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Strategies & Market Trends : AIM Questions and Answers
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To: OldAIMGuy who started this subject7/13/2001 12:04:20 PM
From: OldAIMGuy  Read Replies (1) of 221
 
Q.......Subject: covered calls

Mr Veale,

Do you know if anyone has used covered calls with a strike price at or near the AIM target sell price? Seems it would be a way to increase income since you are willing to sell anyway.

Charles
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A.......

Hi Charles,

Yes, in fact I do that quite frequently. I look for covered calls with about $1.50 premium in them for a contract near AIM's Sell Price anywhere from 1 to 3 months out into the future and sell that contract. I get to "renew" it in a relatively short time if it's not filled or get to move to the next price level if the shares are called away. The improvement in total return is quite impressive.

However, as a word of caution, I would recommend that this procedure be done only when your Cash Reserves are near what my Idiot Wave is suggesting for individual stocks. We don't want to be selling calls with an under-funded cash reserve. The reason is that it's better to have sold the shares to fund the cash reserve than it is to collect the premium and be caught short of cash if the market turns against us without fulfilling the contract.

Please let me know if I can help in any other way.

Best regards, Tom
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