As there are a few investors and traders lurking about, I was wondering if any of you write covered calls on your long term holdings and if you could offer any insight on this practice.
Anyone here write call options?
- Thread starter Ron Jeremy
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I used to, but just got me more angry when they cut into my real research of finding good companies that went up and made the gain less - so to speak.
Might be smart in today's market, though.
Might be smart in today's market, though.
When I was involved in the market back in the 90's I did write some covered calls on a couple occations.... So I dont have much expirence with it.... I'd have to look it up but I dont remember the income generated as being worth the risk . I was called once as I recall... but the other few times they expired and thus I kept the premium But
these were not large positions.
I lost a bundle on some in the money calls that I had a long position on one time.. I felt there was a few weeks left to run before I really needed to close them out..... But I was still watching it like a hawk.... But a risk that I didnt see comeing took me out and did so quickly....
It was when Alan Greenspan said those two infamous words... " Irrational Exuberance "....
The market fell like a stone.... My VERY LIQUID position had it's liquidity dry up in half a second flat..... I was out 10 minutes later but the damage was done....
Options can certinally be a thrill a minute ride.
Both on the good and bad side...
these were not large positions.
I lost a bundle on some in the money calls that I had a long position on one time.. I felt there was a few weeks left to run before I really needed to close them out..... But I was still watching it like a hawk.... But a risk that I didnt see comeing took me out and did so quickly....
It was when Alan Greenspan said those two infamous words... " Irrational Exuberance "....
The market fell like a stone.... My VERY LIQUID position had it's liquidity dry up in half a second flat..... I was out 10 minutes later but the damage was done....
Options can certinally be a thrill a minute ride.
Both on the good and bad side...
Covered calls are highly useful. Sometimes, stocks hit my price target but I dont want to sell them. For instance, I might have an investment that Ive held for 9 months with a nice gain. If I hold it for the year then I pay capital gain tax but if I sell it then it goes into normal income tax rates. The covered call 3 months into the future protects me a bit from the downside while allowing me to sneak the holding period over the 1 year timeframe and book the gain at 15% taxable rates rather than higher income tax rates.
Covered calls are simple really and what you are doing is lowering both your risk and reward potential of your investment. Now if you sell your stock and leave the call alive and go naked with it then you are taking a fairly big risk. The writer of a covered call is lowering his risk and the buyer of a naked call is purchasing risk and what he hopes might be potential reward. Investing is about risk control versus reward potential and there are many tools in the box to achieve said goals.
Usually the stocks with the biggest premiums in calls are those that are the most risky and sometimes its a good idea if you are in a fast moving stock to lower the risk a bit.
I have a strong rule #1 that guides my philosophy on investing and its pretty simple really.
Rule #1 is dont lose money.
I promise you that if you dont lose money that eventually you will do well in investing.
Covered calls can take a lot of risk out of investing and are certainly good tools for achieving the goals of rule #1.
Happy Motoring All,
Bugshu
Covered calls are simple really and what you are doing is lowering both your risk and reward potential of your investment. Now if you sell your stock and leave the call alive and go naked with it then you are taking a fairly big risk. The writer of a covered call is lowering his risk and the buyer of a naked call is purchasing risk and what he hopes might be potential reward. Investing is about risk control versus reward potential and there are many tools in the box to achieve said goals.
Usually the stocks with the biggest premiums in calls are those that are the most risky and sometimes its a good idea if you are in a fast moving stock to lower the risk a bit.
I have a strong rule #1 that guides my philosophy on investing and its pretty simple really.
Rule #1 is dont lose money.
I promise you that if you dont lose money that eventually you will do well in investing.
Covered calls can take a lot of risk out of investing and are certainly good tools for achieving the goals of rule #1.
Happy Motoring All,
Bugshu
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