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Strategies & Market Trends : The Covered Calls for Dummies Thread

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To: JGoren who wrote (1547)	7/20/2001 10:41:28 AM
From: Andrew N. Cothran	Read Replies (4) of 5205

Lots of you on this thread watch QCOM. Many of you trade covered calls in QCOM. If you trade the CC'S, you, no doubt, watch the action during the day quite closely. Yesterday was a classic study in market management (or manipulation). QCOM closed on Wednesday at 62.55. The July 65 option closed Wednesday at .65. QCOM opened on Thursday morning at 64.40. About 20 minutes later, the July 65 options opened at 1.40. I watched the action quite closely from then on. Under intense buying pressure (short covering?) the price of the stock climbed rapidly to 67.41. The price of the option climbed with it, reaching a high of 3.25. Open interest in the July 65 calls stood at about 17,500 contracts. I was convinced that the gap up and the consequent rapid rise in the price of the stock, in addition to spooking the shorts, was a cover to permit a last minute sale of the July 65 option at high prices to the unsuspecting public or to those who might be short the option waiting for it to expire. To really put my suspicions to the test, I sold 40 covered July 65 calls at $2.40 when the stock started to correct. I believed the spike to be only temporary and that the 'powers-that-be' would bring the price back down toward the close. In fact, I was convinced that the stock would close under $65 by day's end and would remain under $65 today as the option expired. Nevertheless, I watched with baited breath as the stock and option see-sawed back and forth during the rest of the day. I thought of covering my sale near the close at $1.30. But then I reconvinced myself that the stock would remain near or under $65 today given the large open interest and that the option would expire worthless. As of this moment, I am still short the 40 covered calls. Am I a foolhardy gambler? Or am I a foolhardy speculator about to get his clock cleaned? Or am I merely thrilled to stand at the gaming table and test my luck? Or am I just relying on careful calculation and focused attention based on past experience with these markets? Or am I all of these things. But the big question between now and the close is: WILL I BUY BACK TO COVER OR RISK HAVING MY STOCK CALLED OR WATCH THE OPTION EXPIRE WORTHLESS? What an exciting game we play!!

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