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: John B. who wrote (3940)	8/17/1997 7:47:00 PM
From: Herm	of 14162

John, If you have a stock and are writing CCs and the strike price has been reached or surpassed, you need to ask yourself what is driving the price up and will it continue? When is the next earnings report? What month is the CC for (how much time do you have) What does the chart read (Bollinger Bands oversold)? How is the P/E ratio. What is the earnings projection? Who is talking about the merger? A merger candidate may bring in some higher prices. So, it may pay to bite the bullet and cover and rollup to the next strike price a few months out to try and lower your net cost basis again. You VVUS is in a precarious position since you don't really have a margin of profit yet. In other words, your net cost basis is to close to the selling price and the stock was on a decline. You will have to wait for the rebound and a price increase before you write a round of CCs. If you jump in too early you may have to cover and roll up. You might as well wait for the stock to make a come back. Of course, if VVUS breaks it's 20-day moving average and continues downward it will drop to the 50-day moving average around the $22 price range. In that case, you would be better off writing CCs At The Money CC two months out and wait for the bounce off the 50-day MA. At that pivot point you would close the CCs (cover) and wait for a rebound. Depending how fast the VVUS price drops below the 20-day MA it may equal your net cost basis! You are very close to the edge! I would feel better about that than thinking about rolling upwards! I have done that myself and I can tell you stocks drop faster than they appreciate so your waiting time will be less. Therefore, you can recover lost time and start making money sooner.

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