Rolling up covered calls

[droid17]

I am figuring worse case 2.00 gain, goes way back up 4.50 gain, and in between maybe can move the put up for next month.

 

[Pauluss]

Quote from spindr0:

continued...

The Jan 2010c/May 12.5 diagonal would be down about a buck as of yesterday's close compared with the $1.80 loss on your ATM CC write.

Don't interpret this as an "I told you so". No one knew that the stock would drop. But it did and it demonstrates why I think that standard covered call writing is a poor strategy in terms of risk/reward.

About the poor strategy, in this case is it better to write calendar calls? (e.g. buy Jan11 & sell front-month?) Is this provide a better Risk/Reward ratio? (I wonder if I'll do it on Yahoo...)

Paul

 

[spindr0]

Quote from Pauluss:

About the poor strategy, in this case is it better to write calendar calls? (e.g. buy Jan11 & sell front-month?) Is this provide a better Risk/Reward ratio?

In a vacuum, it might be... if all you were looking at was risk/reward.

You have to select the strategies that line up with your outlook for the underlying. Then you have to select the one whose risk/reward spectrum best fits your profit objective and loss tolerance.

A calendar tends to be a neutral strategy (unless placed OTM) whereas a CC is neutral to mildly bullish. In that regard, they're somehwat similar. However, the downside is totally different so comparing them is sorta apples and oranges (see their P&L graphs).

 

[RedEyeFly]

i didn't see if it was mentioned, but might want to try a diagonal play, substituting a ITM long call for the stock. Substitute with a call around .8 delta.