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On Apr 21, 1:02am, Sigstroker@xxxxxxx wrote:
> Subject: Re: Need Option Wizard
> IMO, covered call writing is anything but conservative, and neither is
> expectation of a 2 to 4 percent a month income.
>
The studies that I've read generally indicate that covered call
writing offers about the same return as just owning the underlying,
but that the variance of returns is smaller, which gives a higher
Sharpe ratio. This of course generally assumes that the market
trend is overall up, as it has been for the past almost 20 years.
In a down market, you'll still lose money, but will lose less,
because there is still some return generated by selling the calls.
Also, the proceeds from the calls sold generate cash flow, which
may increase the overall total return, due to compounding of the
proceeds from selling calls.
You might also consider selling fully collaterilized puts, which is an
equivalent strategy to selling covered calls, but often has lower
transaction costs.
A related book, is by Lyons ("Winning in the Options Market"),
http://www.amazon.com/exec/obidos/ASIN/1557384312/qid=924806046/sr=1-1/002-4075747-1483407
Here's the blurb:
After conclusively demonstrating why most popular options strategies
don't work, Mr. Lyons reveals in his book Winning in the Options
Market, the three strategies that can produce profits year after year.
Specifically: A strategy not found in any other book, this method has
produced an average annual return of 74% over the last 12th years. This
extraordinary approach involves buying and selling options on two
different stocks that are selling for the same price; Covered portfolio
writing, a strategy which has produced a return about three percent
higher than conventional covered call writing; Writing naked options-by
reducing the risk through diversification, this strategy historically
has produced very high returns.
--
| Gary Funck, Intrepid Technology, gary@xxxxxxxxxxxx, (650) 964-8135
|