Just read Steven Sarnoff's pitch on DRCORENOT@agoram.com. Anyone trade options? Looks like a fair bet when (& if) the market's hot. But who's been able to predict'em since March 2000? honus
Trader 101 the blurb was about the leverage of playing options, covered calls. It's great profit if you hit. If you lose you didn't buy the stock, just paid a premium much smaller, for the right to buy/short. Of course, the same premises apply as to whether you picked a winner. honus
The problem with covered calls or puts is not the high returns on your winners but the huge losers when a stock gaps against you, that wipe out your winners. Putting a protective put under them will take your yield down by about 60-70%. The erosion of returns due to positions hitting your stop loss will take down the rest of it. Unless, the market is flying, then your a genius, making 10%, when the underlying moved 20%.
There was an old lady down the hall that loved writing covered calls. How many old ladies do you know that have a clue?
Honus, Covered calls are an excellent way to make a fortune. Like anything else, the stock picking needs to be done well - fundamentals. You also need to do some things that most here will advise strongly against, like averaging down by selling the puts underneath. The mentality is the opposite of daytrading. Most of my positions last a month to 3 months and I have done very well over the years.
covered calls are poor stradgey imho especially now with premiums so low.you dont get very much premium for the risk you take. the problem with covered calls is you give away most of your up side and keep most of the risk for a small premium. if you insist on selling premium a better thing to do is sell naked puts.that is the exact same risk reward as selling covered calls.
CCs are like any other strategy - it has to be applied judiciously and you have to know when you're blowing out and taking the hit. The problem with most CCers is that they bought the smoke and mirrors about CCs being a magic bullet. Those who think that will eventually get hurt by them. Those who treat them as just another strategy to be applied when conditions are right can use them to their advantage. They work fine on stocks/markets that are either stable or trending up. They're for s**t when conditions are iffy. The degree of "protection" that a CC provides is fine, but you have to be willing to pull the trigger and exit the overall position (probably at a loss) if the underlying goes south on you. That's where so many CCers went belly up during the great bubble bursting. They wrote the CCs and then thought they could just sit there while the equity leg tanked and lost so much on the equity that they wouldn't live long enough to write enough CCs to recover the losses. A CC is the same as a naked put, so under normal conditions you're probably better off just writing NPs - easier to blow out of if you need to because there's only one leg and NPs can usually be closed out early if the equity moves sharply in your favor while it might not as easy to do that with a CC. On the other hand, if your primary goal is to grow an equity position or you're working in an IRA account that only allows CCs, you'd of course do CCs rather than NPs.