Options Question

[woltac]

Let me preface my question by saying I have no experience with options.

 

I am thinking about placing a limit order to sell LUK at just over $30/share.  Would it be better to sell a $30 call expiring in June at about $2/share (the last sale was at $2.11 or about 7% of $30)? 

 

Am I missing something or is the option sale a no brainer since I plan to sell the stock anyway? 

 

Thanks,

 

Woltac

[Myth465]

What if the price of LUK collapses and you are stock with the stock, also what if you want to move the funds to another stock? Those are the major risks I see.

[given2invest]

You are correct however the previous poster has it right.  When you sell a covered call you are essentially selling a naked put without holding the stock.  Your downside is unlimited while your upside is capped.  The only reason to do this is:

 

You are certain the stock will not go down but you are equally certain it will not go up ;)

 

In any other case, it would be better to just hold the stock or sell the stock and have no position.