SKF update (1) 7/22/08

  I'd like to take SKF as an example how to escape from the trap.  Since I don't want to tied up with real people which involved pravicy,  I just assum  I have 100 shrs of  SKF bot at $174 and no extra money to investment. ( This is worst case since I never put all money in one stock.  This behavior should avoid in stock trading.)

To simplify, I ignore all trading fees which is just fraction of trade. But any trade is real time and use real price.
I sold  SKF 170c this monring at $8.3 (Use sell to open, everyone can get this price at today's open)  

Potential cost reduce: $8.3
Cost per share: 174-8.3 = $165.7
loss as of yesterday's close: $165.7-137.35 = $28.35
% of loss:  -17.1% 

Sell covered call is not risk free operation, in general there are two risks involved in this strategy:
1. If stock fall sharply after you sell covered call, you can not cut loss by selling the underline stock.
2. If stock up significantly after you sell covered call, you can not sell the stock before OE to lock in the profit.

It is not suitable for downside protection, since the premium is limited. For those stocks which has singnificant down side risk, this strategy is not suitable.

It is also not suitable for the stock which has significant upside potential in near term, become it locked up underline stock until OE.  Share holders could miss good profit opportunities.

This strategy  is suitable most for those stocks which moving in a range and having a positive slop in general.
 
(The example here is for pure education purpose,  not for any kind of investment advice or recommendation.)

[westmouse]

thanks waveplayer. learn what the sell to open mean.