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: Greg Higgins who wrote (11513)	9/15/1999 8:57:00 AM
From: Herm	Read Replies (3) of 14162

Hey! Florida is still on the map after hurricane Floyd turned north at the last minute. This big bad boy only dumped some occasional heavy burst of rain here and there with 40 mph winds. Unreal! Our part of Florida is out of the path of Floyd at this point. Watch out for those up the north coast. Floyd is massive! Thanks for all the emails of concerns and prayers for our safety. ROST I had the day off yesterday to turn on my laptop on battery power and dial out over the phone line. My electrical power to the house was off in our community for a few hours. I was checking out ROST and decided to do some bottom fishing for 3 contracts of the 45s OCT Calls @ 1 as sideshows. Much to my surprise, the limit buy order was filled for the calls @ 1 even though ROST traded up as much as $1 at one point during the day as the MMs were jerking the stock around. ROST traded more shares than normal but did not warrant a premium of $1. Thus, I held to my price on the calls even when with a BID $1 - ASK $1 1/4 was on the board for the 45s OCT. ROST FUNDAMENTALS This was the first stock we looked at as a case study on this forum. I liked it back then in 97 and i still like this stock as a long term hold today. This stock has been a CC workhorse from day one earning over +100% in stock price appreciation alone and perhaps another +100% could of been earned by CCing ROST since March 1997. ROST is still a bargain in the overvalued stock market today. Zacks Research list ROST as a "moderate buy" for the stock value alone. CCers have a greater profit potential! Eleven brokers consenses on annual earnings growth rate of 15%. Yet, ROST is trading at a P/E of 12.4. Most value buyers I know look for a P/E that matches the growth rate or less. ROST falls into that category and you won't lose much sleep at night buying it and milking the monthly CCs! ROST is going into another 2-1 split and is prime to repeat the last split price movements. NASDAQ: (ROST : $41 7/16) $1,974 million Market Cap at September 14, 1999 Ranks 547th in the Fortune 1,000 on Revenue & 527th on Profit. Employs 20,100. Trades at a 43% Discount PE Multiple of 12.4 X, vs. the 21.9 X average multiple at which the Discount & Variety Stores SubIndustry is priced. Discount & Variety Stores SubIndustry down < .56% > / Retailers Industry down < .91> Today ROST WEEKLY CHART PROFILE With the fundamentals out of the way and to my liking, I now focus on the technicals which will lay out the game plan. The weekly profile shows me that the overall downward ROST trend is turning. Notice the upper BB is now slanted downwards and not upwards. The lower BB is just about to turn upwards. Downward price move ments force the upper BB to move up while the lower BB down. That forms the divergence. The RSI set on weekly is also bottomed out for ROST. The number is only relative to this stock folks. It is not a fix number for all stocks. Finally, I see that ROST has done very well in the price support level of $40. It passed the test and ready to move back up! iqc.com ROST DAILY CHART PROFILE I liked the weekly profile and I love the daily profile for ROST. There was a test above the $42 marker, narrowing upper and lower BBs, low RSI value reading for ROST, OBV is low meaning the smart money has been out of ROST for some time. It makes sense! The ROST price has been dropping for a few weeks. Consolidation right before the up coming next week 2-1 split! Sideward to upward price move at a right price for this stock. Buying time is now up to the split date. iqc.com I'm long on the 45s OCT Calls. My 3 contracts will turn into 6 contracts after the 2-1 split at $22 1/2. If you folks want more downside protection, go for the 40s OCT Calls with the higher delta and intrinsic value about 1 1/2 ITM. You should be able to roll into CCs much sooner at $20 post split price than the $22 1/2 post split price. Your first round of CC premies will further reduce your net cost basis nut! That's it for now! Reminder to new lurkers and old not signed up for the free newsletter at coveredcalls.com. I'm trying to pay catchup this week. It should be out sometime this weekend. I'm trying to put together thoughts on the proper use of margin. You can make a killing with margin or get killed with margin. :-)

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