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Old 09-04-2007, 03:33 PM
poker1O1 poker1O1 is offline
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Default articles on covered call options

Hey guys, I need help finding good articles on covered call options that have been published within the last year. Thanks in advance.
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Old 09-04-2007, 10:51 PM
poker1O1 poker1O1 is offline
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Default Re: articles on covered call options

more specifically, the relationship between calls and writing them.
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Old 09-05-2007, 12:26 PM
DesertCat DesertCat is offline
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Default Re: articles on covered call options

Not sure what you are trying to learn, but just in case, do you understand that if you are a long term investor selling covered calls you are selling your upside?
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Old 09-05-2007, 12:32 PM
skindog skindog is offline
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Default Re: articles on covered call options

I've heard of a study saying that covered call writers perform better than ordinary stockholders over the long run. I've sorta seen this from my own experience with covered call writing - it's not rare that I get a >1% monthly return while only selling my upside above a 20 or 30% return on the stock. Think about that - writing seems pretty lucrative. If anyone knows of any such article/research, please throw it my way. I suck at searching and haven't been able to find anything.
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Old 09-05-2007, 12:47 PM
DesertCat DesertCat is offline
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Default Re: articles on covered call options

If it were true that cc writers were more profitable, it means that calls in general are overpriced. I see no evidence of this. You have been lucky so far but you have a small sample size. Someone else is likely complaining that their favorite long term hold just spiked thirty percent and got called out from them, costing many times more than the premiums earned.
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Old 09-05-2007, 12:52 PM
skindog skindog is offline
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Default Re: articles on covered call options

well, here's what I'm saying - the stocks I'm writing covered calls for can rise 30% and still won't reach the strike price - and I'm being paid about 1 or 2% a month. If I wrote within 10% of the strike price I could get 5 or 6%. I have no hard data to support it for you, but I wouldn't be surprised at all if calls were overpriced for some stocks.
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Old 09-05-2007, 01:36 PM
RarocASP RarocASP is offline
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Default Re: articles on covered call options

[ QUOTE ]
I've heard of a study saying that covered call writers perform better than ordinary stockholders over the long run. I've sorta seen this from my own experience with covered call writing - it's not rare that I get a >1% monthly return while only selling my upside above a 20 or 30% return on the stock. Think about that - writing seems pretty lucrative. If anyone knows of any such article/research, please throw it my way. I suck at searching and haven't been able to find anything.

[/ QUOTE ]

Depends on the mkt environment and if you are hedging the stock and options 1:1

If 1:1, then why not just sell deep puts outright? (I guess it makes sense if there are capital recs for retail customers)
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Old 09-05-2007, 01:56 PM
adios adios is offline
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Default Re: articles on covered call options

A covered call is equivalent to shorting a put but probably will have higher transaction costs and tie up more capital. Shorting the put is thus probably a better way to go but not a good way to go IMO.
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Old 09-05-2007, 02:02 PM
DesertCat DesertCat is offline
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Default Re: articles on covered call options

[ QUOTE ]
well, here's what I'm saying - the stocks I'm writing covered calls for can rise 30% and still won't reach the strike price - and I'm being paid about 1 or 2% a month. If I wrote within 10% of the strike price I could get 5 or 6%. I have no hard data to support it for you, but I wouldn't be surprised at all if calls were overpriced for some stocks.

[/ QUOTE ]

Can you name the stocks you write against? It sounds like you have some very volatile holdings, once again I doubt there is a free lunch. You are getting big premiums because the risk of getting called out is relatively high.

For example, KO is $54. The October $57.50 calls last traded for twenty cents. That works out only to about 0.37% premium (not counting transaction costs) for almost 6 weeks exposure to only a 6.5% move. Of course KO is a low volatility stock that rarely moves, but every so often some news will drive it up much more than 6% in a short period.

Some expensive premiums are for stocks with binary futures, for example a drug company that has a blockbuster drug in testing and the test results will either make the company worth zero or 2x current price. If you owned a company like that covered calls wouldn't make much sense because you'd be giving away most of your upside while retaining all of the huge downside risks.

I do believe that some options are mispriced and smart options traders can be significantly +EV if they know how to find specific opportunities. But if you are just writing calls because you own the stock, odds are the price fairly reflects the best estimates of future volatility.
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Old 09-05-2007, 02:24 PM
skindog skindog is offline
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Default Re: articles on covered call options

I agree with what you're saying, mostly. In fact, I almost totally agree. I'm just going out on a limb though and conjecturing... can anyone show me any data that options pricing as it exists in the market or the options pricing models aren't biased one way or the other?

Just for reference, what dictates option pricing? It's my understanding that a market maker sets prices according to an options pricing model like Black-Scholes and then that price is influenced by supply and demand. I could be way off though, I don't know the inner workings of the options markets.

So, what is to say that the black-scholes model, while applicable to the stock market as a whole, might not over or under-price options for a specific equity/industry? Or maybe the supply and demand that dictates which way option prices go is skewed one way or the other - either creating returns that are higher than justified or lower than justified - sorta like when the stock market has had periods of relatively low P/E's in the past. Relative option prices wouldn't be affected, but the overall premiums might be off.

Anyhow, just some random thoughts. I'm very new to all of this stuff and mainly spewing my own thoughts. Can anyone recommend any good options books that are in depth, yet practical for the day to day trading of options, or finding opportunities?
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