Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: FaultLine who wrote (512)	5/10/2001 3:50:23 PM
From: Brian Sullivan	Read Replies (1) \| Respond to of 5205

What happens if a stock that you are holding gets called away and you buy it back the next week. Would that make the sell due to the call excise a wash sell?

To: FaultLine who wrote (512)	5/10/2001 4:17:21 PM
From: Mathemagician	Respond to of 5205

I leave the past where it belongs - in the past. So let me see if I understand this, you are suggesting to our readers that if they buy a stock at 40 which later falls to, say 15, that they should have no concern in writing a cc for a few bucks and let the stock get called at 20. Right? Not exactly. I don't suggest that our readers do anything in particular, with one exception: Do your own DD and do not base your investment decisions on something that a stranger has posted on a message board. However, I will discuss my strategy which is relevant to my particular situation. If I make a $10,000 investment that turns into $5,000, what I do is try to find the most efficient means of turning it back into $10,000 given my risk tolerance, etc. Whether that means holding on, selling CCs, or investing that $5,000 in a different opportunity depends on my expectations for that particular investment. If I think the stock might not recover, I will sell it outright and put my money in an investment in which I am very confident. (As Buffet says, "There are no called strikes in investing.") If I think I can collect CC premiums faster than the stock will recover, I'll sell the CCs. If not, I'll just hold and wait for the recovery. The key is not to become attached to a particular stock. Just because I lost $5,000 on one company does not mean I have to make it back on the same company. All that matters to me is that I do eventually recover. I would also suggest that any investor who has his/her heart set on never losing money on a particular stock is someone who is having trouble admitting that they might have made an incorrect decision when they bought the stock in the first place. This is a prime example of an investment decision based on emotion. If we only sell our winners and never sell our losers, eventually we will only own losers. This is like the kid who buys packs of baseball cards and then trades all the good cards he gets for more packs. Eventually, all he has left is a handful of commons. dM

To: FaultLine who wrote (512)	5/10/2001 4:38:17 PM
From: Mike Buckley	Respond to of 5205

FL, Based on my reading of the thread, I think the answer to your question asking if we should ignore the cost basis of the stock has to do with whether or not there will be tax consequences. If there are no tax consequences triggered by having the stock assigned, the cost basis would be unimportant. Otherwise, it becomes immensely important depending on one's particular tax situation. Case in point: Though Frank ignores the cost basis for his own accounts, he's referring to tax-deferred accounts. He wisely counseled me that writing covered calls in a taxable account against stocks that are immensely profitable is a very tenuous situation because of the risk associated with the tax consequences should the stock be called. (He described the situation better but I can't think of the exact words he used.) --Mike Buckley