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

To: marcos1 who wrote (914)	6/6/2001 10:40:13 AM
From: adairm	Respond to of 5205

That's a loaded question, Marcos1, but the first thing to remember is that even though you're selling a call, you're buying stock. Only trade in companies that you would want to own long term. Therefore, I believe, (or should I say that the market has taught me) that fundamentals come first. Adairm

To: marcos1 who wrote (914)	6/6/2001 1:56:45 PM
From: JohnM	Read Replies (2) \| Respond to of 5205

I am new to covered call writing and was wondering what criteria I should be looking for when searching for a covered call candidate. Are fundamentals important or just the premium and downside protection I can achieve. Marcos, A quick bit of a warning on this. If you plan to do this on stock you already own, presumably they satisfy some fundamentals in your own mind. Seems to me the premium amounts (not simple issue) are the centerpiece. Comparisons across your stocks, time frames for the option, and strike prices would be the variables to look at. However, if you plan to do a buy/write, find a stock with the highest option premiums, then write the cc on it, that's something to be concerned about. I just did a variant of that and learned there were two issues. First, the quality of the company and its stock. The issues are obvious. However, there is a second. If the stock price descends fairly sharply, fairly quickly, you have the benefit of buying back the option for a handy bit of change. But since you own the stock (just bought) at a higher basis point, writing calls is more limited. You have to be more careful about being called out at these levels, else the loss of the stock cancels out your gains, or, worse still, puts the ledger in the red. Hope this helps. From one new cc writer to another. To the thread, watch out for the Knicks (Willis Reed) effect in the NBA series. As I recall that year (was it 72 or 73 or earlier?), the Knicks were picked to lose, by comparable margins to the present betting on the Lakers/76ers series, to the Celtics and then the Lakers. I think they beat the Lakers in 6 or less games. Don't remember how many it took to beat the Celtics. John

To: marcos1 who wrote (914)	6/6/2001 8:57:16 PM
From: hivemind	Respond to of 5205

Therefore, I believe, (or should I say that the market has taught me) that fundamentals come first. 100% agree with adairm. One would want to consider a group of stocks whose fundamentals are sound enough for purchase as first criteria. Then, after careful consideration of why implied volatilities may be higher in some of these, might the call premium be considered when making a buy-write decision. In my own past experience, I'd put on buy-write positions, accepting extremely high premiums on stocks I had no business buying. The subsequent tanking of these issues taught me (and no doubt many others) that super-high premiums alone, without careful consideration of fundamentals is a trap.