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 : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Andy who wrote (58164)	8/13/1998 10:22:00 PM
From: KHS	Respond to of 176387

yes, but if stock appreciates rapidly, you miss it then must decide to write new calls, cover the calls, or let the stock go. Tempting because of great premiums. Writing naked calls is a good way to profit from time value erosion, and they put money in your pocket.

To: Andy who wrote (58164)	8/13/1998 10:26:00 PM
From: DoggieDude	Read Replies (1) \| Respond to of 176387

Covered Calls are an unpredictable tool for an investor and there is a downside. Example: You have 100 shares of Dell you bought at 100. You sell one call contract with a strike of 110 and instantly collect the cash. One of 3 things can now happen. 1) Between the time you sell and option ex date Dell goes to 150 and you are called out. You've collected the option premium and you've been paid 110 for your stock but lost out on the move to 150. 2) At ex date there has been little or no movement and Dell ends at 103 or 97. You win. You've collected the premium and made some money while Dell was going nowhere and you can sell another contract. 3) Sometime during the time you sell and ex date something BIG and BAD happens. Dell drops to 90, then 80, then 70, etc. You still have an obligation to deliver those shares if by some chance it comes back up. So you may not be able to sell your shares while this is going on (rules of your account in regards to having a naked call). There are ways to get around this but it will cut into your profits. After selling the call you can buy a put at a different strike to hedge against a drop. (I'm to drunk & tired right now to work those numbers for ya) The big question about selling COVERED calls is you are essentially betting on the stock NOT moving. If you feel that's the direction of the stock then why are you holding it in the first place?? The only semi safe way to play selling covered calls is to sell only 1 month out and sell a strike price that is really unreasonable for the stock to get to. You won't get much for the premium but if you do get called out then the stock would've moved to such a big extent that you'd still be getting a major profit.

To: Andy who wrote (58164)	8/13/1998 10:35:00 PM
From: jbn3	Read Replies (1) \| Respond to of 176387

Covered Calls Andy, re your Is it true that writing a covered call nets you the premium and the only way to lose is the possible missed stock appreciation higher then the stock price before the strike date? If one thinks Dell is going to be flat or down after any post-earnings run, this could be a solid way to make money on half of one's Dell stock? Never did this before, but it seems like a win - win. What's the downside? Please let me know. You are right, though it is not quite that simple. You must have the appropriate permissions established with your broker. Using today's closing prices, the DELL AUG 105 calls were quoted 5 1/4 x 5 5/8, and the DELL AUG 110 calls were quoted 2 7/8 x 3 1/4. Thus, we might assume that you could have sold the DELL AUG 110 covered calls for $3 / share. If you did that and DELL were to close next Friday below 110, you would keep the premium of $3. However, now the dark side... If DELL were to close next Friday at $200, you would still have to sell your DELL at $110. The downside is this: Once you sell a covered call, your maximum potential profit for the duration of the option is the strike price plus the premium you received. You cannot make more than that, no matter how high the stock price goes. In general you are correct. If you believe that a stock is headed down for the next time period, t, you can sell covered calls through the end of t. If the stock price performs as you suspect you may get to keep the premium and the stock. This is the simplified version. It is a LOT more complicated than that. If you plan to trade options at all, strongly suggest you study them thoroughly before you do so. A good place to start is William Spaulding's web page. He has an entire section devoted to investor education. ADDENDUM: I see that now you have received much better replies than mine. Please refer to them. regards, 3

To: Andy who wrote (58164)	8/13/1998 11:42:00 PM
From: Don Martini	Read Replies (1) \| Respond to of 176387

Andy, please don't write naked calls on Dell. The stock zooms and you get to live in the poorhouse. I've been there. Brother, could you spare dime? DRM

To: Andy who wrote (58164)	8/14/1998 7:35:00 AM
From: tsyl	Respond to of 176387

Andy Re: Covered calls... Covered calls is a defensive strategy. You buy stock, sell or write, option calls, and receive a premium. This premium may be viewed as simply downside protection for your stock. Lets say you receive a $5 premium on 10 contracts, 1000 shares of stock. You pocket $5,000. Your stock now has downside protection of $5 per share. So if the stock price goes down $5 by expirationdate, you would break even, less fees. This strategy is much safer, generally, than going long. You are provided protection. You do forfeit any appreciation in your stock beyond the strike price for which you wrote your calls. But in my mind thats ok. You get your money up front and essentially sell risk to the call buyers.

To: Andy who wrote (58164)	8/14/1998 9:35:00 AM
From: TigerPaw	Respond to of 176387

OT COVERED CALLS? but it seems like a win - win. What's the downside? 1) Taxes if you have a large gain. 2) If your stock is called, you may not be able to afford it at the higher price. This means you can't play the game again on the stock you know the best (or must take a smaller position). 3) If you realize (or think) the stock or the market is going to tank, you can't sell your position until you make some kind of arrangement to deal with the option. I.E. you lose flexibility. TP