HOW TO WRITE COVERED CALLS - A REAL CASE STUDY!
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Date: Tuesday, April 01, 1997
The stock: ROSS STORES (ROST) Last traded at $24 7/16 down -15/16 on a volume of 283,800 shares. ROST is still trading in a normal range. I believe ROST is at the bottom of the trading range. So, I cashed in my 4 April 25 PUTS yesterday. Paid $1/2 each and I sold them back for $1. Math: paid $200, sold for $400 (less commissions) for a 100% profit in about two weeks. I now subtract that off my net cost basis.
I'm still holding my 4 ROST April 22 1/2 Calls which is in the hole for $600. I need a stock price of about $26.75 to just about break-even. The overall market is due for a short bounce back since it is oversold bigtime. A few sectors and selected defensive stocks (like ROST) should rebound for a few days. Hopefully, that will be enough for my to cash in the 4 calls.
For those of you that sold covered calls at the ROST peak of $28 1/2, you should have at least 75% to 80% profit you can lock in and buy back the covered calls and wait for the ROST rebound to write another round of covered calls. That is a double dipper month or what I call "dippity do." Look at previous postings for more details on exactly how this works and why you make more money by buying back your covered calls.
ROST Option Prices:
One of our fellow readers turned me on to this web site! Thanks! Here are the monthly option prices for ROST stocksmart.com
Let The Trend Be Your Friend!
Bill J. emailed me this great article that appeared in the LA Times. It mentions ROSS Stores at one of the picks! It might make a great shopping list for other covered calls stocks. Somebody let us know if you found something. Enjoy!
Bill wrote, "Here's an article from LA Times( 1/2/97). Keep looking. ROST is in there somewhere!!!! We gonna' see some upward movement...OR WHAT?? Bill"
ÿAnother portfolio you can launch tomorrow and leave alone for the rest of
the year combines value and growth. Developed by O'Shaughnessy in
Greenwich, Conn., the "Cornerstone Growth" strategy buys 50 stocks that
have market capitalizations larger than $150 million, have higher earnings
in the current year compared with the previous year, have strong relative
strength rankings and, most important, have price-to-sales ratios lower
than 1.5.
ÿÿÿÿÿThis technique, which O'Shaughnessy devised after crunching 40 years
of stock market data, leaves an investor highly diversified in cheap but
fast-growing companies. In 1996, the model gained about 30%; it has earned
an average of 18.2% per year since 1955. For the current 50 stocks, see
list below.
ÿÿÿÿÿSince the technique of buying low price-to-sales ratio stocks was
profiled, a mutual fund replicating its strategy went on the market. The
Cornerstone Growth Fund has gained just one penny since Nov. 24--but this
is a strategy that requires a full year to play out. The fund can now be
purchased through the Fidelity Investments, Charles Schwab and Jack White
mutual fund network.
ÿÿÿÿÿIn addition, O'Shaughnessy said he hopes to launch a new type of
security on the American Stock Exchange in April that he calls a strategic
index mutual fund. The Market Leaders index will buy a basket of
large-capitalization stocks that have 1 1/2 times the sales growth rate of
their peers--sort of a supercharged S&P 500 index fund. Like the index
derivatives known as Standard & Poor's Depository Receipts, or "spiders,"
the open-end fund will trade as if it were a single stock.
ÿÿÿÿÿCornerstone Growth Strategy's current 50 stocks: AEP Industries
(AEPI), American Travellers (ATVC), Apogee Enterprises (APOG), Bally
Entertainment (BLY), Brightpoint (CELL), Chart Industries (CTI), Coachmen
Industries (COA), CompUSA (CUSA), Computer Data Systems (CDSI), Computer
Task Group (TSK), Conseco (CNC), Dell Computer (DELL), DT Industries
(DTII), Eagle Hardware & Garden (EAGL), Elf Acquitaine ADR (ELF), Fairchild
Class A (FA), FPA Medical Management (FPAM), Gardner Denver Machinery
GDMI), Gateway 2000 (GATE), Genesco (GCO), Greenwich Air Services Class A (GASIA), Health Images (HII), Helen of Troy (HELE), Imperial Holly (IHK),
Inacom (INAC), Insight Enterprises (NSIT), Manitowoc (MTW), Mesaba Holdings (MAIR), Morningstar Group (MSTR), Mosinee Paper (MOSI), National Beverage (FIZ), NGC (NGL), Noram Energy (NAE), Olympic Steel (ZEUS), Philip Environmental (PEV), Plains Resources (PLX), Pomeroy Computer Resources (PMRY), Pride Petroleum (PRDE), Riser Foods Class A (RSR), Ross Stores (ROST), Shaw Group (SGR), Smart Modular Technologies (SMOD), Sunsource Class B (SDP.B), Tuesday Morning (TUES), Tyco Toys (TTI), US Industries (USI), US Office Products (OFIS), Veritas DGC (VTS), Watsco (WSO), Wet Seal Class A (WTSLA).
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ÿÿÿÿÿStreet Strategies explores investment tactics. Jon D. Markman, a Times
staff writer, can be reached at jon.markman@latimes.com
Copyright Los Angeles Times
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That's It!
Wishing all of you, the BEST OF GOOD BUYS!
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DISCLAIMER: The writer is presenting a real stock and a live ongoing case study. No recommendations or endorsement to actually buy this stock are suggested nor implied. Trading stocks and buying calls should not be attempted without first understanding the risk/rewards of this type of investment! The writer assumes no responsibility for the opinions being expressed!
Buyers always be aware!
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