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Non-Tech : QQQ - Nasdaq 100 Trust

QQQ 608.86

+0.1%

Nov 14 4:00 PM EST

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To: Werner Sharp who wrote (69)	8/2/1999 1:56:00 PM
From: Howard Clark	Read Replies (1) of 840

(1). Selling covered calls that are two months out at 5% premium to the current price (Sept 118). They're getting $3.50 right now. If you can do that 6 times a year, you'll be getting $21 Thats the best case scenario. Of course its unlikely your options will finish in the money every time (if they did you'd be much better off owning QQQ unhedged). Suppose you had tried this strategy last year at this time. You would have sold options around Aug 1, 1998 and received, say, 3% of your stake in premium. When the NAS plummeted about 30% in Aug and Sep your losses would have been only slightly cushioned by the option (27% vs 30%). Then you sell options again in Oct for another 3%. You would have missed most of the explosive 4th quarter rally because your gain was capped by the covered call. So you could have incurred real and significant losses following this strategy. I hold QQQ as a long term holding. Sometimes I sell options 1 month out at about an 7% premium to the ask. If the option goes in the money, I cover and take my loss, since I don't really want to be called. My goal is to make a few extra points a year as a surrogate dividend.

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