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

To: rydad who wrote (3566)	3/25/2002 12:40:52 PM
From: Uncle Frank	Read Replies (1) \| Respond to of 5205

>> Are there any rules of thumb anyone can share about covering your call writes? My preference is to write an otm strike 6-8 weeks before expiry, and let the time premium evaporate. Once the premium drops to small change, I will close the position to lock in the profit. On an exception basis, if there is a sudden drop in the early days after writing an option, I may close it out with the intent of re-writing later. I outlined that approach in the following: Message 17129474 Note that the sebl apr35s I wrote on 2/27 for 2.40 are trading at .85 today, but since it's taken so long to happen, I'm not tempted to buy back yet. But wtfdik? duf

To: rydad who wrote (3566)	3/25/2002 12:48:49 PM
From: FaultLine	Respond to of 5205

Frankly, the no-fuss, no-muss aspect of buy-write appeals to me. After establishing the arrangement, you can pretty much go fishing and simply let the contract expire, whatever the outcome. Very conservative in my estimation and low maintenance too. (When I write on my existing long position I just think of it as though I bought the shares today -- that let's me quickly estimate the various outcomes.) On the other hand there are a couple of cases when I may liquidate early: One: If things are varying enough and I feel like paying reasonably close attention, I might liquidate and try to move back in again if the opportunity arises. Any further contract write can certainly be thought of as a completely new buy-write arrangement with the various outcomes clearly understood. My generally neutral Point Of View does not change in this case, I just go to more of a hands-on mode. Two: If I get cold feet and just can't bear the thought of losing all that wonderful money when the underlying stock heads for the stars next week. <gg> Then, I'll liquidate so that I can sleep. In a very real sense, at that moment I stop being a seller of calls and essentially, by banking on a strong rise, act like a bullish "call-buyer" as it were. My POV sharply changes. As call sellers, we base our actions on a neutral or even slightly pessimistic POV -- pessimistic in the sense that we believe, "Yeah, it's up a bit (and premiums are looking better today), but just wait, it will hit resistance and stall or even fall back." I think as soon as you leave this camp and take a more optimistic POV you are joining the call-buyer's mentality (that's #2 above). Notice that #1 does not change your POV on the stock behavior, to me it just means I'm willing to get more actively involved. Like several others posting here, I am skittish about writing calls on QCOM. Someday (someday!) it will break out and I want my long shares to work hard for me. I won't actually lose with the outstanding call contracts but missing that homerun on the long shares is hard to accept when a strong rise looms in my mind. So I try sitting on my hands. Then during the months of up and down, up and down rollercoastering and all the while knowing how easy the buy-write method is, I start fidgeting. After a couple of months of this I resume writing call contracts. Sure, nickels and dimes but still, money I didn't have last week. I hold my breath when I write on a large percentage of my QCOM position. Lately I've only been writing on 20% of it and I feel comfortable with that. --dfl@youcandowiththisoryoucandowiththat.com

To: rydad who wrote (3566)	3/25/2002 7:19:05 PM
From: alanrs	Respond to of 5205

The way I tend to think about it is that if I have written a call 8 weeks out and I can put half (or more) of the money in the bank after 1 week, I take it. The %'s and time period vary, mostly depending on my mood. The exact wording I use to myself is that I got X% of the money in Y% of the time. The possibility of selling the same call again doesn't really factor into that decision. I continue to look to sell SOME call against those shares, but don't play the "going for a hat trick" game. I worry that if I were to focus on that, being slick would become too much of a factor in my decisions. I will also close things out as expiration approaches just to avoid the random wild swing. With options, I'm much more short term oriented, and like to be exposed for as short a period as possible. Frank used to joke about his evil twin, and I find that to be a fairly apt description of how I approach this. My options "persona" is virtually the exact opposite of LTB&H, and the options guy has been far more successful in the last 18 months. ARS EDIT: The LTB&H guy has been sooooo bad, a passbook savings rate of return would have kicked his butt good.

To: rydad who wrote (3566)	3/25/2002 8:50:18 PM
From: TShirtPrinter	Respond to of 5205

Greetings Rydad, I tend to agree w/ all the other responses you've had to your question about buying back CC's. Since I'm no pro here, I tend to be very happy if I can "lock in" 50% of my CC premium in a short period of time. I sell only on a bounce in what I think is a choppy market. I also sell as a therapy to generate some premium on core long term shares. Finally, I think I sell & cover to satisfy my traders itch when I don't want to trade the shares for tax reasons. Hope some of this makes sense to you. I wish I could write as well as Unc Frank <g> Tony