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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study! -- Ignore unavailable to you. Want to Upgrade?

To: blankmind who wrote (7137)	3/22/1998 1:00:00 AM
From: Ira Player	Read Replies (2) \| Respond to of 14162

I have a question, for anyone that knows how they handle the other side of the trade. The benefits of writing covered calls are obvious. However, for lightly traded issues, someone making a market in them must take them into inventory. They are in the business to make money on the spread, not take a position in the market. Particularly a position that deteriorates with time, even if the underlying doesn't. How do the Market Makers hedge the position when they buy calls from you? TIA Ira

To: blankmind who wrote (7137)	3/22/1998 5:29:00 AM
From: RCVJr	Read Replies (2) \| Respond to of 14162

Blankmind: As long as you believe in the underlying stock, it's works out well...the way to lose money is if, say for example, that if/when Viagra is approved, VVUS drops to $8/share. you'd be down $2.00 and have to repair. With a stock like VVUS, as long as you can hold it long enough to allow it to recover, you would do OK - imagine if, as some did, purchasing VVUS in the $30-40/share range and then trying to do damage control all the way down to $11.

To: blankmind who wrote (7137)	3/22/1998 1:05:00 PM
From: Herm	Read Replies (1) \| Respond to of 14162

Hi Blankmind, You see the potential for some steady income and downside protection. Yes, VVUS could shoot up past $15 and you would have to sell it at $15 IF YOU are called out! Thus, you would give up the extra profit. But, if you knew that ahead of time you would stay long without CCing, right? Covered calls is so conservative that it is the ONLY options trading strategy that is allowed in stock IRAs. That $1.00 premie on $11 is 9% return without margin! Now, imagine if your stock went to only $14 by the option expiration day, you would keep both the stock and the premie and get a chance to do it all over again! Of course, each time you collect the premie it lowers your net cost basis (nut) in the stock. You might be able to repeat over and over again before finally getting called out! Check out coveredcalls.com for premies on stocks with movement!