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: Herm who wrote (10996)	6/8/1999 8:33:00 AM
From: Greg Higgins	Read Replies (2) of 14162

Herm writes: After the payout the stocks usually pulls back as folks jump ship and move on to their next stock. Actually the price drops for a very good reason, the stock of a company paying a $0.50 per share dividend is worth $0.50 per share less on the ex-date. Call options written on stocks having dividends are at least theoretically more susceptible to being called away prior to expiration. The optimal day for calling is the day before the ex-date. If the stock regularly travels further than its dividend, it's not worth the risk. Two examples: RN (a high yielding stock) and HNZ (higher than average stock with a low beta). I personally don't believe in dividend stripping. I think the risk far outweighs the generated gains. Perhaps in the old days, i.e., before this decade, it made sense. Today it does not. The risk from holding a stock is much greater due to the higher market valuations.

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