Newbie Question about covered calls.

Discussion in 'Options' started by jkgraham, Apr 11, 2011.

  1. jkgraham


    I apologize if this subject has been already beat to death here.

    I see the argument that covered calls limit your upside. But if you are swing trading a stock you should place the strike price of your Covered Call at the current resistance level. If the stock makes a move up, that resistance level could become the new support level or at least close to it. You could then use a naked put to reestablish your trading position at or near your original covered call strike price and keep on going. Using the covered calls and naked puts help improve your margin of error on where to buy and sell.

    So I think covered calls and naked puts should work well if your strategy on a particular stock is to swing trade it anyway.
  2. stoic


    Those that say "Covered calls limit your upside", ... don't know what their talking about.
  3. huh?
  4. I also would love an explanation of this statement...
  5. Covered calls reduce the upside if the stock moves up past the strike. Period. End of story. Even worse, when the stock gets near the strike, if there's a decent of time remaining until expiration, the short call will have plenty of TP remaining and your net gain will be less than had you just swing traded the UL.

    Your hyposhesis makes sense if the UL cooperates and price is near the strike upon exercise. If higher, you'll get peanuts for the NP. Better to move on and find another good pick.
  6. donnap


    Have you been drinking? ;-)
  7. OMG !!!!!!!!!!

    My lisp has now infected my typing!!!!

    :D :eek: :p
  8. stoic


    Not the End of Story. The concept of Rolling Up and Out is a simple one.
  9. Look up the meaning of the word REDUCE

    And in addition to that, booking losses and carrying paper gains is a bad habit.
  10. The covered call limits profits to the premium received on the short call plus the profit made from the difference between the stock's price at initiation and the call strike price.
    #10     Apr 11, 2011