Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Cymer (CYMI) -- Ignore unavailable to you. Want to Upgrade?

To: slipnsip who wrote (17469)	5/13/1998 11:13:00 AM
From: George Coyne	Read Replies (2) \| Respond to of 25960

<< Downside is no different than that of holding the stock by itself. Actually less due to the premium you get from writing the call. >> True, but there is a downside, and it is the same as naked puts on the same no. of shares. You are not covered on the downside in either case. G. W.

To: slipnsip who wrote (17469)	5/13/1998 3:59:00 PM
From: Steve Wood	Read Replies (2) \| Respond to of 25960

David, The fact that you are "locked in" to the stock on the long side is exactly what makes it the same as a naked put. Example. You buy 100 shares of stock selling at 20.00 investing $2,000.00 You sell a covered call with a strike of 20.00 for 100.00 Your net investment is $1,900.00 The stock drops to 10.00 You sell the stock for $1000.00 You pay $6.25 to buy back the call so you are no longer at risk. Net proceeds 993.75 for a net loss of 906.25. Now for the naked put example. You sell a naked put with a strike price of 20 for 100.00. Your account is credited 100.00 The stock drops to 10 and is put to you at 20 costing you $2000,00. You sell the stock for $1000.00... for a net loss of 900.00. Transaction costs and bad fill costs are not included in this example. But it should make my point. The reason Zeev and some others have been having success with covered calls is that we've been in a raging bull market. And, for all I know we may stay in a raging bull market. But if/when the bears take control it won't work so good anymore. My point is not to say that you can't make money with covered call, just recognize the risk. If your holding a stock that for some reason you wouldn't sell even if it took a dive, and your crystal ball says that it's not getting ready to take off... Go for it! :-) Que le vaya bien... Steve