wayneL
VIVA LA LIBERTAD, CARAJO!
- Joined
- 9 July 2004
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I thought I open a new thread about some of the issues tradean has brought up in the CFD thread, and post here rather than that thread getting off track.
Firstly, tradean, we traders and investors tend to have very robust conversations. Sometimes they get out of hand. But it is through these conversations (arguments LOL) that we learn really useful things. I've learned heaps through bickering with the likes of Tech/A, Crashy and others. I sure it is likewise for them. But we are all friends in the end cause we all keep sharing good information.
Those who do get spooked by these "conversations" probably should not be trading. Thats not to denigrate anyone, but there is a certain psychology required to do this successfully. Perhaps that something is what makes these interesting debates.
That said, this particular forum is THE politest of them all, and we all try to keep it that way.
Covered Calls:
These have been promoted as a no lose, cash flow panacea by certain "wealth educators" and been given fancy nom de plumes like "share renting" amongst others.
I had a heated "discussion" next door at PI.com when someone stated it was easy to AVERAGE 4% per month by writing covered calls.
The reality is far different and this is not achievable over the long term writing covered calls.
They do have their place and are very useful under certain circumstances. But, as a trading strategy, there are far less capital intensive and less risky option strategy alternatives.
I believe the problem is this:
People pay thousands of $$$$$$ to learn something at a seminar, that can be described in a few paragraphs in any decent book. So the "emotional investment" can be very high.
Very often this causes us to defend the concept we have learned about without due reference to the real facts...facts that the wealth educator neglected to point out.
Lets look at an example:
The stock below is Cree research. Imagine buying 1000 stock on the 21st Dec for $38.55 and writing 10 Jan $40 call contracts for $1.48
This means you have spent $38550 on the stock and collected $1480 in premium.
At the close of trading on friday your written call contracts are worth almost zero and it is almost certain they will expire out of the money this friday...nice! collect $1480
But or stock is now only worth $25880. A loss of $12670.
This means we are behind by $11,190!!!!!!!! and a hell of a long way behind our average 4% per month.
Now if you really like cree reasearh as an investment and always owned them and want to keep them despite the gap down, then fine. You have made a few extra bucks income.
But if you bought CREE just so you could write a call then this is a serious kick in the arse.
Hope that helps
Firstly, tradean, we traders and investors tend to have very robust conversations. Sometimes they get out of hand. But it is through these conversations (arguments LOL) that we learn really useful things. I've learned heaps through bickering with the likes of Tech/A, Crashy and others. I sure it is likewise for them. But we are all friends in the end cause we all keep sharing good information.
Those who do get spooked by these "conversations" probably should not be trading. Thats not to denigrate anyone, but there is a certain psychology required to do this successfully. Perhaps that something is what makes these interesting debates.
That said, this particular forum is THE politest of them all, and we all try to keep it that way.
Covered Calls:
These have been promoted as a no lose, cash flow panacea by certain "wealth educators" and been given fancy nom de plumes like "share renting" amongst others.
I had a heated "discussion" next door at PI.com when someone stated it was easy to AVERAGE 4% per month by writing covered calls.
The reality is far different and this is not achievable over the long term writing covered calls.
They do have their place and are very useful under certain circumstances. But, as a trading strategy, there are far less capital intensive and less risky option strategy alternatives.
I believe the problem is this:
People pay thousands of $$$$$$ to learn something at a seminar, that can be described in a few paragraphs in any decent book. So the "emotional investment" can be very high.
Very often this causes us to defend the concept we have learned about without due reference to the real facts...facts that the wealth educator neglected to point out.
Lets look at an example:
The stock below is Cree research. Imagine buying 1000 stock on the 21st Dec for $38.55 and writing 10 Jan $40 call contracts for $1.48
This means you have spent $38550 on the stock and collected $1480 in premium.
At the close of trading on friday your written call contracts are worth almost zero and it is almost certain they will expire out of the money this friday...nice! collect $1480
But or stock is now only worth $25880. A loss of $12670.
This means we are behind by $11,190!!!!!!!! and a hell of a long way behind our average 4% per month.
Now if you really like cree reasearh as an investment and always owned them and want to keep them despite the gap down, then fine. You have made a few extra bucks income.
But if you bought CREE just so you could write a call then this is a serious kick in the arse.
Hope that helps
