Comments on: Covered Call Writing: Should We Use Stop Loss Orders? https://www.thebluecollarinvestor.com/covered-call-writing-should-we-use-stop-loss-orders/ Learn how to invest by selling stock options. Fri, 27 Jul 2012 12:52:59 +0000 hourly 1 By: Alan Ellman https://www.thebluecollarinvestor.com/covered-call-writing-should-we-use-stop-loss-orders/#comment-6390 Fri, 27 Jul 2012 12:52:59 +0000 /?p=5729#comment-6390 In reply to Jim C.

Jim,

Selling puts IS a valid approach as long as they are cash-secured (the cash is in your account should the shares be “put” to you). It has a similar risk-profile to cc writing but slightly differs. I prefer cc writing in most market conditions but there is a case to be made for c-s puts in bearish market environments. A reasonable approach would be to sell a c-s put and, if exercised, then sell covered calls on the shares put to us. See chapter 17 of my latest book (“Encyclopedia…) for more details.

Alan

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By: Jim C https://www.thebluecollarinvestor.com/covered-call-writing-should-we-use-stop-loss-orders/#comment-6389 Fri, 27 Jul 2012 11:29:02 +0000 /?p=5729#comment-6389 Alan,

Do you ever sell puts instead of calls? Thanks for any advice.

Jim

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By: Alan Ellman https://www.thebluecollarinvestor.com/covered-call-writing-should-we-use-stop-loss-orders/#comment-6385 Thu, 26 Jul 2012 22:33:36 +0000 /?p=5729#comment-6385 Premium members:

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By: Alan Ellman https://www.thebluecollarinvestor.com/covered-call-writing-should-we-use-stop-loss-orders/#comment-6381 Tue, 24 Jul 2012 17:52:00 +0000 /?p=5729#comment-6381 In reply to Jorge.

Jorge,

The “cautious” aspect has to do with the tail risk associated with global issues as we see in Europe. Triple digit movements in the market on a daily basis are no friend to covered call writers although they may present certain exit strategy opportunities.

The “bullish” aspect does include several quarters of better-than-expected corporate earnings but more. Each week I publish in our blog “market tone” segment the weekly economic reports. Although many have been disapppointing, they still reflect a recovering economy albeit sluggishly. Finally, historically, the second half of election years tend to deliver positive market returns. All these factors combined result in my outlook.

Alan

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By: owencpa https://www.thebluecollarinvestor.com/covered-call-writing-should-we-use-stop-loss-orders/#comment-6380 Tue, 24 Jul 2012 16:13:42 +0000 /?p=5729#comment-6380 How’s this for a pseudo covered call? Instaed of buying Apple today for $602, how about a debit call spread?

Here’s how it works. You buy the Jan 2014 $500 call for $155. You sell the Jan 2014 $600 call for $102. The cost today is $5,300. If Apple is above $600 in January 2014 you will wind up selling the stock for $600 and buying it for $500. Your gain? Well, the proceeds will be $70,200 ($60,000 for the stock and $10,200 for the $600 call). Your cost will be $65,500 ($50,00 for the stock and $15,500 for the $500 call). You will have a gain of $4,700 in 18 months on a $5,300 investment today.

Just a thought for you patient Apple fans. By the way, Apple reports its earnings today, so you might want to wait until tomorrow to seriously consider this.

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By: Jorge https://www.thebluecollarinvestor.com/covered-call-writing-should-we-use-stop-loss-orders/#comment-6378 Mon, 23 Jul 2012 20:51:33 +0000 /?p=5729#comment-6378 Alan,

Are you “cautiously bullish” because of earnings reports? Any other factors? Thanks.
Jorge

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By: owencpa https://www.thebluecollarinvestor.com/covered-call-writing-should-we-use-stop-loss-orders/#comment-6377 Mon, 23 Jul 2012 16:12:54 +0000 /?p=5729#comment-6377 In reply to owencpa.

A quick addition to my note, this will not work with a covered call position. You cannot sell the stock with a put while maitaining a short position on a call.

Personally, if I was going on vacation, I would not have any option positions open when I left, unless I could monitor them every day while on vacation. Which sort of defeats the purpose of going on vacation, doesn’t it?

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