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Pastimes : Ask Mohan about the Market
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To: John Doyle who wrote (12332)12/25/1997 9:15:00 AM
From: Zeev Hed  Read Replies (2) of 18056
 
John: I have no idea what Mohan will suggest. However, let me volunteer my own opinion. First, do not treat all the Dow stocks the same way. Second, you must adjust your strategy to what you may think the likely outlook over the next three to six month is going to be.

I have made my position on the next three to six months quite celar. I do not expect a big armagedon, just a cyclical decline to about 6200.

In view of that I have sold deep in the money (covered) calls on MRK since I think it could retest the low 80's. If you own some T, you may want to roll over out of the money or even just in the money calls, since I think that T may actually stay in the range of 52 to 62 and possibly break out again. If you own some of the financials, deep in the money covered calls might be the right strategy. Depp in the money covered calls are equivalent to shorting against the box, except that you get an additional time premium which you do not in case of shorting against the block.

By the way, by selling covered call you still get the dividends unlike the casse of selling short against the block. The down side of selling in the money or deep in the money covered calls is that the stock declines below your strike price wwhere you no longer has as much protection as in a short against the block. This however should be handled by covering the call and selling a new one either deeper in time or in price (if you feel the decline will continue at that point).

Zeev
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