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

To: LindyBill who wrote (1662)	7/29/2001 4:11:30 PM
From: alanrs	Respond to of 5205

Should I should write them ITM, or just OTM? I believe that most people who do not mind their underlying stock being called away would write leading month calls just OTM. I believe this captures the most time premium decay, as a general rule. There have been cases that I have found for stocks that I own where the next month out has actually offered a larger per day time premium, so I would advise checking this, but mostly this is not the case, and I have no idea why this occurs at all. Market inefficiency? I'm sure you will get a lot of good advice about that strategy since many/most of the posters here do exactly that-and probably own many of the same stocks as you. ARS

To: LindyBill who wrote (1662)	7/29/2001 4:22:28 PM
From: William	Respond to of 5205

Hi Bill - Glad I made you think a bit and ask a couple of questions, exactly what I intended. I can't disagree with your 1 through 6. Much the same applies to me. One difference is that I have been doing options since the early eighties, so I have made a few more mistakes than you have <g>. I actually have been selling calls since the peak during our San Diego gathering, even before that. I did make a nice chunk of cash all the way down that cushioned (very little) the losses of the past 16 months. Anyway, a couple of comments on your planned approach. I, as well as Uncle Frank, Ken, and a bunch od others, tend to write OTM calls, not ITM calls, mostly for the front month(next 30 days). This tends to: return a bit more profit if Mr. Market goes up after we write the calls result in fewer cases of the stock being called away have lower commissions for closing calls/buying back stock have all the option premium be premium and not intrinsic value. I think the one thing that hit me in both your notes was the selling ITM calls, and I just ask you to think if that is the best approach for you (others, feel free to comment on this please). My other comment is that if a stock is called away, that you think of buying back a bit below where it was called, not where it was called. Rarely is "todays price" the lowest ever price (with the exception of QCOM April 1999). Welcome to Optionsville, Lindy. Enjoy (and profit from) the dance. William

To: LindyBill who wrote (1662)	7/29/2001 4:37:41 PM
From: Mathemagician	Read Replies (1) \| Respond to of 5205

Should I should write them ITM, or just OTM? Maximum profit for any CC is realized when the stock closes just below the strike on expiration day. If you think the underlying will go up, write OTM. If you think it will go down, write ITM. Essentially, that means picking your target for the underlying then choosing the lowest strike above the target is the optimal strategy. The difficulty, of course, lies in accurately predicting the closing price. Then again, if you could do that consistently you should be buying options rather than selling them. :) I think, in a nutshell, that's why picking the appropriate strike can more difficult than it may seem at first. This leads me (somehow) to another thought. In a tax-free account where one's only objective is to collect CC premiums, is it not a good strategy to pick a very volatile stock (that you fundamentally are OK with) and write DITM calls? This severely mitigates downside risk and you still get a pretty good time premium because of the high volatility. dM@WTFDIK.com