Protected Buy Write
Hi Robyne,
You are exactly right with respect to being exercised and having to buy back at a higher price. Therefore your new injection is unprotected. Another way out is to act on the last day of expiry, i.e roll up or up and out. If you buy back your written call the day of expiry, the time value is very small, then write a new call for the next month. This will probalbly cost you money, as your original written call is in the money, therefore it has some intrinsic value. But this way you avoid being exercised, and in the long run isn't so bad. Also, if your clued in on charting analyis, you time your entry when writing your call. This way you can write your call when you think the share price is peaking, increasing your chance of not being exercised. This analysis is a combination of short term trading analysis using RSI, stockastic, Bollinger bands, moving averages and all the other tools you would previously use. If you are interested, the person who taught me these strategies (After I attended Spann's Instant Income) is a contact who does a three day trading course, which in my opinion is far more informative than Spann. The price is about $1000 for the three days.
Bill,
What your refering to is a horizontal canlander spread, which has exactly the same risk profile as the protected buy write, but you don't hold the share. (This I agree). This I have looked into breifly, but found that the long dated Put is illiquid, and if you need to trade out, you are often selling to a market maker, and they are tough buyers. The info I have previously read is based on the US market, which is far more liquid than ours and has alot more trading opportunities with this kind of strategy. Have you had success using the calander spread in the Aussie market?
Tony
