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

To: rydad who wrote (1944)	8/12/2001 10:08:11 AM
From: 100cfm	Read Replies (1) \| Respond to of 5205

No one knows the answer to when stocks will make a comeback. But history has shown that they always do, even after the crash of 29 they recovered. So that is why we are selling CCs on our core holdings to bide our time and collect some rent on our properties while we wait. Will stocks go to zero. Yes and No. Solid comapnies like the ones mostly discussed here will not but alot of others may very well go to zero. In other words one should not hold onto a stock just because of collecting CC premiums. The potential loss in the equity will out weight any premiums collected. 100

To: rydad who wrote (1944)	8/12/2001 12:16:42 PM
From: Mathemagician	Read Replies (1) \| Respond to of 5205

I just spent a good 15-20 minutes typing out a reply/rebuttal to your analysis and by the time I finished and was proof reading it, I realized I came to the same conclusion as you. Been there, done that. :) However, I would like you to verify the validity of an additional statement that I feel should be mentioned. Maximum loss occurs when the share price reaches zero. When we talk about the maximum loss occurring when the share price reaches zero, we are really talking about the maximum possible loss. We make no judgement about the likelihood of this actually occurring. It is just a calculation of the most we can lose which helps us understand what the risks are for a given position. After this stock market thrashing we have taken over the past year or so, how much further can we go down? I know that everyone tells me this is dangerous thinking and I realize that even another 20% or more is very easily possible. We can go down to zero. That is the only minimum which anyone can set that cannot be violated. 20% is possible. 80% is possible. 100% is possible. 101% is not. However, nobody knows which will actually happen. But what is the probability that a stock will go to zero? Anyways, wouldn't you think that we are closer to the bottom of the market than the top and if we did get a substantial further dip, eventually we will head upwards again. I don't know. In fact, I have yet to meet anyone who can demonstrate to me the ability to assess the probability of a given percentage rise/decline consistently and accurately. That is called timing the market. Just out of curiosity, do people still believe the market will come back up again some day? Otherwise why are we putting our money in stocks if we think it is dead money forever? That's why we're here! If we thought stocks were dead money forever we would not be focusing on a strategy which is "neutral to slightly bullish". :) dM P.S. In the course of typing that reply, I happened upon a rather amusing (and rather telling) typo: "neutral to slightly bullsh!t"

To: rydad who wrote (1944)	8/13/2001 12:28:05 AM
From: Dan Duchardt	Read Replies (1) \| Respond to of 5205

rydad, But what is the probability that a stock will go to zero? Very small, but finite. If a company goes bankrupt, the chances of you ever selling your shares is remote. I still own some shares of ARCH, a stock that is up 360% from it's all time lows, at 3.6 cents a share. That also happens to be 99.96% off it's all time high of 92.25. Toward the end of July, you could have bought it at a price you would think could not possibly go lower, a dime. It is down 64% from that level, and was down 90% at the low. It was not too long ago this was a multi-billion dollar company in an industry with a bright future. At this point it will be a miracle if it survives Anyways, wouldn't you think that we are closer to the bottom of the market than the top and if we did get a substantial further dip, eventually we will head upwards again. Yes, of course it is true that the Nasdaq is closer to the bottom than the top. Once the index fell more than 50% from 5132.52 high it was by definition closer to the bottom than the top. But that was the prior top, and that is history. The question is not where we are in relation to historical highs, but where we are in relation to the levels that can be achieved in the future. There is no guarantee the Nasdaq will ever get back to 4000. If it does, it will probably be as a result of dropping all the dog stocks out of the index. Nasdaq delists stocks that fall below $1 in value, and don't forget that the Nasdaq index is weighted roughly by market capitalization. That means when a stock dies it can no longer affect the index Were that not the case, the index would never have gotten so high, and if it had to take all the stocks with it that were included at the high, it might never get there again. The index will someday be driven higher by companies that survive and grow strong, but there's going to be a lot that never make it. For the Dow Jones Industrials, and the S&P indices, you cannot argue that the bottom is farther away than the top. Most of us hope it is, but strong arguments can be made that much more than another 20% is possible based on historical valuations, disenchantment with the market, and global economic issues. If you look for them, you can find prophets of doom very easily. These indices too drop stocks that fall out of favor, and replace them with stronger ones, so you cannot assume that the historical performance of the indices is indicative of the strength of the market as a whole. Dan