Replies to post #108884 on Biotech Values

[DewDiligence]

Yes, but unlike a flood, the outcome of your calls getting exercised is not a total wipe-out loss.

Depending on where your strikes are, the economic loss from your forgone profits might be enormous.

You’ve succumbed to exactly the sort of fuzzy thinking I was referring to in #msg-56670794.

[mouton29]

<<Yes, but unlike a flood, the outcome of your calls getting exercised is not a total wipe-out loss>>

That's true and Dew is focusing on the potential for lost profit. But the other way of looking at it is that when you write a covered call, you have given up the upside in exchange for a premium but have retained the downside. Looked at that way, the analogy to flood insurance is not so far off the mark -- in both cases you get a premium and take the risk of loss.

[zipjet]

Not your best comparison imo.

Writing options would be like getting a long series of singles rather than counting on a swing-for-the-fences home run.

I can't believe I have sunk to using a sports analogy.

:-(

ij