Covered Call Question

[oldtime]

I've never liked covered calls, because you give up your upside potential which presumably is why you want to get long.

I want to get long CL (crude) for the long haul, but I don't have enough money to ride it down to where I think it might go before it moves back up.

I thought about just buying a put, but you know how that deal goes.

So the only other thing I can think of is writing a covered call.

If the market stagnates or goes down I know how to handle that.

So the question is, if the market rallies, what's the best way to handle a covered call position assuming I want to stay long?

So far my only idea is if it goes in the money just buy it and sell another one.

 

[spindr0]

If you think CL will drop "down to where I think it might go before it moves back up", don't go long. Let price come to you.

If you are bullish, don't write a covered call anywhere within the area you expect the UL to go up to. Eg, write well OTM. CC's are for neutral to mildly bullish positions.

If you write a CC and the UL goes up, don't roll the call up. That incurs realized losses while carrying paper gains. The market has a perverse way of blowing that concept up. Take the gain and live with it.

If you have limited funds and you have some degree of timing and selection, buy a call with the CC profits.

 

[Magic8]

Screw covered calls. Write cash-secured puts. Same risk, but better.

 

[oldtime]

ok, excuse me while I google cash secured put

 

[oldtime]

Quote from spindr0: Take the gain and live with it.

If you have limited funds and you have some degree of timing and selection, buy a call with the CC profits. [/B]

Maybe I should have asked the question this way. I'm long term bullish (like years) but I have no idea whats going to happen near term.

I also have the choice of putting on a 1/2 size UL and adding to it later and spreading full size options.

Man, it gets deep over here on this forum. The most complicated thing I ever did was calendar spreads.

I'm willing to BE or take small losses for a long time. So if you have any ideas how to use options for this outlook your opinion would be appreciated.

 

[hajimow]

The best strategy in your situation is selling the underlying (stock) and then do a risk reversal trade (Sell out of the money PUT and buy out of the money Call) for a credit or even. Lets say the stock si at 100. Sell the stock and buy 102.5 Call for the Sept and sell 97.5 PUT. You can engineer the position for lower risk like if the stock goes up, buy a 95 PUT to limit or.......

 

[Rationalize]

Which part of "just buy calls" would not work for you?

Or .. buy some of the underlying now, and some later?

 

[oldtime]

Quote from Rationalize:

Which part of "just buy calls" would not work for you?

A long call would be ok in a steep decline, but a slow extended period of stagnation or decline would kill me. BY the time the ul makes its move up who knows how many long call prmiums that expired OTM I would have to overcome.

 

[spindr0]

Quote from oldtime:

Maybe I should have asked the question this way. I'm long term bullish (like years) but I have no idea whats going to happen near term.

I'm willing to BE or take small losses for a long time. So if you have any ideas how to use options for this outlook your opinion would be appreciated.

If you are bullish long term but have no clue short term, you have to either take a long term position (9 months to LEAPS) or wait it out until your trend develops. Options enable you to place a finely tuned sophisticated bet on your opinion. The problem is having a good opinion

 

[spindr0]

Quote from oldtime:

A long call would be ok in a steep decline, but a slow extended period of stagnation or decline would kill me. BY the time the ul makes its move up who knows how many long call prmiums that expired OTM I would have to overcome.

Every option position (excluding locked ins like conversions, etc) has a siginificant downside if your time/directional dreams don't come true