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.

Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Shane M who wrote (5794)	1/18/1999 4:18:00 PM
From: Freedom Fighter	Respond to of 78476

Shane, >>I'm not familiar with your terminology. What do mean when you say "roll the calls out and sometimes up" and "can be rolled down"? If you're selling calls and the stock continues to rocket up why would you still not get killed?<< I WILL be losing some money, but not as much as a short seller of the same security. I'm going to make up some numbers here just to demonstrate. Let's say I hate "xyz" stock at $50 a share. In January, I sell March 50 calls for $3. If the stock goes to $57 by March, I am losing $4. ($7 - $3 = $4) A short seller would be losing $7. In March I can then sell May 55 calls for $4.25 after buying back the March calls for $7 ("rolling out" to May and "up" to a strike price of 55). If the stock goes to $55, I lost 4 bucks on the first transaction and made $4.25 on the second. With commissions and spreads I broke out about even give or take. So the stock went against me for $5 bucks yet I still broke approximately even. The short seller lost $5. On the downside, if the stock immediately went to $45, I could buy back the $50 calls and net a profit (although not as much as the short seller)...end of story. Or I could buy back the 50s (and profit) and then sell 45 calls and get another 3 bucks. What this process does is eliminate some of the downside of short selling if you are wrong and allows you to make some money if you are right. Wayne