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: jebj who wrote (13391)	11/2/2000 9:57:48 PM
From: Dan Duchardt	Read Replies (1) of 14162

jebj, Based on my charts, you got the 2003JAN45 at 20 or better, so your breakeven is 65 or less. You can start writing near term calls for income w/o putting yourself at risk of loss if CSCO takes off. At the next peak, you could probably write a 2001JAN ATM for about 7. Say CSCO gets back to 70. You could write a 70 and have breakeven on the short side at about 77. Even if you got called out and had to exercise the LEAP to meet the call you would make 12 on your net investment of 20-7=13. Not bad at all. If it peaks lower, you can still write a 65 for perhaps a few dollars keeping the short breakeven above the long breakeven. You can do it month to month, every quarter, last cycle months (APR65 is now almost 6) whatever suits you. I'd be taking a hard look at the APR65 or 70 myself and not push my luck too far but still get a nice premium. Another approach.. with a bit of luck you might sell the 2002JAN 2 or 3 strikes above 45 and collect the entire premium you paid for the 2003JAN45. It then costs you nothing to carry the spread (assuming it is treated as a spread) and if you get called out you then collect the difference between strikes. If you don't get called out you have a free LEAP to write calls against for another year. Then of course you could just swing trade the ones you have. If you keep buying bottoms and selling tops you'll make a fortune. <ggg> I managed to finish a call spread today on TOM 2002LEAPS, long at 10 and short at 12_1/2 for a nut of zero. I could have sold the 10 for $1 more than I got for the 12_1/2, so from one point of view I have invested a dollar, but it's a dollar of gain I already made on the position, not one of my original dollars. It's costing none of my original money to ride this until I (hopefully) get called out and collect $2.50. Now I can use my money to do it again somewhere else. Unfortunately, this is one ray of sunshine in a group of spreads I now have that are under dark clouds, but brighter days are coming. I'm sure glad I did not buy the underlying on many of these. Spreads are a great way to manage risk while leaving considerable upside potential. Dan

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