I think the market has more downside right now. Maybe get a Bernanke Bounce if he lowers 50 basis points or more, but I think the general trend is down.
Writing a call is absolutely the worst way to hedge a long stock position cause all you are doing is taking in a small premium which hedges you against a couple percent drop, but leaves you open to a major selloff, and at the same time, you give up all the upside!
No, the simplest way to participate in a stock's rise is to buy the stock. Buying calls is a sucker's game. All you're doing is paying the house to play in their sandbox, with spreads and decay working against you. And as was just posted, selling covered calls is, if possible, even more of a stupid play. Why go long on a stock you feel shows potential strength, then cap your gains with a short call? Ridiculous! If a trader/investor is long a stock and has concerns, then sell the darn stock and buy back later if need be. Don't compllicate the situation, and add to trading costs, by taking on an option position with the delusion that it is going to help. There are very few options strategies that are of value. They only belong in the hands of very experienced traders, and they do NOT involve straight puts or calls, long or short.
"There are very few options strategies that are of value. They only belong in the hands of very experienced traders, and they do NOT involve straight puts or calls, long or short." Long calls or puts are the best way to capitalize on major turns in the market or a stock While the odds are against you if you try to trade options on a regular basis, how else do you get a 100-200% return in hours when the market makes a big move up or down?
I wouldnt call it the worst, it's just one of the strategies when your outlook of the underlying is sideways and dont want to take on additional risk, then you sell covered calls. At least that's the reason i use when i sell CC.
Well, the stock is down quite a bit from my break even point, and the major trend is down, so I dont see myself missing any huge pop in the stock in the near future. If I WAS going to sell calls on it, I would wait for it to move up, then, when the upward moment is fading, sell the call. I read that this is done as to try to maximize the premium, as when the stock is selling off, the premium would reflect that. If I thought that the near term trend of the stock is very bullish, I would not be looking to sell calls. But with the stock heading down/ sideways, I thought that this might be a good time if I waited for a small up move. But I only have 800 shares, and my brokers commission is too high to make it worth while. I am thinking, that if I had 2000 shares, and knew a little more about options, that he might be willing to work with me and write some calls. So until then, going to continue to read ET posts and chew threw some of my option books. Cheers
Well wouldn't a downtrend (bear market) be an excellent time for the long term investor to write CC's? My thinking behind it is that you would cushion your downside by pulling out basis as the market went downwards or with the income you could average down and lower your overall basis that way. The execution would obviously be contingent on your view that the stock would continue to move down / sideways and to hedge that risk you could look to selling CC's out a standard deviation or two in order to minimize risk of assignment.
Don't try to follow his examples. I can give you thousands of examples of generating income with selling options (or the reverse of it - buying options). There is no edge in buying or selling options. Read Natenberg's option book. Don't touch options until you have a better idea how option is priced.