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

To: Steve 667 who wrote (5725)	3/29/2000 4:27:00 AM
From: PAL	Respond to of 8096

As I posted to taxman, I have presented only one side of the equation, i.e. the reward aspect. I have not posted the risk factor. You have done a good service by pointing out that there is a risk in selling CC, as well as there is a risk of losing all your cash buying calls. Your math is quite accurate, and after the first situation where the stock drops to 110, you might get margin call. yes steve, there is no free money. thanks for the post paul

To: Steve 667 who wrote (5725)	3/29/2000 9:09:00 AM
From: Bridge Player	Read Replies (1) \| Respond to of 8096

<< Don't think about it. You don't need to! The market will teach you. Go ahead. Somebody tell me it can't happen. >> Steve, you are so right. The concept of using $100,000 to generate income of $10,000 a month by writing covered calls on high-premium stocks (which, by the simple fact of high premium are high-volatility stocks) is a honey-coated trap for the unwary and naive. I choose that mild description rather than a more accurate but less friendly one. It apparently is an outgrowth of the cult of the V. whose followers are legend on these boards. Your description of a possible scenario is one which should not be taken lightly by those new to options who may be considering such a course. BP

To: Steve 667 who wrote (5725)	3/29/2000 9:30:00 AM
From: Jill	Read Replies (1) \| Respond to of 8096

Actually Voltaire has addressed this. You are always at risk when you buy a stock: if you'd simply bought JDSU and went long, and it went down down down, you'd lose $. However if you sold cc on JDSU each month, you would recoup some of your losses. The cc is not the risky part, buying the stock is. Especially if you didn't do your DD or your entry point was at an overbought time. (And by the way, he doesn't suggest buying the entire JDSU on margin and neither did PAL in his example. I don't believe anybody should buy stock entirely on margin and sell cc. In fact I use margin very rarely.) Nobody is saying the market is risk-free. In fact the interesting thing about this strategy is that traditionally you would sell cc when a stock was overbought. You own the stock, and when it gets overbought, you sell cc and when it retraces, you buy them back for much less. I've done this twice on QCOM altho both times I was nervous about it. In this scenario, you do NOT buy a stock when overbought. You might even buy it when oversold, or at the very least, when just in the middle of a trading range. Your purpose is monthly income, and to keep your "vehicle" intact. Make sense?