Dave,
The situation depends on what broker you use, what option privelages you have with your broker, and whether you are referring to a hard stop or a mental stop. Many brokers won't permit you to put a hard stop-loss or trailing stop on a cc position because it could result in a naked call position, which many brokers won't allow. Using a mental stop, of course, is an alternative. When your mental stop is hit, contact your broker, buy back the call and sell the underlying for a loss. Some brokers permit contingent orders on cc positions. In that situation, you may set a hard stop electronically and, if hit, a contingent order will buy back your call. If you have a high level of option privelage with your broker permitting you to sell naked calls, then you can put a hard stop under your stock. If hit you will exit the stock for a loss but will be holding a sold call naked, which under most any circumstance is not a conservative position to be in.
In my case, whether I use a protective put or some type of stop loss as described above depends on the status of my cc position. If I am holding a longer term cc and already have a gain in the underlying, I will choose to buy a protective put if this will result in a guaranteed profit. When involved with a front-month cc, the protective put often results in no guaranteed gain. So I'm more likely to just get out of the position for a small loss if my stop is hit.
Hope this is helpful.
Michael
www.safe-options-
--- In ConservativeOptionS
>
> Hi Mike and Louis,
>
> I am still learning about the covered calls. I was wondering why you don't make use of the trailing stop/ or stop instead of the put to guard against the falling stock. Can you tell me the pros and cons?
>
> Also Louis, have you looked at Gil's spreadsheet for tracking covered call?
>
> thanks for your opinions, Dave
> ============
>
> --- In ConservativeOptionS
> >
> > Louis,
> > I appreciate your dilemma. It's the old risk versus reward thing. I don't have a brilliant answer for you. Perhaps we can get some other posting that have used different approaches to this.
> >
> > Michael
> > www.safe-options-
> >
> > --- In ConservativeOptionS
> > >
> > >
> > >
> > > --- In ConservativeOptionS
> > > Michael,
> > > That's what I'm doing, but of course that takes some, or all, of the profit out of the CC sale. I'm compensating for that by selling an OTM cash secured put. If I want to get out of a stock though, I have to buy back the CC which raises my cost back up. Since stock prices and option bid/asks are continually changing and I'm trying to be alert to both opportunities and dangers, I'm looking for an optimal record keeping method.
> > > Lou
> > >
> > > <michael@> wrote:
> > > >
> > > > Louis,
> > > > I cannot recommend any software but I will mention you may wish to collar your longer-dated and already profitable cc with a protective put.
> > > >
> > > > Michael
> > > > www.safe-options-
> > > >
> > > > --- In ConservativeOptionS
> > > > >
> > > > > Since being burned too often with trailing stops, I'm trying to develop a method of protecting my downside while still maintaining profits.
> > > > > Combinations of strike prices, option months, option combinations, rolling up, rolling down, etc, etc gets tedious to track on an ongoing basis on an excel sheet when I'm using different option combinations for different time periods on different underlyings.
> > > > > Does anyone know of any prepackaged software that will enable me to track relatively automatically, for instance, cost and current price of underlying, cost or premium of options used, profit or loss on any rollups with cost or premium of new option positions, all resulting in a final profit or loss on any sale as well as open positions?
> > > > > Thanks for any help.
> > > > > Lou
> > > > >
> > > >
> > >
> >
>
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