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Technology Stocks : WDC/Sandisk Corporation -- Ignore unavailable to you. Want to Upgrade?

To: Steve 667 who wrote (25890)	5/21/2004 10:28:56 AM
From: Art Bechhoefer	Read Replies (4) \| Respond to of 60323

Steve, here is what I was thinking on the sale of covered calls. Suppose the stock is at 30 and you sell covered calls at 30 or 32.50, with an expiration three months in advance. You collect the premium immediately. If the stock is above 30 in the first scenario, your shares will still be called at 30, and you lock in a profit, if any. If the stock goes well above 30, it may erase all the profit on the premium, in which case you realize less than if you had done nothing. But the sale of the covered call can also be considered insurance, reducing the risk of holding the shares. In the second instance, where the covered call striking price is out of the money, you still get some premium, though less than in the first instance, and you also provide for a small amount of appreciation in the shares. In either case, you reduce the cost of owning the shares, but if the shares are called, you also reduce the potential profit. If the shares fall below the striking price or never reach the striking price, the covered calls expire worthless. The question remains whether you would have been better simply selling the shares or holding them for long term appreciation, regardless of momentary dips. In my own case, I prefer to maintain a balanced portfolio, avoiding taking huge positions in any one stock, no matter how good I think it will perform. In maintaining a distribution of shares of different stocks, I reduce overall risk in the portfolio. If a particular stock looks very good, but it already occupies a major position in my portfolio, I would rather enhance my position through options than add to my holdings. It's just my preference not to put all the eggs in one basket. Art