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

To: Dr. Id who wrote (777)	5/24/2001 10:39:07 AM
From: JohnM	Read Replies (1) \| Respond to of 5205

That looks correct. What you're getting by selling in the money calls is the downside protection below 10. It's basically the same as selling the stock at today's price. It makes sense if you want to delay a sale (say for tax purposes) and have some downside protection. Thanks. If I understand Dale's proposal, I would sell calls at a striking price of 10 for a premium of $4.20. Since I bought the stock at $14.03, the upside protection is minimal, at best. Somewhere in the neighborhood of $14.20, I get in the vicinity of being called (here's something else I don't understand yet very well, the conditions under which calls are exercised) and if called, it's a wash. The downside protection is appreciable; I gather it's below 10. But since I'm not terribly concerned about downside protection (save for waaay down), the lack of a return is more a worry. I read a section in McMillan last night about this issue--how to maximize both upside and downside protection. pp. 57-60. He argues one should split the purchase, half in the money, half out of the money. And the results will be better than a simple split. It was too late for me to check out the calculations but it looked promising. Or, if the stock dips you can buy your calls back for a smaller amount...and wait for it to go up a bit and do it again, thus further lowering your cost basis. With the 15s, I am comfortable whatever happens (unless the stock goes to 3!!). If I keep it, I will write again; if it's called out, I'll buy again and write again. Or, at least do so, until I feel comfortable enough with the strategy to begin to move up the amount of money I commit to it. John