This was a record week for conservative call sellers. Congrats to all the widows and orphans that make a easy living off those foolish call buyers.
Any decent options trader who had the savvy to buy calls and hedge them with the stock (short stock long call = long put) made a fortune this week. They were long gamma and had all kinds of opportunity to trade that gamma. Anyone who had covered calls took and absolute beating this week.
Wait! Wasn't this thread about making a killing in covered calls this week? Say it ain't so Vern. :eek: I think it should have been that covered call sellers GOT KILLED in this market. I am sure the original title should have been get killed.
I dont think a lot of brokers are saying that. Its not in their best interest to have their clients get smoked.
You are kidding right? Lets look at one of the larger brokers, Fidelity. They have the following levels defined for options. 1 Covered Call Writing of Equity Options 2 Purchase of Calls/Puts (equity and index), and purchases of Straddles/Combinations (equity and index) 3 Equity Spreads and Covered Put Writing 4 Uncovered Writing of Equity Options, and Uncovered Writing of Straddles/Combinations on Equities 5 Uncovered Writing of Index Options, Uncovered Writing of Straddles/Combinations on Indexes, and Index Spreads Then they have the following: 2. Select one investment objective: A. Conservative- If you choose conservative, you will only be considered for Covered Call Writing. B. Most Aggressive So Fidelity clearly states that a covered call is a conservative investment but a covered put is 2 levels up and will only be approved for 'Most Aggressive'. Either Fidelity is misleading folks or they do not understand their own products. There is no other explanation.
I am not doubting their guideline are out dated and in some cases down right silly. You gave the impression that there are guys out there calling clients to get them into covered calls with no basis at all other then trying to ring up a couple bucks commish. IMHO the "public" trader or investor needs to take some responsibility and learn what the real risks are too. It's not in Broker Joe BLows best interest to fleece what customers he has left into making really bad risk decisions just for a few commisions.
No. I don't mean to give impressions. I mean to state clearly. The fact that they clearly consider a covered (short) call a 'conservative' strategy and a cash covered (short) put a 'most aggressive' strategy is both misleading and false. The risk profiles are exactly the same. I am neglecting cost of carry because either strategy could actually be the 'cheaper'. There is no reason to present these 2 strategies in this manner unless they do not understand their own products or they dissuade investors from cash covered puts because the commissions are less. I am pretty confident that brokers like Fideilty have at least a few folks around that understand synthetics. I could be wrong, but I am pretty sure they are around. There is no argument then to present these synthetically equal strategies in this manner except that one has 2 - 3 commissions and the other has 1. If they had presented these options levels as being tied to investor experience I would be more inclined to agree with you. But they separate the 2 strategies as 'conservative' and 'most aggressive'.
another think to keep in mind is what you can do with the premium. risk reversals take the premium brought in from selling the (covered) call and uses it to buy puts on the same stock / product. as im writing calls into the rally, the calls bring in more premium that the puts cost leaving $$ left over. i'll then take the left over $$ and buys calls on a beaten down stock.