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V. 22:2 (30-32, 34): Consider Covered Calls And The Caveats by Kevin Lund
V. 22:2 (30-32, 34): Consider Covered Calls And The Caveats by Kevin Lund
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Consider Covered Calls And The Caveats by Kevin Lund
Are there opportunities lurking in this market for you to take advantage of covered calls?
Some strategies work only under certain conditions and, all too often, not for the right reasons. Selling covered calls is a good example. There were a lot of selfproclaimed bull-market geniuses in the late 1990s who did nothing more than sell covered calls on technology stocks, pulling in wonderfully ridiculous returns of 20 30% or more per month. Each month brought call sellers (writers) two sources of income: capital appreciation on the stocks they bought, and premiums from the calls they sold on those stocks. But within about one year of the emergence of the bear market in the spring of 2000, it became alarmingly apparent that covered calls spelled disaster for most and did little to protect those geniuses from the sharp declines in their stocks as well as their trading accounts.
If this is so, why bring up covered calls now? Whether you think were in the midst of a minibull in a larger bear market or the beginning of a new long-term bull market, its a ripe environment for covered calls. However, there are some new rules to keep in mind.
Are there opportunities lurking in this market for you to take advantage of covered calls?
Some strategies work only under certain conditions and, all too often, not for the right reasons. Selling covered calls is a good example. There were a lot of selfproclaimed bull-market geniuses in the late 1990s who did nothing more than sell covered calls on technology stocks, pulling in wonderfully ridiculous returns of 20 30% or more per month. Each month brought call sellers (writers) two sources of income: capital appreciation on the stocks they bought, and premiums from the calls they sold on those stocks. But within about one year of the emergence of the bear market in the spring of 2000, it became alarmingly apparent that covered calls spelled disaster for most and did little to protect those geniuses from the sharp declines in their stocks as well as their trading accounts.
If this is so, why bring up covered calls now? Whether you think were in the midst of a minibull in a larger bear market or the beginning of a new long-term bull market, its a ripe environment for covered calls. However, there are some new rules to keep in mind.
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