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

To: Seeker of Truth who wrote (880)	6/1/2001 8:48:15 AM
From: i-node	Read Replies (2) \| Respond to of 5205

I found myself nodding in agreement with your point Not to butt in, but I don't see a need for the stock to be overpriced or nearly so -- I believe ccs offer a safer way to speculate on the random price movements that occur on any given day -- just as the buyer of the call can. The difference is the cc writer has time on his side, where the buyer has time working against him. Right now, I own AMD which I don't consider to be overpriced or anywhere near it. When it has moved up a couple dollars, I'll sell calls on it with the understanding that in all likelihood the stock is going to move down again before it moves up and I'll have an opportunity to cover.

To: Seeker of Truth who wrote (880)	6/1/2001 12:30:31 PM
From: Uncle Frank	Respond to of 5205

>> The person on the other side of the CC certainly looks like an idiot when the market is crashing... That accurately describes the way I feel about not writing cc's this month, Malcolm, but I'd prefer you use the term "dummy" instead of "idiot". duf

To: Seeker of Truth who wrote (880)	6/3/2001 10:49:55 AM
From: LKO	Respond to of 5205

I found myself nodding in agreement with your point, that CC is generally only good when we are satisfied either to let the stock go or to keep it. The situation in which this makes sense is that we like the company but we consider it overpriced or about to become overpriced by some standard we have set. Others have commented on it but some more comments from this old dummy.... The above situation is obviously the generic "no-brainer" case where covered calls leave you happy with either outcome. There are many non-generic factors which make it hard to give absolute advise, since a lot also depends on - your risk and life situation. Things like what percentage of your wealth this is and what the money is earmarked for. - what is your outlook on the specific equity you are playing with. The stock price movement of GE will be different from a low-cap dot.bomb stock. Doesn't that imply that CC is good only on relatively rare occasions? Covered calls are just a tool. Think of it like an adjustable wrench. Quite useful, but that does not mean there aren't situations (i.e. with variables like risk-tolerance, life-situation, specific-equity) which may make it not the right tool for ones case while it might still be OK for another person. (OK, the wrench analogy breaks down here ... but I hope you get the point :-)) Is it an everyday thing to consider our stocks overvalued or near to it? The person on the other side of the CC certainly looks like an idiot when the market is crashing but it isn' t so clear that he/she is always being foolish. Not sure exactly what you mean by the first sentence. Everyone takes their own analysis into account in any equity transaction. People usually buy any stock because they think it will go up at least faster than money-in-the-bank over their time horizon (in case of day-traders, in that one day :-)). People usually sell stock because they need the money (for vacation, home, expenses, to buy another stock) or because they think it will go down from the price it is at. Everyone is betting based on their outlook on stock and their specific investment and life situation. Otherwise stock market would be boring and predictable and only Analysts would have the time and energy to make money and small dummies like us would have a hard time competing with that. My point was a mild warning against forming generic apply-in-all-covered-calls-situations opinions on how to play covered calls. It is not that easy and was encouraging folks to think through the full range of possibilities and risks.