I have to disagree with andrasnm regarding the covered calls. If you have the right options broker (i.e. Interactive Brokers), you can sell the stock out of a covered situation, leaving you with a naked call in the account. As far as CC's being dangerous, a friend of mine is an investor/trader who has never taken a loss on a long position, because even if the stock he owns is down, he'll just keep selling covered calls month after month until he gets called out or is in the black. (Note that he only buys stocks that are well established, and doesn't allocate more than 30% of his account to one position, allowing him to continue trading other stocks). I don't necessarily advocate doing such if you're purely a trader, but if you're more of an investor, covered calls are indispensible.
Hi Andrasnm. So Eddie why not keep using Ben & Jerry ??? Just curious.. They are a good broker. I think their internet option trades cost about $38 plus a little extra for additional contracts. And the phone orders cost $5 or $10 more. And spreads cost about $105 to $115. This is a family members money and we think it would be better to use separate brokers. And it gives me a chance to test an on-line broker. CC's are not for the faint hearted (I am sure you can do ok I guess) A person can earn some premium money with covered calls. They don't seem dangerous to me. Sometimes they do end up limiting some of your profits. But you make up the lost profit potential the times when you earn premiums while the stock is trading sidways or downwards or only slowly going up. Every single stock I bot I could have bot lower, hence the put writting idea !!! It's much safer and better. Just pick a decent stock (four letters are better) write the put where you would buy it anyway and just wait ;-) There are a lot of times when I buy a stock and it just keeps going up for a while. If I sold a put I would never end up owning some of these. And I think you can often make more premium money selling covered calls. And if you watch yourself, the main danger is sometimes you will make less total money than if you hadn't sold a covered call. Most brokerage houses seem to say selling puts is much more dangerous and many won't even let you sell a put without a very large account balance. Eddie G
True maybe I was just burned in a very bad down swing of a market. As for ZBoy's friend who can sell down on every move I am sure it's an interesting idea but I caution you after the stock trades at $5 no option will be available ;-) to write. I owned some NITE at 30 and wrote lot of options (6 months LEAPS) NITE (last time I checked was at $16) It's crazy !!! You lose lot more on the stock than the premium will go down !!!! It's shaky until it expires. Regarding writting puts versus calls you have unlimited loss potential on calls but the worst happens in puts is they assign the stock to you - get long and dump it if you chose. I am sure this is why I have this ability at Fido. I have about $50K - 30k is in a short term zero coupon treasury, most houses allow only if you have a $100,000 and they do it blind. That's chicken-shit thinking !!! Good luck.
Hi Andrasnm. Here is what has happened in my Roth IRA at Benjamin & Jerold. I had some option positions in it. They were put in over the phone with a broker. I never went on margin. But I was charged margin interest. I questioned this a couple times. I was always told it was a mistake and the minor charges would be reversed. They never were. What happened was this went on for a few months. Now I still never had a debit balance, not once. Then one morning I was woke up by Jerry Kopf telling me that I was required to have $2000 cash in this account. So I raised this $2000 by selling to close a couple of the leaps. And then I only had enough left to buy to open some short term May options on the same stocks. These ended up expiring worthless. My original leaps would have been good until Jan/2002. And I later called asking why I was required to keep $2000 cash in this Roth IRA after those positions had already been established for at least a couple months. No one has ever gotten back to me. In the past two months I tried to buy to close a sebl Jan/2002 call option for .10 or .20 which it was trading at. I keep getting a message that I am not able to do any option transaction in this account. I talked with a broker and was switched to Jerry. He said if I faxed a letter stating that I knew options were risky and that I knew I could lose all the premium money I would be allowed to trade options again in this account. Why did they change the rules on me for a second time now after I had already lost over $100,000 of the value of my Roth IRAs? But I faxed the letter. And last week I again tried to close out that position. But I again get the message that I am not authorized to trade options on that account. I don't think it is fair that they change the trading rule on me now that the Roth IRAs I have have lost most of their value. I just checked now and it is worth a little over $13,000. It just doesn't seem right that this is the second rule change on this account. I even mailed a copy of the letter to them. I sent this along with a check for a regular account. And it took them 17 days to post this check to my regular account. In the past few years they were making over $20,000 a year in commissions. Now my accounts are very low and I haven't been trading as often. And I am not permitted to make the same trades I have made in the past in my 3 Roth IRA accounts. And now sebl is rising. I wanted to buy to close that Jan2002 130C and then sell a closer month lower priced option to generate a little extra cash in that Roth IRA. And no one ever said anything about why I was suddenly required to keep $2000 cash in just that 1 Roth IRA account and not the other two. So it seems generally like the service has gotten worst since I can no longer make all the trades like I use to. So I was thinking about trying some other online broker like Ameritrade, My Discount Broker, or Financial Cafe. I was considering Interactive Brokers also. But I read they don't take phone orders. My son currently pays for Telocity DSL and I pay $10 a month for AOL so I can keep all my favorites. Sometimes the DSL goes down and sometimes Aol drops me or goes down. So I wouldn't feel comfortable using a company where I couldn't phone in orders as a backup. Now I want to be sure and mention that I have always been treated very well at Benjamin & Jerolds. And I'm sure if I would have called again they would have answered my questions about why I suddenly needed to keep $2000 cash in just that one IRA account and why I suddenly was unauthroized to trade options in my 3 IRA accounts. But when I sent that fax I did receive a page saying that the fax was sent successfully. And they probably didn't get the letter I mailed or misplaced it. I remember I mailed it along with a $500 check for my non IRA account on Mon, April 2 after the market closed. I just checked and this check didn't post to my account until April 19th. And by mistake I just looked in that Roth IRA account. And again they have switched some of my broadcom stock from type 2 to type 1 accounts on 4-20-01. I lost everything in my regular account and most of the money in my IRA accounts. So I was just too embarrassed to call again and check why I needed to keep $2000 in that one account. All those original options & leap spreads and positions were put in as phone orders. Then suddenly I received that call saying I had to sell something by the end of the day to get $2000 cash in that account. And I never once owed a single penny in that account. That's because they were IRA accounts and I was told I am not permitted to use margin in an IRA account. I never tried to. And I never had a debit balance. On at least 20 separate dates when I would check those IRA accounts and my regular account there would be incorrect messages saying I had a margin call. Whenever I seen this I would call and talk to the girl that handles internet orders. And I was always told to just ignore them because they were mistakes. These messages would appear even though I never owed 1 cent in any of the IRA accounts. And many times I hadn't made a trade in over a month. Sorry it took so long for this response and sorry it is so long. When the computer went down I lost my favorites and just stumbled into this site by accident tonight after all these months. Eddie Gorniak Jr.
Eddie, Thanks for the post but I don't touch options (on stocks) anymore. I switch funds and may dabble into index futures if time permits. No more options, read up on what's happening with the options regulations and it's idiotic to trade them, the spreads are mostly 1/2 points and they now seem to want us to only trade at the market !!! I say fuck them !!!!!