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

To: adairm who wrote (1104)	6/20/2001 12:31:32 PM
From: Mathemagician	Respond to of 5205

On the other hand, if you own the stock, and sell an OTM call, you stand to make a little capital gain on your stock if you get called out. So, you can win twice. 1) collect call premium, 2)get called out for a profit. Naked puts only allow a single payday: Collect premium. You could profit by getting put, and then have the stock go back up above the stike price, I suppose... You could also buy the stock, write the call, and then have the stock drop so that your "second payday" is actually costing you some or all of your premium. On the other hand, you could write the put and then have the stock drop. Your "second payday", in this case, is the capital loss you have avoided. Another option is to write the put ITM, collect your "second paycheck" immediately, and let the stock rise above your strike. Anyway... the whole point was that both strategies work best in bullish markets Whether you write covered calls or puts, the optimal result is achieved when the stock closes on expiration day near to your strike but without assignment. Thus, whether the strategy is bullish or bearish depends on your strike. I will say, though, that neither is a very effective bearish strategy. dM

To: adairm who wrote (1104)	6/20/2001 1:19:57 PM
From: Uncle Frank	Respond to of 5205

>> And neither strategy (writing puts or calls) works well in bearish markets If you are referring to the buy-write variant of cc writing, I heartily agree. Some of us dummies have long term core positions, and a program of writing covered calls is effective utilization of the capital tied up in those holdings through any kind of market. For those who are trying to use ccs to enhance returns on short term holdings, it's a more dangerous game and the mood of the market is of critical importance. But I'm just leasing out my vacation home during periods when I don't plan on using it. duf

To: adairm who wrote (1104)	6/20/2001 2:37:04 PM
From: Stock Farmer	Read Replies (1) \| Respond to of 5205

hi adairm Mathemagician is precisely correct that cc = puts. Sometimes the difficulty is one of perspective. Not owning the stock is a psychological barrier. But it helps to look at it another way. Say you start with a cc strategy. What if you are called? Well, next month use the cash you would have used to buy the underlying again instead to secure puts. If ever assigned, you're back to calls again... and so on. If you play with this model through all of its various permutations and combinations you will see that the capital requirements are identical to a pure cc play, except for commissions :o) Which should tell you that those times you were using puts they were equivalent to cc.. which makes cc equal to put. This example in perspective is also a great refinement to the bog standard cc strategy. John