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

To: Dominick who wrote (4198)	4/15/2004 12:37:46 PM
From: Dominick	Respond to of 5205

Well I'm sorry to say, my point has been made. RMBS is down over $2.80.

To: Dominick who wrote (4198)	4/15/2004 3:12:08 PM
From: Uncle Frank	Read Replies (1) \| Respond to of 5205

>> Buying options is a "directional" strategy. If you were doing poorly with that, selling them or CC writing isn't going to help either. I disagree, Dominick. Classical covered call writing against a ltb&h position, which is what this forum was designed to discuss, doesn't require any skill at prognostication. The mechanism is based on recognition of the wasting nature of time premium. As an example, I have a block of qcom that I purchased 11//5/03 at 46.49. It's a core holding, so short term fluctuations are of little import, except that they allow me to derive an income stream. I wrote aaodm (april 65s) at 2.10 on 3/29, when the stock was trading at 65.50, and bought them back today at 1.10. I picked up a buck a share, and even managed to gain some slight appreciation in the underlying. Now the buy/write strategy is a different story, but this forum was never designed to promote that riskier strategy. jmho, duf

To: Dominick who wrote (4198)	4/15/2004 4:57:22 PM
From: Jon Khymn	Read Replies (2) \| Respond to of 5205

Dom, Here is my simple(dummy) way of thinking RMBS and CC. 1. I am going to hold RMBS for few years 2. Let’s assume the following: buying 1000 shares at $28. 3. Write 10 calls at $1.75 every month. (let’s simplify more, $1.50 instead of $1.75 and just 10 months instead of 12 months– the premium may not stay this level but let’s just assume it will in the future) 4. Then I would collect $15 premium in one year. Which means even if RMBS stock price drops to $13, I would break even. On the other hand, if the stock remains same or goes up, my return will be $15 or about 50%. (Even if the stock goes down to $20, I would still net $7) Any comments?