Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: rydad who wrote (3390)	2/16/2002 7:06:39 PM
From: Dan Duchardt	Read Replies (1) \| Respond to of 5205

rydad, So you are talking about calendar spreads, right? I would say that I am just starting to get a handle on pure calendar spreads, where one buys and sells the same strike in different months. I had one on RTN with a bearish bias that I fortunately legged into with a very low debit, but I stopped out last week because it was getting away and I did not want to risk assignment on a short put. (Didn't have the cash to cover it actually). What I was really talking about in my recent reply was diagonal call debit spreads, buying LEAPS calls and selling near term calls. These are very close cousins to traditional CCs with the advantage of superior downside protection. I have given a lot of effort to understanding options strategies, and consider myself still on that learning curve, but I've made a lot of progress. What I actually "do" with them is limited by the color of the money I have to work with. My life situation sounds like yours, except that I'm ahead of you by a few years. At the time I was confronted with similar choices to yours I took the leap from corporate life figuring I could derive sufficient income from investing. Unfortunately, I had been beaten up by some really bad experiences with various brokers, and was in a very cautious mode while the bubble was growing. I was doing OK, but not nearly as well as those who knew no fear. After the bubble burst, I totally misread the magnitude of the decline and got beat up a bit more, far worse than I would have if I had been able to employ the options strategies I have since learned about. A day is coming when I will reach a magic age when I can use my resources more freely. Then I will be "doing" a lot more of what I have learned how to do along he way. IMHO, the timing is much better now for those of us who need to be protective of our resources than it was when I made the jump. Assuming the economy actually is going to recover... someday... investing will become attractive again, and we are certainly much closer to a bottom for many stocks now than we were two years ago. The depth of this decline has been very painful, but it is, IMHO, improving the odds for a favorable outcome of strategies like diagonal spreads with LEAPS. You might want to check out a reply I posted on another thread responding to a question about diagonal spreads. That might be a more appropriate place to explore other strategies to generate income, besides the CC strategy favored by many of the regulars here. Message 17071647 Dan

To: rydad who wrote (3390)	2/17/2002 12:20:07 PM
From: ML Harper	Read Replies (1) \| Respond to of 5205

rydad, I am also learning how to do covered calls to see if I can generate 'income'. I am definitely going to use the KISS principle and look for solid companies with good Value Line and Standard and Poors assessments. With my very limited 4 month experience I can see that you don't want to get caught in stocks drifting downward. So this is great reality check environment because stocks are drifting down. But...in theory...if we can squeeze out 3-5% returns per month we can afford to handle some major declines. I will probably buy 4 to 6 stocks, looking for solid companies that are bottoming out and write one month out (front month?) covered calls trying to average 5%. Obviously if you can hit 50% a year, you are in tall cotton. But I can see how losses in the underlying positions can really cut into this. I have got a trusty two-column spread sheet. I will track my costs and my returns. I think I have to show myself the math to avoid self-deception. Marty