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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: PoetTrader who wrote (3201)1/2/2002 9:57:14 PM
From: Dan Duchardt  Read Replies (1) of 5205
 
PoetTrader,

If I just had a crystal ball, I'd tell you the best thing to do <ggg> Actually, I don't see any near term calls that are all that attractive to sell. Getting less than $1, or having to go out as far as April to get it does not look very good. If you really think the stock is a buy at these levels, I'd suggest taking a somewhat smaller position on the long LEAPS and just hope for the best. If you were thinking in terms of buying and selling 5 contracts, you could buy 4 LEAPS for about the same money to create the same maximum loss with a lot more upside potential. If it goes your way, at some point in the future selling the near term calls will give you a more attractive risk/reward situation.

I agree with Dale that the 2004JAN10 looks better than the 2003 here. The extra cost for the strike 10 is only $0.80 for another year of time. With the wide spreads, you don't want to trade them any more than you have to. The strike 10 only cost $1 more than the 12.5, so the higher strike is not all that nice looking either. One approach you could take is to limit the downside by buying the 2003JAN12.5 for $3.50, and then if it falls further look at rolling to the 2005JAN10 when they are issued. If it takes off from here, you will have a nice % gain in a relatively short time with no worries of being called out.

Dan
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