That looks right. You've calculated the potential reward correctly.
However... we were talking about safety, and I guess to analyze the position fully you would have to analyze the risk side too, right?
Writing Covered Calls Again
- Thread starter Arnie Guitar
- Start date
That looks right. You've calculated the potential reward correctly.
However... we were talking about safety, and I guess to analyze the position fully you would have to analyze the risk side too, right?
So to analyze the risk side, we need to assess the stability of MO.
Looking at the chart, I see a strong move for the past year, many consecutive years of increasing the dividend....
I dunno Nik, I guess I'd feel safe doing a naked put or a covered call, I think MO is strong.
......but I've been wrong before!!!
Watch out for those court rulings!!!
Ummmm.... actually, Arnie, I think that the risk assessment is something a little more math-like, kind of like your reward assessment. You seem to be on to it because you mentioned the 'stability' of MO.
I hope an options guy will chime in here.
If called early, it will probably to capture the dividend, and you won't get the $.80. They stand to do this right before ex-dividend date. I have a lot to say on the topic of dividends, and will start a new thread.
Also, for safety by covered calls, perhaps turn it into a collar, i.e. buy puts one or two strike prices lower. Although dividend paying stock the weeks before ex-dividend seem to me to be better supported stocks, the puts are worth the safety; good premiums are offered for a good reason. Alternative: bull credit spread.
My opinion is to sell naked puts deep out of the money and near term only on indices and similar products on futures. I have done this for two years and not a single assignment.
In order to diversify I am also going to look into sellimg puts on commodities. Any help here much appreciated. Thanks
In order to diversify I am also going to look into sellimg puts on commodities. Any help here much appreciated. Thanks
I should have mentioned here that call credit spreads would not be prudent advice in the case of MO, as it is a dividend paying stock, and early exercise before ex-dividend would mean you pay dividend out of your own pocket. Just started a new thread regarding same.
I wasn't suggesting early exercise in general is a problem.