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: Richard James who wrote (12796)	5/27/2000 5:29:00 PM
From: James F. Hopkins	Read Replies (2) of 14162

To capture dividend you have to find a stock with a good dividend.. & "DEEP" in the money calls..there won't be much premium in the covered calls, but not much risk to your capital either.. A classic case right now is MO, with it's yield of 6.86% at it's price of 27-7/16.. You buy the stock and sell leaps at $10..getting 17 -5/8 to 18 7/16 back on the calls ( depending how good you leg in.) So now you have less than $10 in MO ( I'm in at $9 )..but you still get the full dividend this multiples the yield per dollar invested.. and gives a lot of downside protection..in fact I could buy puts at that strike for 3/16 to eliminate all risk.. The effective yield becomes 21% ( in my case ) plus the $1 premium I got on the calls.. ( I managed to get lucky legging in at the right time..in a case like this you want the stock moving UP as you buy it..then set the ask for the calls above the going ask..and when the UP momentum slows or stops if you haven't sold the call switch it to the bid..if it don't sell then ; you can cancel and dump back out up.. With MO if you catch an up day it's not hard to open a position ( at $9 invested ) with leaps sold at $10.. ------------It beats any bond I know of. Jim PS it's a bear market type play..& always easy to unwind if the market gets better and you want the money back. PSps..You can bet MO is going to try to buy Nabisco.. it's the main reason insiders have run her price up.. be careful as it will drop when it announces it's bid, but not enough to hurt the position I'm holding.

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