Re: [RT] Managing covered call risk

["Ray Raffurty" <r.raffurty@xxxxxxxx>]

In your situation selling a call at a lower 
strike would in most likelihood lock in a loss depending how far down the 
stock is and what strikes are available.Fortunately options allow many 
other choices. If you are still bullish on the stock, you should consider buying 
a call ratio spread. To do this you buy 1 out of the money call for each 100 
shares you own and sell 2 further out of the money calls for each 100 shares (in 
your case you may only need to sell one call since you already sold one). 
Ideally the money received from the calls sold should be equal or greater than 
the amount spent to purchase the calls, thus you have no additional out of 
pocket expenses (a free trade). 
 
For a full explanation of this go to the CBOE 
site that will explain this strategy (along with much more).<A 
target=_new 
href="http://www.cboe.com/LearnCenter/cboeeducation/Course_03_04/mod_04_01.html";>http://www.cboe.com/LearnCenter/cboeeducation/Course_03_04/mod_04_01.html<FONT 
face=Verdana size=2>
This trade does not protect you from further losses should the 
stock continue to decline!  Experiment with the option chain and you 
will find other similar trades some may suite you better, then talk to your 
broker.Good luck and good trading,Ray Raffurty
 
PS.  If you send me the actual trade privately I can 
tell you more.
 
<BLOCKQUOTE 
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  ----- Original Message ----- 
  <DIV 
  style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black">From: 
  <A title=schnake1@xxxxxxxxxxxx 
  href="mailto:schnake1@xxxxxxxxxxxx";>schnakeus 
  To: <A title=realtraders@xxxxxxxxxxxxxxx 
  href="mailto:realtraders@xxxxxxxxxxxxxxx";>realtraders@xxxxxxxxxxxxxxx 
  
  Sent: Wednesday, March 13, 2002 2:30 
  PM
  Subject: [RT] Managing covered call 
  risk
  Some of you were talking about covered calls awhile back. 
  How do most of you handle downside risk in the stock price? You own 100 
  shares of XYZ at $30. Say you sell a 32 strike a month out for $3. The 
  stock stays the same or goes up. You keep the premium because of 
  deterioration or because it gets called. If it goes down to $27 your'e 
  even, in theory, although call retains some value til exp. Of course if it 
  tanks, you lose. What do some of you do to manage the trade? Sell a lower 
  strike call? Have a GTC stop-sell on the stock, then buy to close? Any 
  other methodology?Opinions and ideas, Please and 
  thanks.SteveTo 
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