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: David L. Hoevener who wrote (8789)	10/11/1998 8:19:00 PM
From: Herm	of 14162

Hi David, Let's take a look David at your choice last week. OAT using W.I.N.S. OAT has an annual growth rate of 11% vs a premium P/E of almost 25 vs. 21 for the food industry group. I bit over priced. At least their cereal is over priced. Let's look at other possible W.I.N.S. clues. Review the situation, technicals, price history (STP). What is the situation? - Start with P/E Value A little high but nothing alarming in a bearish market. Food seems to get an extra consideration during times like this. I would suspect normal price movements. Let's see! NYSE: (OAT : $56 11/16) $7,850 million Market Cap at October 9, 1998 Ranks 252nd in the Fortune 500 on Revenue & 300th on Profit. Employs 14,800. Trades at a 19% Premium PE Multiple of 24.9 X, vs. the 21.0 X average multiple at which the Food SubIndustry is priced. Humm! Some heavy OAT insider selling took place! biz.yahoo.com What do the technicals look like? BB and RSI Hummm! Tag off the upper BB setting a new 52-week high of $65 and good follow thru with a very high RSI and then a normal profit taking pull back. David! You nailed this one! You sure kept really quiet about it! Now, now! Throw us a bone now and then! askresearch.com What does the price history look like? BB and RSI Choice #1 Oat is coming off the high and should rebound off the lower BB. So, as a review for the lurkers. OAT is [W]ithdrawing and CCing at the peak of $65 deep in the money a few months out would have resulted in big premies. Now, OAT is moving down and the CC premies are also going down. Eventually, we can lock in the profit and close the CCs by covering when we have at least 85% or more of the original premie. [S]ideshow using PUTs would enhance profits more. Use the CC premies to load up on the PUTs. This offers a great downside hedge on your position. Choice #2 An alternative to the above paragraph would be to short that stock itself rather than writing CCings. If you are long on OAT it would be called shorting against the box. This would lock in all of your profit even as OAT moves lower. [S]ideshow using[S]ideshow using PUTs would enhance profits more. Use the extra value and margin to pay for the PUTs. This offers a great downside hedge on your position.

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