Awesome writing leung_lewis.. Hopefully people take the time to read it thoroughly, because I think covered call writing is right up your average piggington posters alley..
Powayseller, Maybe I mistyped.. but I didn’t mean to say that options are a safe place for a person to put money.. NOO way, like I said I had almost a -75% swing before stabilizing to the figures I posted earlier. If we ever hear someone pitch safe and volatility in the same sentence, lets grab all our valuables and run!
I was really tryign to answer the original question, in a little bit different approach.. but the idea is:
The options allow an investor get in on alot of upside for less money up front(leverage) VS. fronting alot of money to buying shares of the stock.. By doing this, you can use the rest of your money(the majority of your money) to buy CDs or gold or whatever you consider a safe place to park your money.
I was trying to show earlier in my example of the COP NOV 60 call option purchase VS. COP $60 stock purchase, that with 1/3rd the up front capital, the gain for the option holder was the same as the stock holder… the risk is that the option holder ends up with nothing if the company isn’t at their strike price by the expiration date.. but do you really want to wait it out long in COP if it dips to 40 for a couple of years anyways? Is Connoco Phillips going to flop? If so, I’d rather have options go to zero than my stock.
