Comments on: Bailout Bustup - Covered Call Alternatives http://www.callwriter.com/blog/2008/09/26/bailout-bustup-covered-call-alternatives/ Sat, 31 Jul 2010 03:42:30 +0000 http://wordpress.org/?v=2.1 By: Marcos Rayas http://www.callwriter.com/blog/2008/09/26/bailout-bustup-covered-call-alternatives/#comment-203 Marcos Rayas Sat, 27 Sep 2008 17:00:08 +0000 http://www.callwriter.com/blog/2008/09/26/bailout-bustup-covered-call-alternatives/#comment-203 So are you saying there will be another Black Monday - On Sep. 29, 2008. I just saw this blog on Friday night and did not get out of my positions on FNM - Fannie Mae. If the bailout does not occur by Sunday night are you saying to get out of all call positions and out of all stock positions. I have a position in Fannie Mae where I bought stock at $2.20 and then at $2.50 when it had gone to $2.90. At the time I sold the calls they were paying a 30% premium. I bought back the calls when stock went to $1.7. I ended up making 10% on calls but I am down on the stock. I was thinking with the bailout FNM was still pretty safe. I would either resell the calls as it went up again or leg into the call. Should I just get out? So are you saying there will be another Black Monday - On Sep. 29, 2008.
I just saw this blog on Friday night and did not get out of my positions on FNM - Fannie Mae.
If the bailout does not occur by Sunday night are you saying to get out of all call positions and out of all stock positions.

I have a position in Fannie Mae where I bought stock at $2.20 and then at $2.50 when it had gone to $2.90. At the time I sold the calls they were paying a 30% premium.
I bought back the calls when stock went to $1.7. I ended up making 10% on calls but I am down on the stock.
I was thinking with the bailout FNM was still pretty safe. I would either resell the calls as it went up again or leg into the call.

Should I just get out?

]]> By: John Brasher http://www.callwriter.com/blog/2008/09/26/bailout-bustup-covered-call-alternatives/#comment-204 John Brasher Sun, 28 Sep 2008 15:02:03 +0000 http://www.callwriter.com/blog/2008/09/26/bailout-bustup-covered-call-alternatives/#comment-204 Marcos, I am not saying that any day will be another Black Monday, but that investors and traders both should be aware that the potential for huge volatility exists right now. The market did not collapse on Friday 9/26 because the market made a reasoned judgment that the Republicans were grandstanding (the Dems have enough votes to push it through, anyway) and that a deal would be reached SOON. At some point, if the bailout does not materialize, panic will ensue and the market make a serious swoon. We can't give advice on trades, but I personally would not touch Fannie or Freddie as a CC play under any circumstances. Since no bailout plan has been finalized, I have no confidence that stock in them is safe by any standard of measurement. I only write covered calls on stocks that I deem conservative. Stocks in failed companies that are propped up only by shareholder bailout (assuming they actually will be propped up) don't meet my test. Thus my only advice to you on these trades is this: don't put money into them that you can't afford to lose. Fannie and Freddie may benefit enormously from finalization of a bailout (or might not), which is why speculators are all over these stocks. These stocks are inconstant right now, because speculators are inconstant. I think these stocks can - rationally - only be approached as speculative plays ("sucker" plays in Cramer's words). There may be other shoes yet to drop on F&F. Marcos, I am not saying that any day will be another Black Monday, but that investors and traders both should be aware that the potential for huge volatility exists right now. The market did not collapse on Friday 9/26 because the market made a reasoned judgment that the Republicans were grandstanding (the Dems have enough votes to push it through, anyway) and that a deal would be reached SOON. At some point, if the bailout does not materialize, panic will ensue and the market make a serious swoon.

We can’t give advice on trades, but I personally would not touch Fannie or Freddie as a CC play under any circumstances. Since no bailout plan has been finalized, I have no confidence that stock in them is safe by any standard of measurement. I only write covered calls on stocks that I deem conservative. Stocks in failed companies that are propped up only by shareholder bailout (assuming they actually will be propped up) don’t meet my test. Thus my only advice to you on these trades is this: don’t put money into them that you can’t afford to lose.

Fannie and Freddie may benefit enormously from finalization of a bailout (or might not), which is why speculators are all over these stocks. These stocks are inconstant right now, because speculators are inconstant. I think these stocks can - rationally - only be approached as speculative plays (”sucker” plays in Cramer’s words). There may be other shoes yet to drop on F&F.

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