And you think I don't know math? Read this piece and you will understand: http://www.optionsweekly.com/covered-call-enhanced-return/ Moral of the story, swing for singles and you end up driving in more runs then when you swing for a homer! Happy Thanksgiving
1) The article should read "Covered call returns 5%".....and nothing more beyond that. 2) The ideal scenario for covered call writing is to have the stock "skyrocket" after putting on the position and not waiting until expiration for maximum profit. 3) The editor seems to believe that he will engage in covered call writing with stocks that will only move sideways and never has to be concerned with downside risk management. :eek:
<<< 2) The ideal scenario for covered call writing is to have the stock "skyrocket" after putting on the position and not waiting until expiration for maximum profit. >>> Wouldn't the ideal scenario for covered call writting be, for the stock to quickly drop, so you could close the covered call for a quick profit,.... then have the stock shoot up again? After it shoots back up, either sell it for a profit,... or if it doesn't shoot up high enough,... to then write a 2nd covered call, for the same "unit of time" and credit as the 1st contract. Thus you end up with 2 covered call credits, per "one unit of time". That would be my ideal scenario. I've actually experienced that a couple of times over the years. But not too often, as I don't get many stocks put to me, after I've sold a put on them. It's a wonderful thing when it occurs, but it means dealing with the stress of having your stock drop on you after you've sold a covered call, and then HOPING it rises again, in a relatively short period of time. If the stock instead shoots "up" on you after you've sold a covered call, there is no way to benefit from that. All you can do now is wait for the contract to expire, as it would now be too expensive to close the option trade early, after the stock experiences a sig rise.
Yes, too much tryptophan. It violates natural laws! I had a 900-lot bond fly pin in 1999. A 30-wde CME spot fly that pinned to the penny. People do win the lottery.
1) If you can forecast/anticipate dips and rallies in a stock, you ought to be trading the stock or option, outright. You're hoping for too many "ifs" to line up exactly right otherwise. 2) It's never too "expensive" to offset the covered call option when the stock has skyrocketed. You may be getting illogically distracted by commissions or giving up extrinsic value on the option when offsetting.
1) How often does the "theoretical" ever occur in the market? .....?..... 2) ?......Never. :eek: 3) For me, if a trade is initiated as a covered call, I will only offset it as a covered call. You're telling me that you're willing to deviate by offsetting a "leg" of a trade, i.e. covering the call on a dip or rally and/or selling put options against the underlying. Then maybe you'll re-establish the covered call after a beneficial price fluctuation? You may be "good" but you're not "that good". Otherwise you should only trade outright price direction and not be bothered with spread-type positions. 4) I'm actually a risk avoider. You're definitely a risk seeker. That's the real difference