Quote:
Originally Posted by scho63
Follow Hog Farmer now retired....he was the first I think to get in at $20.
I knew and said at the time in a post it was a good investment but I had no free investment capital.
Why not sell covered calls?
For every 100 shares you can sell one call. Sell a call 4 months out-collect about $245 for every 100 shares, giving you equal protection all the way down to $27.40 and max upside of $34.45
X 32 Strike Calls
Exp Apr 20, 2018 BID 2.38 ASK 2.60
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I first want to thank you for your always very diligent responses and bascially teaching me about options trading from your posts here and in PM's. It's truly been helpful.
So I do understand what a covered call is and let's use this example for my final questions. The downside to writing covered calls is when a stock blows past your strike point. Yes, you get profits from the gains up to your strike point + the premium, but you missed out if that stock price goes through the roof on future gains. Fair enough, and likely worth the risk if you are planning to sell for profits in the near future anyway.
So in your example, if Stock X never gets to the $32 strike point (option not exercised), do I keep the premium ($245) and the option just expires (I keep my 100 shares)? What's to stop a person from just trying to make income off options that expire this way? Say placing this $32 strike point in a covered call, but actually speculating that the stock takes a dip. I collect the premium when this option expires ($245) and then also decide to buy more stock on the dip?
Am I thinking correctly here?