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Strategies & Market Trends : The Covered Calls for Dummies Thread -- Ignore unavailable to you. Want to Upgrade?

To: FaultLine who wrote (231)	4/25/2001 1:38:08 PM
From: FaultLine	Respond to of 5205

Covered Call Writing Philosophy - II From: McMillan, L. G.,Options as a Strategic Investment, 3rd ed, p.83, New York Institute of Finance, Paramus, NJ, 1993. The following quote is from the Covered Call Writing chapter summary. I think some you will be surprised at McMillian’s statements concerning “aggressive” vs. “conservative.” I will be discussing his point of view, and how it arises, in the near future. –dfl “Covered call writing is a viable strategy because it reduces the risk of stock ownership and will make one’s portfolio less volatile to short term market movements. The choice of which call to write can make for a more aggressive or more conservative write -- writing in-the-money calls is strategically more conservative than writing out-of-the money calls, because of the downside protection received. The total return concept of covered call writing attempts to achieve the maximum balance between income from all sources – option premiums, stock ownership, and dividend income – and downside protection. This balance is usually realized by writing calls when the stock is near the striking price – either slightly in- or out-of-the money [where the time premium is at its maximum --dfl].” Please note that the opposition between this “near-the-strike price/maximum time premium” point of view and an one’s individual concerns regarding undesired assignment against a established LTB&H position, will necessarily shape the implementation of your final strategy, I believe this tension provides interesting fodder for discussion as it sharply differentiates the LTB&H cc writing strategies vs. the Selected Position cc writing strategies. –dfl