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: Douglas Webb who wrote (4117)	8/25/1997 9:50:00 AM
From: Herm	of 14162

A while back I read some investment research about when stocks drop below the 50-day moving average that the stocks appear to start to recover when the stock has traded the number of shares in their float. In other words, a full turnover of the float before the price gets better. Now, that length of time can take forever with some stocks and a much shorter length of time for others. Now, if you knew and could track the turnover rate you would have a better gauge for the price and length of time remaining before a reversal for any stock. You could plan your option tools much better for each stock. Of course, the charts will give you the visual information. But, what I'm suggesting here is data that would provide a mileage gauge. So, if a stock normally takes 45 days to trade a full turnover of it's float and currently that rate has decreased by half, you can bet the price of that stock will not appreciate as fast and even drop during that slow down in the turnover. Just apply the law of supply verses demand. That is why when people short stocks they are in essence increasing the float because they are borrowing the stock they don't own and they must pay it back. The stock's liquidity is increased and stock stalls. On the other hand, when the stock trades that entire float it will now be ready to increase. That increase in demand starts the chain of events starting with the short squeeze. More people need to close out the short sales, thus, they need to buy back stock. The turnover will starts to increase and the liquidity will start to decrease and cause prices to go up! Bollinger Bands set at 20-day moving average does a pretty good job of plotting those points after the fact. This would be an additional tool to calculate a number of days remaining before something should happen.

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