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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!
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To: Bill Kovalick who wrote (2261)5/17/1997 2:22:00 PM
From: Herm   of 14162
 
Hi Bill,

Good question! You're not the only one that has me the same question.

>I've been following your comments on TECD and had a question for you >based on your bullish outlook for the stock. Assuming TECD does spike up to >above $30, how would you play it ? Would you sell the stock, take the profit >and run ?

First, let me state my opinion that "nobody ever loses money if they walk away with a profit." Grant it, sometimes you make more and sometimes you make less. I don't dwell on how much I could of made for much time. I learn from the experience and move on. Afterall, a profit beats in poke in the eye with a sharp stick! :-)

Second, this forum is about covered call writing. So, I would think that we are basically long on the technology stocks we write covered calls on! Now, that does not mean we should sell/write covered calls each and every month for every stock. If a upward price spurt is underway we can wait it out until the demand levels off. At that point you can:

a. either cash it in and wait for the price pullback and buy it back at a lower price. What some people have coined the phrase "rolling stock" price.

b. write some expensive covered calls and watch the call buyer loose money.

HOW TO EXIT A POSITION:

1. I would say you can play it that way with one twist. You could buy multiple PUTS contracts one or two months out when you sold the stock in order cash in on the down stroke. Afterall, you are not the only one that will be cashing in and moving out of the stock. When it bottoms out, buy the stock and repeat the process.

2. If the sector for the stock after it reaches the top still looks good and the market is still in a bull run, then you could sell deep In The Money covered calls a few month out. That would give you lots of immediate cash in your account. Then turn around and buy multiple PUT contracts (with the premies of course) to profit from the price drop!

3. Just sell the stock and move on to the next one that has more potential. Of couse, that takes homework and some timing. If we all had that skill mastered we would not be reading this web or this forum. :-)

I hope that answers your question. Keep the stock if it's good, move on if you have better prospects.
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