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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: David Wright who wrote (10732)	5/11/1999 4:27:00 PM
From: Teresa Lo	Read Replies (3) \| Respond to of 14162

No problem with your comments because if you don't feel confident in your method then you will not be able to trade properly. I was just pointing out the asymmetrical human response to what amounts to be an equal situation. The same thing happens when people are long. They feel comfortable with pullbacks, get lulled into false comfort and forget about their stop losses, while they itch to sell on a pop, when they should give the trade some room to move. I have always thought that options should be traded by people who have done lots of research on volatility, and having worked in the brokerage business for 14 years, I found the emphasis on promoting CC writing, this "income strategy" to retail clients was like always asking a customer at a restaurant if he needs a side of special sauce but not telling the client that it is an "upsell" which shows up on the bill later, done primarily to make extra income for the broker and the firm. The reasons I say this are: 1. Because none of the pros I know trade like this, unless they work for institutions that have no chance of getting off an entire position anyway in a downturn, so why not get some income by selling calls on a certain portion of each position after a decent run in a stock; and, 2. Because writing CC violates the central principle behind long term success in the market: Cut losses short and let profits run. With CC writing, an investor, presumably not holding so much stock as an institution where liquidity becomes an issue, by definition will have no firm plan to cut losses short quickly and if the stock should run, it limits the gain. And since the average investor depends on capital gain, which is presumably taxed at a much favorable rate, the income from the CC is not quite the same. In a way, they are assuming the burden of holding all the paper and exposing themselves to capital losses while holding out for small gains in income. My comments notwithstanding, people keep doing it anyway because they have this idea that if they sell enough calls over a period of time, their stock is free. From my perspective, retail clients shouldn't be asked to trade options,and I mean "trade" because you have to time your sale, but rather try to make the most out of a stock position. Sorry for the long post.