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: RayV who wrote (7207)	4/1/1998 8:26:00 AM
From: Herm	Read Replies (3) of 14162

Hi Ray, Well, until the VVUS stock price moves above your net cost basis (nut) you are in the red (assuming you cost is higher than current levels) and you remain at risk of a loss. Your long Sept. 10 Calls (side show) are in the money and as of yesterday (March 31, 1998) are worth VVUS SEP 10 CALLS (VVQIB)@ 3.75. You could average down your long stock (nut) position by exercising your Sept. 10 calls. Of course, you would need either the margin or cash in your portfolio to do that. 1. If you don't the cash or margin (hanging rope) then you will need to wait for higher VVUS price level. Some positive news should provide you with that opportunity. In my opinion, news should raise VVUS price because of short covering. But, I do expect sharp price pull backs as people take their profit fast. So, you could write CCs as the price approaches your net cost basis. The better you time your CCs the faster you will lower your net cost basis. CAUTION: Watch out for the Wash Sales of the same call strike price and month. Example, don't write CCs, cover, and then write the same CC within 30 days of the close sale of the first CC. Otherwise, if you miss and have a loss on one of those CCs, tough! You won't be able to write it off your taxes as a loss. That is a REAL DRAG on taxes. 2. Play it safe and allow the VVUS price to reach your net cost basis and then exercise the Sept. 10 Calls. Do a buy/write and grab quick premies. webbindustries.com 3. Using Doug's stock repair Excel template calculate a credit option spread for VVUS. That is, you sell for example 10 CCs at a higher strike price and buy 5 Calls at a lower strike price for yourself (both Call in the same month). Between the VVUS long stock and the VVUS side show calls you would be covered. That would increase your profit potential and not require any cash out of your pocket Real neat strategy to exit out of VVUS. webbindustries.com All of the suggestions above will lower your net cost basis but at different time lines and risk levels. Only you can determine your comfort level.

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