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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: Uncle Frank who wrote (3232)1/11/2002 11:37:19 PM
From: Dominick  Read Replies (1) of 5205
 
OK Uncle Frank. I see we are going to have an interesting discussion about strategies and I welcome it.. That is EXACTLY why I posted my trades, I can't learn in a vacuum. So let's roll.

1. It is a strategy that employs covered calls, but is not a covered call strategy per se.
2. You've misapplied it.

That implies I went into the trade with a collar strategy. Not so. On 01/07/02 I felt HAL was positioned to move up so I entered a buy/write trade at $11.14. It climbed to a high of 12.40 on the 10th then started dropping continuously.
My break-even exit price with the option ask @ 2.35 was 11.46. HAL closed on the 10th @ 11.55.

HAL opened today @ 11.50 and started rapidly falling. It fell to $11.05 with an option asking price @ 2.05. Had I bought the option and sold the stock at that time my loss would have been -$100, ( $10 loss per contract times 10 contracts) commissions included.

With the uncertainty of HAL's precarious position due to pending asbestos suits, it's nearly 10 point drop on 12/7/01, rapidly falling price and my refusal to take a loss, I had to make a quick decision. Taking your "simple solution" and waiting until the close, as you did with your calculation, sure as hell wasn't one of them.

The FEB 10 puts looked relatively cheap @ $0.80 and would give me a break-even to a small profit if HAL collapsed. I was obligated, at the time, to take what I thought was the most prudent and cost effective step. Buy the puts. And so I did!

I seriously doubt that the steps I performed were too advanced for this thread.

Dominick
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