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: ScamSeeker who wrote (8183)	8/10/1998 9:39:00 PM
From: Herm	of 14162

Your LEAPs long/LEAPs short spreads using longer lengths of time is allowable and ok if that is what you want to do to avoid more "active" trading. The approach would work using the W.I.N. CCing approach. On the otherhand, the long LEAPs vs. regular two/three months CCs Calls would allow you more rounds of CCs and perhaps more profit because of the ability to exploit the cycles better and as the stock price increases, the next round of CCs is at a higher premie. Thus, that 20% or 48% annual may increase to say 30% or 65% annual. I have never calculated the cheap PUTs using LEAPs. Rather, I have been using regular PUTs two months out and really load up so that the expected downturn is really profitable and actually produces more hedge than required to control the lost in the actual stock value. In other words, I try to calculate the amount of the drop (looking at the BB and RSI pattern) and add a few more PUTs for good measure. Depending how fast the stock drops (and the PUTs appreciate) I try to capture as much of the volatility value by timing the roll downs. That's because of the difference in the value of an option price as when factor in the volatility and time values. It is very difficult to paper trade the calculation unless you use something like the OptionWizard template which plots out the decay for time and volatility by changing the input values. I take it your calculations assume you will be called out? In not, and you cover early, that would also change the annual rate of return. There are many possibilities and options for the investor as you can see. It does offer much more possibility of generating a profit one way or another by changing the outcome if you need to. My rule for buying PUTs is buy them CHEAP and load up. Wait for the price to rebound? If the BB and RSI is increasing buy cheap calls as a sideshow or exercise them to write even more CCs. Or, wait for the stock price to increase. Afterall, the major cons the magazines ever talk about covered calls that gap and you lose out! I have to laugh at those editors that never think it out because they are not investors anyway! :-)

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