Andrew I see where you are going when it comes to writing Naked or trading the options. If I by an underlying stock, write the next month OTM covered call what risk do I have for the premium received?
1. The price of underlying stock goes up through my strike price and I get exercised. I make a CG on the stock and receive the premium.
2. If the price falls and closes lower than the strike price I am unlikely to be exercised. I get to keep the premium only if not exercised and am free to go again. Risk is the underlying capital loss. This can be hedged with LEAPs. and my purchase price is essentially rolled down by the value of the premium.
3. The price goes sideways and I don't get exercised. I get to keep the premium.
4. If price rises and I wish to eliminate risk of being exercised I have to roll up locking in my new underlying share price. Immediately seeling the next months OTM call.
I prefer to take a position in a stock that is just starting to trend upwards. At the moment I am only doing it on QQQ as I see this as less volitile to one particular stock (althought it is a single listed item itself)
I would much prefer to do it on the Australian market but find the premiums for volitility ratio as too large.
I am interested in your comments. I still consider myself a student of the makets and interested in any wise words.
