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

To: Gary E who wrote (2385)	9/9/2001 10:46:05 AM
From: alanrs	Read Replies (1) \| Respond to of 5205

While, according to the trades shown above a $4 profit was made but a LOSS on the stock amounted to $19....or maybe it's a rich uncles game and $4,000 profit was made on the calls....but that would mean that $19,000 was LOST on the principal...pardon me, but how is this a win? Or are you selling calls on stock you dont own?.. Unfortunately, this is exactly right. In my own case last week I booked a profit of $780 on options plays while my net worth went down $28,000. The only way a positive spin can be placed on this is if one assumes I had no intention of selling the stock in order to avoid the $28,000 loss I did not know was coming. In that case, I was going to experience the loss regardless. The $780, while small consolation, is better than the $0 I would have received without the options. Of course, if my crystal ball was working up to spec last Friday (or better yet, Feb 2000) I would have sold everything that went down this week, held on to those few that went up, and avoided the options altogether. Alas and Alack, as they say. ARS

To: Gary E who wrote (2385)	9/9/2001 12:03:32 PM
From: BDR	Read Replies (1) \| Respond to of 5205

You have it right: a small gain in option premiums and a much larger loss in the stocks. This observation points out two things. First, you need to understand that the investment strategy of a number of the posters here is to hold on to the equity for the long term and to trade calls for some additional income along the way. For those intending to hold for the long term the result you observed is acceptable. The loss in the stock is only on paper and, we hope, only temporary, although temporary may mean a year or more. The gain from the call premiums is real money in the bank now. The second point is that covered calls are not very good at hedging against large drops in a stock's price. There are other option strategies to accomplish that goal and there are less volatile investments that you might find more acceptable if these price swings make you uneasy. Covered calls can reduce slightly the volatility of tech stocks but not eliminate it. The technique reduced but did not eliminate the losses that most of us have experienced in the past year. In retrospect cash was far superior to just about any position in the market, with or without covered calls. Remember who you are dealing with here. If we had been smart enough to have gone to all cash in the summer of 2000, we wouldn't be posting on "the dummy thread", would we? (g)

To: Gary E who wrote (2385)	9/10/2001 12:13:02 AM
From: Uncle Frank	Read Replies (1) \| Respond to of 5205

>> While, according to the trades shown above a $4 profit was made but a LOSS on the stock amounted to $19.... how is this a win? It's part of my long term buy & hold program, Hal. I bought qcom in April 1999 at $140 a share. It has split twice since then - a 2:1 and a 4:1 - so my adjusted cost basis is 17.50. But writing calls on those shares since January of this year has generated just about that amount, so I kind of own the stock at 0. There is no way to lose at this point. >> Or are you selling calls on stock you dont own? Anyone who has writen naked puts looks brilliant at the moment, but imo that is one of the most dangerous plays in the options arena. Besides, it's not my style; I'm just a conservative ltb&h investor. duf