Quote: (06-28-2011 05:29 AM)K-man Wrote:
Advice to all: be very careful with the above strategy. If it was that easy, do you think some computer running out of Goldman Sachs' basement would not take advantage and trade it out nano-seconds before you?
This is not to say there is no money to be made in options trading - rather, a warning to all those who think they can buy a How-to-make-money-in-options book at Barnes & Noble and start rolling in dough the next day.
k-man is absolutely right and probably knows more about this than I do. However, I do see a solution to avoid buying back calls that have gone way up--if you go far enough out in time; i've generally been able to "roll out" to out of the money calls at breakeven cost, the negative being I might have an option that's 3-4 month's duration. As far as Goldman Sachs, I think they have ways to steal that offer a far, far greater return on capital than CC.
My approach is based on largely not caring if the stock goes down-- which makes sense only if you are dealing with huge, powerful companies which are extremely unlikely to disappear. (If the stock goes down you keep all the call premium.) Tech companies in particular are vulnerable to game-changing ideas
which can kill them quick-- (how yahoo lost to google.)
Here's a chart of IBM, a computer company that didn't get destroyed; you can adjust the chart it so it goes back to the 1970's-- IBM, dominated computers in the 60's and 70's, but totally went up the wrong path in the 80's ( got behind in the microcomputer revolution) and their stock went way down, something like to 25% of its former value.
http://www.google.com/finance?q=ibm
But since 1995 it went up something like 1000% again.
Other companies like Digital Equipment Corporation DID disappear or shrink I think, but large commodity companies have huge, huge barriers to entry in their markets and are unlikely to get taken out like DEC did.
Can you imagine the resources it would take to compete with Chevron? To START something able to do that?
No Sergey Brin, is going to -with the force of his imagination- start pulling oil out of the ground at 1/10 the cost of Chevron. It seems a physical impossibility.
So with IBM, if they had covered calls, you could have started selling covered calls in 1980, and if you had the stomach to ignore the stock price, done that for the last 30 years and used it as income.
Chevron or its ilk will undoubtedly go down as oil has been hyped by speculators recently. But unless the world ends, or someone discovers a substitute for oil, it wlll probably go up again.
These giant companies aren't some kind of friendly citizens that play fair,
they are the evil bastards that rule the world.
They have almost literally unlimited funds to bribe, blackmail, buy-and-bury competing technology, buy out competition, assassinate, and do whatever else they feel like to make money.
My view is that what the wealthy of the world want to happen, will happen. Everything in almost every economy is set up for their benefit, safety and profit.
They RUN the economy. They OWN the economy.
The wealthy want blue chip stocks to survive. Where do they keep their money?
You can't plan for every eventuality. But taking the 3% a year Treasury bonds offer when inflation is 10% seems to be accepting defeat, means continuing to WORK. If there's an event like the Russian Revolution, only hidden gold will save some of your wealth, but I'm not planning for this kind of black swan.
The rich don't want real chaos to happen, and for most of history, it seems the rich get what they want. Not always, but the great majority of the time.
People think about things like the fall of Rome ending their luxurious
lifestyles, but these things took hundreds of years I believe, like America is imploding now, but it takes decades more before, say, China owns 40% of the real estate in the USA.
My limited life span necessitates me planning for the next 30 years, not all the possible events of the next 300.
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