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Strategies & Market Trends : Buy and Sell Signals, and Other Market Perspectives -- Ignore unavailable to you. Want to Upgrade?

To: Honey_Bee who wrote (21970)	7/23/2011 11:16:51 PM
From: GROUND ZERO™	1 Recommendation Read Replies (1) \| Respond to of 220507

Great question... yes, you will lose with the underlying stock, BUT you will not lose if your game plan is only to write the next month's calls each month, then it makes no difference what the stock does, because over time you'll make out better than had the stock rallied at all... with the AGQ, next month's at the money calls pay better than 8%... so, if you did that every month for a year, you would make 96% on your money... meanwhile, AGQ may not rally 96% in the next 12 months... if the strategy is to play the covered call position, then it makes no difference what the stock does... continue taking in 8% each month... you double your money every year guaranteed... what stock does that? Let's say you write the 215 call and AGQ is at 215... next month, AGQ might be at 175, that's an 18% loss, but you write the calls for another 8% that month... two months will already give you better than 16%, on the third month you'll already be ahead 24% which is more than the 18% loss of the stock itself... when you write the calls, it really makes absolutely no difference what the stock does... owning the underlying stock is your ticket to ride the covered call position... don't think in terms of the stock value, think in terms of guaranteed income each month from the written calls no matter what the stock itself does... in time, you 'll take in more money this way than if the stock explodes higher, you're not playing the stock, you're selling the time to someone else who's playing the stock... Do this over several years and you'll make a fortune while the underlying stock goes nowhere but up and down... GZ