I'm not clear about how or if to apply stop loss prices when you've written covered calls. (May 1, 2001)

  Very good question. This is one of the downsides of covered call writing: a stock that looks good starts to fall on you due to market conditions or bad news. You have those calls out there that require you to hold the stock in order to cover. In non-retirement accounts we go ahead and set a stop loss below support. If the stock breaks it, the calls will be lower in price anyway, and we don't want to break our stop rules because we are using a different strategy. If it is normal action in the trading range, we don't worry as long as price/volume action remains overall healthy. It is when it breaks below the range we are playing or the trend we are playing that we have to be ready to enforce stop rules. At that point we can let the calls ride because the stock has broken its pattern that we were playing, and they will most likely continue to lose value. This is a subject covered in detail in the Covered Calls seminar.


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