Beginner Options: How to Choose Your Targets | personal finances

Beginner Options: How to Choose Your Targets |  personal finances

Jim Gillies: Yes. You’d probably be further ahead if you didn’t write the covered call. You just bought the shares and held. Jim Mueller: But, I also set it up. Jim Mueller: Yeah. But I also said, if you want the capital gains, do not rent the covered call or buy extra shares.

Jim Gillies: Yes. If someone- Jim Mueller: Because you can get paid a heck of a lot for running a covered call on something like PayPal or MongoDB.

Jim Mueller: I’ve done a PayPal covered call in the service. Jim Mueller: Well, if you go in knowing that this is a possibility, and you go in with the right mindset and the frame of mind.

Jim Gillies: Yeah. Because there are mitigation strategies you can do out here. If you’ve written this covered call in Starbucks, Starbucks for whatever reason runs through 140, you can do what’s called rolling. You can buy back the previously written $120 strike call, and you could sell say a $130 call expiring in six months to a year, and you’re playing games a little bit, but you’re also hoping that Starbucks, which has gone on this massive run to 140, it hasn’t, Fools, but play along. You’re hoping that sanity returns a little bit, and you can catch up. Maybe you can do that. You might get paid a little bit to roll, or maybe you can accomplish it with node costs at a pocket, but you’re trying to pick up some of the gains at Starbucks, you’re hoping that Starbucks, when the rolling period comes around in six months, or a year, or whatever, you are hoping Starbucks has come down a little bit. As opposed to instead of going down below the new lower strike could say 130, it hasn’t run to 200. If it run to 200, you’re screwed. But that’s what it is.

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