How To Write Covered Calls - An Ongoing Real Case Study! Message Board

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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!

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To: CENTrader who wrote (1124)	3/16/1997 9:10:00 AM
From: Maureen	of 14162

Re: Trading Implied Volitility Good morning Bill and Robert, We'll I live to see the early morning anyway... Yes, in using the proper terminology, looking for the higher premiums as an indicator is really using high implied volitility as an indicator - something which Larry McMillan talks about quite a bit in his second book (McMillan on Options). Intuitively, I would have thought it perhaps best to avoid these high premium positions on stocks which have taken a big hit , or are moving down, but he talks about actually using the high implied volitility percentiles (along with volume levels and other info) to pick off a stock at the bottom of a downward move. He points out a method of looking for "situations where implied volitility is skyrocketing while the stock is falling" as being great covered call candidates! (This would worry me... I had always tried to write covered calls on the ones moving upward) (I'm sure he is right...it's intriguing...though I am sure it takes the right tools and knowledge and nerves of steel as well!) I agree that TA, as well as FA should be used in conjuction with this... implied volitility being very high does not indicate direction (as has been noted before!) ..it just seems that it often is a precursor of a big move - in one direction or the other. Of course using TA and FA and reading all the news etc. should give you a good idea of which way this move will be. When I was using the high premium plays - I did the FA and all other research on the companies to help in determining which to avoid and which to play... but I didn't know much about TA as of yet - I am also learning this now. As I said, it was only for a few months that I had done this and made over 23%...four months to be exact. Then I got nervous...feeling that some of my sucess with this perhaps did just come down to luck...I also saw a need to perfect my timing with TA... I didn't want to put anything at great risk anymore or risk loosing the gains - so I have backed up and started studying all these strategies in more detail.( It's also a good time for me to do this as I said, because I don't have time to monitor things as I would like to right now.) Again, thanks to all here for all you share... Maureen

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