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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: alanrs who wrote (4227)4/18/2004 3:18:51 AM
From: Jon Khymn  Read Replies (1) of 5205
 
Alan, at first my yearly expectation was 50%, but I have changed to 33%, and here is why.
This is the best I can predict for next 12 months.

Assuming I can get 7% monthly premium from RMBS CC (net of spread and commission).

1. RMBS price to stay flat or climb, total 6 months: 7%x6=42%

2. RMBS price to go down, but not greater than option premium, total 3 months (1 to 6% down, I still make little): 3%x3=9%

3. RMBS price to go down between 7 to 20%, 2 months total:
-5%x2=-10% (assumed I have chance to cover the first CC and rewrite at strike price)

4. RMBS tank 20%, total 1 month: -8% (again, if RMBS tank this bad, I should have another chance to write CC, that's why I put -8% instead of -14%)

Total gain 51%-18%=33%.

Does it look realistic?
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