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

To: Uncle Frank who wrote (4699)	1/14/2007 1:12:03 PM
From: alanballow	Read Replies (1) \| Respond to of 5205

>> 11% annualized if I don't get called and 30%+ if I do is OK by me. Help me understand your analysis. If you don't get called, it means the stock is trading below the strike price at expiry. It may be below your purchase price, so how can you assume you'll enjoy a positive return, much less precisely 11%? If it don't go up don't buy it - Yogi Berra dab

To: Uncle Frank who wrote (4699)	1/14/2007 4:33:29 PM
From: Hepps	Read Replies (1) \| Respond to of 5205

Uncle Frank- Fair question. McMillian says that selling covered calls is always a high risk proposition, because your stock could go to zero. I'd be happier if I had made this play a week ago when EMC was at 13 and a quarter. But if you're comfortable owning a stock at a certain price (I am with EMC at 14.25) then there isn't any added assumed risk with buy-writes, and in fact I'm being paid to stick to a plan I should have had all along. Right now, EMC is now being considered a value stock by some, and I can't see where I'll be under water for very long, if at all. I think that I like selling CCs into this kind of strength, as it forces me to stick to a plan: buy low, sell high, decide from the start what my definition of success is and commit. The 11% that I cite is for dead money- the stock stays flat. If it goes down, I will have a challenge breaking even. As of right now, my adjusted cost basis is around 13.80, so I've got a little breathing room. If it goes up, but doesn't hit 15, that's all gravy. I post here because of the title of the Thread, any observations are welcome. Hepps