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

To: Dan Duchardt who wrote (4203)	4/15/2004 8:32:25 PM
From: Jon Khymn	Read Replies (1) \| Respond to of 5205

Dan, you have a very good point and a valid one. It is completely possible, that's why RMBS has such a high beta and high premium on options. Higher the risk higher the return! If I am looking for 50% return annually, that means I am willing to take that kind of risk. But when I compare the return and risk, I feel return out-weighs the risk in this case. I shouldn't be called out at loss, I will always write ones that are same as stock price or the ones that are at higher price. (and if I didn't buy stock with margin, why would I be called?) The stock drops to 25s today, and the May 25 call is around 2 bucks, so even if the stock price goes down to 15, I expect the premium to stay above 1.00. $1.75 premium was when RMBS was 28s and strike price was at 30! (assuming the same volatility. Which means even in one of the worst case, the annual premium will be about 12.00. And yes, in this case, I will lose ONE big buck! $28-13+12) I'll report back to you 12 months later.... see ya