Comments on: Deep-In-The-Money Covered Calls: How to Lower Your Investment Costs & Your Risk http://www.investmentu.com/IUEL/2009/July/deep-in-the-money.html Investment Advice and Investment Research with a Contrarian Point of View Sat, 13 Mar 2010 19:02:31 -0600 http://wordpress.org/?v=2.8.3 hourly 1 By: chung hae kim http://www.investmentu.com/IUEL/2009/July/deep-in-the-money.html#comment-31067 chung hae kim Sun, 06 Dec 2009 22:31:22 +0000 http://www.investmentu.com/IUEL/2009/July/deep-in-the-money.html#comment-31067 I do ahve same problem with covered call strategy when strike price is $10.00 plus above the strike price. Is married put may be better strategy? I need your thoghts on this strategy. Thanks. chung hae kim. I do ahve same problem with covered call strategy when strike price is $10.00 plus above the strike price. Is married put may be better strategy? I need your thoghts on this strategy. Thanks. chung hae kim.

]]> By: Norman Edmead http://www.investmentu.com/IUEL/2009/July/deep-in-the-money.html#comment-28091 Norman Edmead Sun, 25 Oct 2009 20:03:07 +0000 http://www.investmentu.com/IUEL/2009/July/deep-in-the-money.html#comment-28091 To use 7.75 as basis is an error in paragraph below. I can show you by my example: I buy stock for $10 and sell a $10 call for $5. If closes above expiration my total return is $15 a share which is 50% profit because I use $10 as my basis. Your way is to use $5 as basis ($10 cost minus $5 option premium) which gives 100% profit. It is obvious that I made 50% and not 100% profit. "If Yamana closes above $9 at expiration, you’ll make 16%. You arrive at this number in this way…$9 (strike price) minus $7.75 (cost) = $1.25 (profit).$1.25 divided by $7.75 = 16%.If the stock moves higher, your returns are capped at 16%, regardless of where it goes." To use 7.75 as basis is an error in paragraph below. I can show you by my example: I buy stock for $10 and sell a $10 call for $5. If closes above expiration my total return is $15 a share which is 50% profit because I use $10 as my basis. Your way is to use $5 as basis ($10 cost minus $5 option premium) which gives 100% profit. It is obvious that I made 50% and not 100% profit.

“If Yamana closes above $9 at expiration, you’ll make 16%. You arrive at this number in this way…$9 (strike price) minus $7.75 (cost) = $1.25 (profit).$1.25 divided by $7.75 = 16%.If the stock moves higher, your returns are capped at 16%, regardless of where it goes.”

]]> By: Michael Comeau http://www.investmentu.com/IUEL/2009/July/deep-in-the-money.html#comment-21677 Michael Comeau Sat, 29 Aug 2009 19:07:05 +0000 http://www.investmentu.com/IUEL/2009/July/deep-in-the-money.html#comment-21677 I used to be a fan of covered calls but I've abandoned the strategy - I've left thousands and thousands of dollars on the table this year because I sold calls against stocks that skyrocketed. As for that fat premium on Yamana - it's because there's a high degree of uncertainty with the stock. It's not a giveaway - you're getting a modest reduction in downside risk for a large elimination of upside return potential. http://www.longshorttrader.com/2009/08/i-hate-covered-calls.html I used to be a fan of covered calls but I’ve abandoned the strategy – I’ve left thousands and thousands of dollars on the table this year because I sold calls against stocks that skyrocketed.

As for that fat premium on Yamana – it’s because there’s a high degree of uncertainty with the stock. It’s not a giveaway – you’re getting a modest reduction in downside risk for a large elimination of upside return potential.

http://www.longshorttrader.com/2009/08/i-hate-covered-calls.html

]]> By: LEAPS - An Introduction http://www.investmentu.com/IUEL/2009/July/deep-in-the-money.html#comment-19081 LEAPS - An Introduction Wed, 12 Aug 2009 21:11:47 +0000 http://www.investmentu.com/IUEL/2009/July/deep-in-the-money.html#comment-19081 [...] on a number of options principles and the many ways investors can profitably use them. With “Deep-In-The-Money Covered Calls” investors can lower their investment costs and their risk. And earlier this week, Karim [...] [...] on a number of options principles and the many ways investors can profitably use them. With “Deep-In-The-Money Covered Calls” investors can lower their investment costs and their risk. And earlier this week, Karim [...]

]]> By: Options Investing: Readers’ Questions Answered | Jutia Group http://www.investmentu.com/IUEL/2009/July/deep-in-the-money.html#comment-19036 Options Investing: Readers’ Questions Answered | Jutia Group Wed, 12 Aug 2009 14:19:27 +0000 http://www.investmentu.com/IUEL/2009/July/deep-in-the-money.html#comment-19036 [...] “Please explain the benefits of buying deep-in-the-money options.” [...] [...] “Please explain the benefits of buying deep-in-the-money options.” [...]

]]> By: Options Investing http://www.investmentu.com/IUEL/2009/July/deep-in-the-money.html#comment-18683 Options Investing Mon, 10 Aug 2009 14:39:01 +0000 http://www.investmentu.com/IUEL/2009/July/deep-in-the-money.html#comment-18683 [...] “Please explain the benefits of buying deep-in-the-money options.” [...] [...] “Please explain the benefits of buying deep-in-the-money options.” [...]

]]> By: Herb Radding http://www.investmentu.com/IUEL/2009/July/deep-in-the-money.html#comment-16910 Herb Radding Wed, 29 Jul 2009 19:03:58 +0000 http://www.investmentu.com/IUEL/2009/July/deep-in-the-money.html#comment-16910 Dear Karim, Please review your Investment U article on Yamaha and using covered calls to lower your costs. When reviewing your section under "Go deep on Yamana" at the bottom of the page you say, "basically, you are willing to own Yamana ect......and then "But if you don't get the shares etc.... What I read is you are doing an ITM covered call at $9 because you are selling the shares. Therefore, while you have lowered the per share price by the premium, should the shares rise above $9 they will called away. You are not trying to buy them. Herb Dear Karim,

Please review your Investment U article on Yamaha and using covered calls to lower your costs. When reviewing your section under “Go deep on Yamana” at the bottom of the page you say, “basically, you are willing to own Yamana ect……and then “But if you don’t get the shares etc…. What I read is you are doing an ITM covered call at $9 because you are selling the shares. Therefore, while you have lowered the per share price by the premium, should the shares rise above $9 they will called away. You are not trying to buy them.

Herb

]]> By: Jeff W. http://www.investmentu.com/IUEL/2009/July/deep-in-the-money.html#comment-16544 Jeff W. Mon, 27 Jul 2009 12:29:58 +0000 http://www.investmentu.com/IUEL/2009/July/deep-in-the-money.html#comment-16544 You mention "Lower your cost". But do you mean to actually lower your purchase price by the option income for Tax / IRS purposes? I was under the impression that if the option you sold expired or you bought it back that it was considered a "short sale". And if the option was exercised then the proceeds of the option Sale and the Stock strike price were added togehter and that would be your sale price for Tax/IRS purposes? You mention “Lower your cost”. But do you mean to actually lower your purchase price by the option income for Tax / IRS purposes? I was under the impression that if the option you sold expired or you bought it back that it was considered a “short sale”. And if the option was exercised then the proceeds of the option Sale and the Stock strike price were added togehter and that would be your sale price for Tax/IRS purposes?

]]> By: Gordon Framptongb http://www.investmentu.com/IUEL/2009/July/deep-in-the-money.html#comment-16542 Gordon Framptongb Mon, 27 Jul 2009 11:02:38 +0000 http://www.investmentu.com/IUEL/2009/July/deep-in-the-money.html#comment-16542 Re: Covered Calls Good article on covering Yamana Gold. Could you show how options can benefit short postions. Using Yamana Gold as an example would be helpful. Thanks, GBF Re: Covered Calls

Good article on covering Yamana Gold. Could you show how options can benefit short postions. Using Yamana Gold as an example would be helpful.
Thanks,
GBF

]]> By: PK http://www.investmentu.com/IUEL/2009/July/deep-in-the-money.html#comment-16442 PK Sun, 26 Jul 2009 08:41:34 +0000 http://www.investmentu.com/IUEL/2009/July/deep-in-the-money.html#comment-16442 Hi Karem, Whenever I read about convered calls strategies, there never seem to be much information of what to do after expiry. There are 3 possible scenarious, but because of ITM calls, 2 of them are the same: 1) If they get called away due to an the same or an increase in share price , do we buy the same shares again - even if in the case when they are at a higher price? And do we still sell deep ITM calls then? 2) And if they did not get called away, due to a drop in the share price, do we sell covered calls again - but at a lower strike price to get a good premium, or do we sell OTM calls now (but then premium is lower). For me to have confidence in this strategy is to see the whole plan, including all the possible scenarious. Regards, PK Hi Karem,

Whenever I read about convered calls strategies, there never seem to be much information of what to do after expiry. There are 3 possible scenarious, but because of ITM calls, 2 of them are the same:

1) If they get called away due to an the same or an increase in share price , do we buy the same shares again – even if in the case when they are at a higher price? And do we still sell deep ITM calls then?

2) And if they did not get called away, due to a drop in the share price, do we sell covered calls again – but at a lower strike price to get a good premium, or do we sell OTM calls now (but then premium is lower).

For me to have confidence in this strategy is to see the whole plan, including all the possible scenarious.

Regards, PK

]]>