Hi Steve,
one can sell calls naked or covered. Since you haven't sold any calls before, I assume that you cann't sell naked calls at this point.
For covered calls, you can own INTC and sell calls against the stocks, for example, if you own 100 shares of INTC, you can sell INQDX (Apr 160 for 1/2), and if INTC is at $170 by the third friday in April, then you must sell your 100 shares at $160/share to the call owner.
In you case, you own $170 leaps, so you can sell covered call options for strike prices above $170, maybe if INTC runs up for 10 points, you may want to sell Apr $170 calls, and using your leaps as cover. You maybe able to do this everymonth, and reduce your cost basis for your leaps to next to nothing.
The RISK: if INTC runs up to $180 a share in Apr. then you going have to close out the call option (which you have sold) at a cost of $10.
Options (calls and puts) are more expensive if the stock is more volatal. and the volatility of stock increase before expected news, such as earnings.
Again, use INTC as an example, Earnings is coming out on Apr. 14, so maybe starting early apr. people start to making guesses on the earnings, people expecting INTC to report good earnings start to buy INTC and/or calls, expecting bad earning may sell/buy puts. All of which, making the calls/puts more valueable.
As soon as earnings come out, the uncertainty is over, and calls/puts are worth less.
so here is what I plan to do (today, action day on Apr. 3)
I think the street will expect INTC to have a blow out quarter, so I expect a runup of 10 to 20 points before Apr. 14.
The question is when will INTC hit its low before the earning play. I think INTC low will be on Apr 2. when AMD introduces the K6. I will buy INTC apr calls ($5 out of money from the low), and plan to unload the options before Apr. 14.
This is risky, because Apr. call option's time value decay very rapidly from now!.
IMHO
-H.P. |
