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You are mixing up the concepts of risk.

Covered calls and various overlapping options schemes are techniques designed to lower the risk on an otherwise risky investment.

In fact, depending on the option scheme, you can almost arbitrarily inflate or deflate the risk in any way, regardless of the price movements of the underlying stock.

Limiting your investments to good quality companies (trustworthy management, high barriers to competition, good debt/asset ratios, etc.) lower your risk.

Investing rather than speculation lowers risk (advantage of time).

Investing in value vs. price lowers risk.

Trading on margin inflates the risk.

Although I'm very comfortable with real risk (risk is not the same as volatility) and just how much I can stomach, there's a serious problem with trading on margin. The problem is that no matter what you do with any other scheme (except naked options which are really another form of margin trading), the downside potential is limited to your initial investment. This is not true of trading on margin.

Let's put it this way. No matter what the underlying fundamentals of a company are, if another 9/11/01 happened, what would happen to your investment? How about a similar catastrophic incident involving the company itself? Can you withstand the hit?

Regardless, it better darned be a sure thing. Trading because the DJIA is such and such is NOT what I'd consider a sure thing. Trading because a company's liquidated value is below the value of the stock...I'd have to consider. In no way would I ever consider trading on margin for a dead cat bounce effect though, which is what you have described doing.
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