John,
Good questions. Don't count on equally good answers.
Why sell now rather than wait for an up day or two in the market? I find myself agreeing with several posters here who have argued that one tries to sell ccs when optimism reins, then buy them back when pessimism hits.
Take my response with a grain of salt. Any comments I make about a stock price representing market optimism or pessimism probably won't pass the laugh test, certainly not Frank's laugh test. :)
Considering that I think the stock is overvalued, I think that's a different way of saying that the stock is in a period of optimism. Prior to the earnings announcement, I think people were hoping Siebel would come through with a really upbeat report and upward guidance. Instead, the company reported revenue virtually the same as what Tom Siebel said one quarter earlier would be the "worst-case scenario." And management's guidance was nothing to celebrate. I don't think the stock dropped far enough to be consistent with the information that was recieved, so I think there is definite optimism.
I don't believe the "range" of a stock is necessarily a valid expression of optimism and pessimism. Seeing the last 18 months in hindsight, the low end of previous trading ranges proved to be wildly optimistic.
And why sell against all your core holdings?
Why have a holding that isn't a core holding? That being the case, why not write against it? Why not write against the company's stock I understand better than any position in my portfolio?
Remember that I have no intention of letting my holding get called; I'll take a loss on the trade long before that happens. I'm motivated by two factors -- a looming, significant capital gains tax should the stock be called and the look on my wife's face when she insisted that I better not let it get called.
That strikes me as a very bold move compared to either writing against shares explicitly set aside for cc writing or against a portion of your core shares.
I did consider writing against a portion of my holdings, but that didn't make a lot of sense to me. Instead, I opted for writing calls that are much more out of the money than a lot of people in the thread write. Half of the calls were 15% OTM and the other half were 23% OTM. With 26 calendar days left, I'm comfortable with my perception of how far the stock would need to recover against a backdrop of an earnings report that I don't believe supports such a recovery.
Way back on the learning curve,
Maybe, but my guess is that you're standing far forward of me in the line.
--Mike Buckley |
