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 Strategies & Market Trends | The Covered Calls for Dummies Thread


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To: alanrs who wrote (5145)4/17/2011 5:39:10 PM
From: wilywilly
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Alan,
I don't write deep ITM calls. I write OTM calls, usually at or above resistance, because I really don't want to get assigned. This is just an income enhancement strategy, using a mostly B&H, dividend paying portfolio.

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To: wilywilly who wrote (5149)4/17/2011 7:48:33 PM
From: alanrs
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Sorry, I must have misunderstood. I thought you said you rolled out multiple ITM calls at expiration and just assumed you had established them ITM to begin with.

ARS

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To: wilywilly who wrote (5149)4/18/2011 12:14:48 PM
From: lml
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That's generally what I do as well. If I get assigned, then I'll get more aggressive on selling OTM naked puts to re-establish my position unless I conclude the broader trend in the market is down.

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To: alanrs who wrote (5147)4/18/2011 2:42:27 PM
From: ValueGuy
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Makes perfect sense to me to not rely on margin...though the adventurous side of me (translation: foolish and impetuous) is very tempted to make relatively easy money on loading up on selling of OTM puts at decent yields...though I think days like today would have blown me up!

So just to clarify: If I write 10 $1 puts (premium of 0.13 and underlying stock price of $3 per stock), on margin this would have required me to pony up $230 for the margin requirement and $100 for the margin call. However, if I wanted to ensure that these puts are cash covered, I should put aside an extra $670 in order to make the amount of cash available $1,000? (i.e. 1,000 stocks at $1 each)

Sounds like technical analysis is very important in writing calls/puts so I definitely have to brush up on this, though I can get basic TA such as RSI on my brokerage account...the rest I'm not so sure yet...

One thing I learned (the hard way) is that there is only so much theory you can read about...nothing beats a good old fashioned practice run, tweaking that to make it work, and tweaking it some more to make it work better...

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From: ValueGuy4/19/2011 2:29:31 AM
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Given the turmoil in the markets and the threat to USD, am seriously thinking of exploring the Canadian markets. They seem to have the same types of options on the Montreal Exchange when compared to the CBOE, albeit on a much more limited basis...also seriously thinking of signing for DRIPs with certain companies, but don't know how wise that will be if I am using a covered call strategy and the stocks may be called away...

Basic question, when anticipating how much income I am generating from writing a call/put, do I look at the bid price or the ask price? If bid price, does it mean that I won't get anything if there are no bid prices that have been published?

Hope everyone weathered the storm yesterday, I know I didn't! Storm clouds will definitely persist for the week IMHO

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To: ValueGuy who wrote (5153)4/19/2011 7:19:24 AM
From: alanrs
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If there is no bid, it seems unlikely that anyone would take you up on an offer to sell. What you get for an option depends on the price at which the transaction happens. Willing buyer/willing seller, and all that market stuff.

You seem to be considering situations with very low priced stocks. I've never sold options on such things, can't imagine the premium would justify bothering. Doesn't mean it can't be done, what I don't know would fill libraries.

Don't know anything about the Canadian market, other than it exists and that there are various exchanges (Montreal, Vancouver, Toronto?).

ARS

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To: ValueGuy who wrote (5153)4/19/2011 10:16:12 AM
From: lml
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Basic question, when anticipating how much income I am generating from writing a call/put, do I look at the bid price or the ask price? If bid price, does it mean that I won't get anything if there are no bid prices that have been published?

It depends. Consider open interest before targeting an option to trade, so you know how liquid the market is for the option. That said, generally, the more liquid the option the smaller the bid-ask spread.

If you're targeting a relatively liquid option, I'd focus on the ask, as the market is sufficiently fluid to move around the bid-ask. However, if you're targeting a relatively illiquid option security, you might be more realistic focusing on the bid. Depends upon your patience, how quickly you want your order filled. An offer to sell @ the ask can go unfilled for days, if never.

No change for me yesterday. Two orders I had in did not get filled. Have learned that patience can make a big difference. Don't get focused on the moment, on the hour, or even the day (unless you're a day trader). Best to keep the long term in mind.

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To: alanrs who wrote (5154)4/19/2011 1:09:50 PM
From: ValueGuy
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ARS

Thanks for that. Unfortunately due to my limited capital, I can only consider very low priced stocks for now...but considering buying LEAPS but at the same time writing a shorter length call with a higher strike price...

Also, I worked out that although certain options have low premiums (such as weekly options), the annualised return on some of the these make it worth your while, but there's no point if there are no bidders out there...

Canadian market looks interesting, IMO, but we'll have to see...can't imagine me doing any trades on that market for now

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To: lml who wrote (5155)4/19/2011 1:25:25 PM
From: ValueGuy
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Thanks for that lml. very helpful

Writing options is harder than I thought...but these things usually are! Learning something new everyday though...

Yes, agreed that patience is the key...though it can be mind numbingly frustrating half the time!

Trying to open an account with IB currently so hope to report some trades soon...

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From: alanrs4/21/2011 10:40:27 AM
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I haven't been posting my little bunt single trades, but today I bought back a couple of FE May 35 puts which put me over +100K doing this. I BOUGHT my first option on 7/10/2000, 2 QCOM Jan 2003 calls (leaps) because a post Uncle Frank had made caught my interest.

Posting this to illustrate that even a little here and there can add up, and to publicly thank Frank for the post that opened that door.

ARS

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