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Strategies & Market Trends : Advanced Option Strategies
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To: Greg Higgins who wrote (3)1/28/1998 1:16:00 AM
From: R. Gordon   of 355
 
Greg,

I don't use this strategy as a primary income sourse - it just seems like a good way to enter a position with a slight advantage on my side. I found buying opportunities in ALL and LUV - but they don't last long. I go for positions that are one or two months out. Only when there is a tremendous bullish sentiment for a stock does this occur so it tends to place me at a good market price. If I can get a 5% or 7% headstart I feel lucky. If I get called - at least I make a profit. If I can buy back the calls, there may be a chance I can sell them again. I try to buy back the stock at 20% or less of what I paid for it and if the TA looks decent, I am usually willing to take the risk that it will fall further and eat some or much of my profit. Sometimes, if I feel daring, I will sell some of my protective puts - maybe 25% of them. However on expiration day I will often buy back the calls and probably sell the next month out - or wait a week to do so. Hopefully I can find a time during the month to load up on protective puts and calls for the upcoming month. While I have given up trying to predict the daily movement of the stock - I can often tell if a stock is pretty high or pretty low. My great trades are a little more frequent than my poor ones, and the system seems to be working overall.

That Jan 99 CPQ looks attractive - I haven't thought much about doing this with leaps. When I buy protective puts or calls, I try to buy them cheap and will often sell them for a net gain in my position of 5 or 8%. I've been concerned that leaps are buffered by so much time - I don't have a good sense of their movement with price changes.

One more thing, I like the pattern of movement of ALL and LUV overall. They seem like solid companies that are not going to do a VVUS, SIII or IOM.

Richard
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