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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: JB who wrote (7679)	6/18/1998 8:01:00 AM
From: Caroline	Read Replies (1) \| Respond to of 14162

First I read every book I could find (not really, I read McMillan, Schaeffer and a few others). Then I set up Excel spreadsheets that would calculate my outlay, risk and rewards. Then I continued to make mistakes. Regards

To: JB who wrote (7679)	6/18/1998 9:26:00 PM
From: Tom K.	Respond to of 14162

JB, people are drawn to options for the lure of the fast buck... or said in investors terms, the potential to leverage your investment in a short amount of time. Options are derivatives, and are therefore linked to the underlying security. Part of the complexity of trading options is that you have to keep one eye on the short term nature of the option which has a variety of unique characteristics, and the other eye on the underlying which has it's own set of issues and characteristics. This can become much more complicated then simple outright stock ownership. To be successful, you have to first understand the mechanics of the business. Initially, a book or two may be a better way then a course because you can continually refer to it. Then comes the most important aspect.... decide why you want to get into the "game" (don't say make money because that's a given). It may be that you are willing to sacrifice option premiums to protect a long investment, or maybe to leverage a potential purchase, or maybe to generate cash flow, or maybe to reduce the cost of stock ownership, or whatever. The point is, get your objective on the table first. #2. Once you know what you want to accomplish, you can then research your books for the option strategy that will best fit your objective. For example, covered calls (this thread) is generally a neutral to slightly bullish approach for protecting an investment. That's not to say you can't use the technique for some other objective, just think about what you're trying to achieve before you pull out the wallet. #3. Ask questions. This is a great forum to test ideas, but don't take all as fact. My advice is free and didn't cost you a penny.... but that may also help you to determine its value. Refer to your books or to several contributors or threads for opinions on questionable items. #4. Map out a trade that will achieve your objective. Either paper trade it for awhile or start with a small amount of cash. Two traits that will absolutely guarantee losses in this business are greed and a lack of patience. I'm still grappling with these two. #5. Keep good records. A journal is even better because you can look back, see why you made the trade (good or bad) and learn from it. Once you've gotten a little experience (even on paper), you'll feel comfortable asking questions. It can be profitable, but like all else, it takes learning and experience. Good Luck. Tom