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: virgil vancleave who wrote (8477)	9/7/1998 8:40:00 PM
From: Herm	Read Replies (3) of 14162

Hi Virgil and Everybody! LHSG - Just Begging to Drop! Looking at the technicals for LHSG leads me to believe that the stock price is moving upwards towards say $58 to tag the upper BB. That should not take long with this stock. At that point the PUTs would be much cheaper than they are now. They are steep! At a stock price of $58 it will be half (the PUTs) of what they are now! That would give a better risk/reward ratio. The LHSG BB and RSI are fairly consistant. First, LHSG executed a 2-1 split on May 28, 1998. The RSI peaked at a reading of 80 before the split. Seems like the stock was dumped or faded as the split date approached. Then, LHSG creeps along towards a new 52-week high of $76.50 reached on July 21, 1998. Note, the RSI was not as high as the split announcement event, yet a new high was reached with new buyers. In other words, the 52-week high was the final summation of all the hype and market expectations. LHSG has pretty much built into the stock price all the bang. What would you do if you had a chance to unload your LHSG stock at the price you paid after waiting 3 to 4 months? Bingo! LHSG will pull back and the RSI and BB seem to support that prediction. With a growth rate of 42.5% vs. a P/E of 113 when the industry group P/E averages 24.6, it is only a matter of time before the big boys take the dollars off the table. Without a much stronger RSI from a major LHSG news item, there is no way LHSG will break past the 52- week high. It should peter out around $62 and then drop like a rock back to say $45, move sideways and then continue down to $29 which would be a major lower price support level. That would be a nice stock to short! Wait for the upper BB tag. bigcharts.com NASDAQ: (LHSG : $49 3/4) $2,479 million Market Cap at September 4, 1998 Employs 456. Trades at a Premium PE Multiple of 113.1 X, vs. the 24.6 X average multiple at which the Data Processing SubIndustry is priced.

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