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: VincentTH who wrote (6242)	12/30/1997 12:29:00 PM
From: Herm	Read Replies (1) of 14162

Hi Vincent, Take a deep breath and relax my friend! SMOD is not falling off the end of the earth! :-) Let's take a look at the situation before we jump on any particular bandwagon or emotional course of action! Now, you feel better? I feel pretty good! :-) NASDAQ: (SMOD : $23 3/4) $948 million Market Cap at December 30, 1997. Trades at a 55% Discount PE Multiple of 8.8 X, vs. the 19.5 X average multiple at which the Semiconductors SubIndustry is priced. smartm.com TRADING DYNAMICS: Interesting company! Last earnings report for Oct97Q was expected to be $0.70 and came in at $0.65A or -7.0% 5 as reported on 20-NOV-97. SMOD then proceeds with a 2-1 split on December 17, 1997. Kinda gusty or CRAZY if you asked me! AHHHHHH, get this! I checked out the float turnover for SMOD Doug's tool shop site at webbindustries.com and found unreal data: 6.20 million (float) outstanding shares (pre-split), 153.71% percent of turnover per month or 14.09 days to turnover the ENTIRE FLOAT! Now, I can understand a major reason SMOD went ahead and split the stock. They need to mellow out the stock by increasing shares. CC premies should be fairly high with SMOD! According to First Call research 5 analysis have INCREASED recent earnings momemtum/projections for the next report Jan98Q set for Feb. 20, 1998. The consensus is at 1.6 as a buy. The annual growth rate is projected to be a whopping 25%! Short interest increased slightly (8%) from November to December 15, 1997. There is less than a trading day worth so short squeeze should not be expected. ===================================================================== Bottom Line: Keep it simple and hold on for now! Here is a possible stock repair that is suggested by Options Concepts and Strategies - Tools for Risk Management for free by the CBOE. It works if you are down and believe the declines has ended, believe moderate rally possible, don't want to invest more cash or average down, don't want to increase your RISK, just want to make a small profit or break-even and move on! In your particular case: Sell 4 CCs Calls - Jan. 32.5 @ 1/4 ($1) Buy 2 Calls - Jan. 30.0 @ 1/2 ($1) --------------------------------------- cost to you = $0 stock price: loss/gain stk. 32.5 call 30 call net --------------------------------------------------------- 24 (-6) - - (-6) 25 (-5) - - (-5) 26 (-4) - - (-4) 27 (-3) - - (-3) 28 (-2) - - (-2) 29 (-1) - - (-1) 30 (0) - - (0) 31 +1 - +1 (+2) 32 +2 - +2 (+4) 33 +3 .5 +3 (+5.5) 34 +4 1.5 +4 (+6.5) Looks like a more conservative approach Vincent? What do you think? Any comments from the readers?

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