Re: Advice when selling covered calls, in or out of the money?
You missed my point...
If you buy stock at 74.50, and it runs to 90.22. Why would selling covered calls for 15.20 be *better* than simply selling the stock?
Ever notice that volume on deep in the money calls is usually pretty small? Is that because it makes more sense to simply sell the stock, since the call no longer has any time premium? Deep in the money options, from what I've seen is used as a way to obtain greater leverage than margin would normally allow, but that's on the long side, and not something I recommend.
You say that you've ensured profit? No, you haven't. Selling the stock, you'd have profited (excluding commissions and fees) 15.22/share. Selling the calls, you've "locked" yourself to 15.20/share (excluding commissions and fees)... BUT, you haven't ensured anything 100%. If the market were to melt down, and the stock plummets, you could still lose money. What's more is you have ZERO reward compared to simply selling the stock. If the stock went to 400 you'd profit the same in both scenarios. If the stock went to zero... you've ensured precisely nothing with selling deep in the money covered calls, but with sold stock, there would be no effect on your profitable trade.
Ok, now tell me again...
Why is selling the call for $15.20 better than simply dumping the stock?
I never claimed to be an expert on this, and in fact, I learn something new each day. But, I really hope that those who are less in the know don't follow your strategy blindly, because you're NOT making 3% per month compounded over any real stretch of time.
And, if you sat next to Buffet, he'd probably break wind in your direction.
-RMJ
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