it only took you 4 months to do it! To get back to where your started, i.e. just to break even, you must now make a 50% return on the equity you have left..... Just to get even. Don't think about it. You don't need to! The market will teach you. Go ahead. Somebody tell me it can't happen. After all what the hell do I know? Steve 667 Neighbor of the Beast ** Chaos, panic, & disorder - my work here is done.

To: PAL who wrote (5711)	3/29/2000 9:06:00 AM
From: Gregory	Read Replies (1) \| Respond to of 8096

thanks for the very informative post. I agree, cc is a good strategy, but should not be used on the stocks you are attached to. My question? How do you find a stock that you can use for covered calls writing. I understand JDSU is one of them. Why CSCO is not?

To: PAL who wrote (5711)	3/29/2000 7:16:00 PM
From: Seldom_Blue	Read Replies (2) \| Respond to of 8096

RE: Using margin to buy stock, then write CCs I personally think this play is very risky in bad times. If everything goes well, you get your 20% return. If the stock is not called, you reduce your cost basis. Great. Now the stock goes down 10% and you get a margin call, what do you do? Unless you have some other funds or margin capacity, you will be forced to buy back the calls first, then sell the stock. You will probably lose money. This type of trading is probably ok for someone of Voltaire's experience, but it is certainly not for newbies. I always use a 20% rule. If I put on my play and the stock immediately drops 20%, how badly will I be hurt? If I have to put up money for margin calls, it is not a safe play. In today's market, maybe we should use a 30% rule. Seldom Blue