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

To: rydad who wrote (1978)	8/14/2001 10:33:49 AM
From: JohnM	Respond to of 5205

rydad, I did a buy/write earlier on NUFO, only to learn, rather dramatically, that the downside can arrive much quicker than one expects. The lesson I learned was to worry much more about that than I had previously. As for your stocks, those are clearly not NUFOs. Strong stocks/strong companies. My guess is that there are two worries external to those stocks that could effect their market value on the downside. One that the often talked about recessions in other parts of the globe work their ways through these stocks, dropping them further. And, two, that, not unrelated, the high valuations of the ones I know about on that list, could be trimmed. But, no doubt, you already know all this. As for me, because of the above, I'm quite reluctant to do buy/writes right now. Rather, I am writing ccs on stocks I plan to hold anyway; that if I get called on, I'm likely to be able to repurchase them later for less than the price they were called out, etc. John

To: rydad who wrote (1978)	8/14/2001 10:45:01 AM
From: rydad	Respond to of 5205

I thought of a couple more stocks that I think would be more stable. How about General Electric and Johnson & Johnson. Both would return about 3% per month premiums on a buy- write ATM call. They would still give returns much better than a CD (4%) with pretty good stability. Although I haven't checked their charts yet. Also, how about Home Depot, or AOL? Oh my.....did I just write about something taboo? Non- Tech stocks! <gg> love this thread.

To: rydad who wrote (1978)	8/14/2001 11:01:38 AM
From: Road Walker	Read Replies (1) \| Respond to of 5205

rydad, re: buy/writes I think you are on the right track, but a few comments: 1. Need to buy a good stable stock, with low downside risk. My number one qualifier for a buy/write stock is that it is a company that I would feel comfortable owning long term. If the worst happens, and the stock drops quickly, you become an investor. If a stock drops slowly, you can cover your short calls and sell the lower strike, and keep the trade close to even, while lowering your average cost per share, with the presumption of an eventual rebound. Stock with low downside risk also have low premiums. The second quality I look for in a buy/write candidate is a stock that has a lot of intermediate term volatility. This provides good premiums. SEBL is my current favorite. re: 2. Write call ATM or near OTM Slightly OTM usually gives the best returns. Pick your strike depending on if you feel more comfortable with more downside protection (ITM) or are looking for a higher return (OTM). As of a little while ago, a SEBL buy write Sept ITM would give you a potential 11.11% return and 11.34 downside protection; OTM would give you a 15.6% return with 7.15% downside protection. One other point. If you do this on a regular basis, it becomes very tempting to buy the stock when you think it will go higher, then wait to sell the calls a few points higher. This can dramatically increase your % returns, and just as dramatically increase your risk. John