Steve,
Would you mind commenting on this strategy?
It's from Herm on the CC thread.
I have been reviewing should only be executed WHEN XRAY moves up to and
beyond the previous high of $35. We are only presenting strategies to study at this
point. I'm only pointing out how we are going to take advantage of human nature. Once
XRAY reaches and breaks through the $ high it will gap to something new beyond $35.
Volume and RSI will pinpoint fairly accurately that pivotal point. Two events coming up
are clues to the approx. timing. Something in William O'Neal's CANSLIM must be
present in order for the stock price to move. An announcement (earnings), income
(dividend).
PUTs become cheaper as the stock price moves up. CALLs become more expensive
as the stock price moves up. When we write the CCs we are going short and betting
that the stock will decline or move sideways and we will walk away with all/ or most of
the $ premies. Selling the CALLs at the money or in the money will bring in a fairly large
premie percentage wise. Typically, for a mild stock like XRAY 5% to 7% unmargined,
10% to 14% margined (at or in the money strike prices respectively).
The PUTs purchased at a stock price peak are dirt cheap. When the stock price
reverses and drops those PUTs will appreciate real fast.
Ask yourself? If you had a 40% gain in the stock price and the stock makes a new high
would you pull some or all your money out? Now, if you could do that and continue to
make money while the stock corrects, would you do it? Most likely! Funds managers
and the MMs play with those money tools. They will short the stock, load up on PUTs,
sell CALLs to preset the stage and set up the dummies. Then, BANG!!!! Large sell
blocks are programmed executed and the stock price heads south! The shorted stock
become more valuable, the CALLs become worthless and they keep your money, the
PUTs become $ golden.
Now, as the price drops slow down and the down volume levels off, the MMs and fund
managers will start 1. selling lower strike price PUTS, 2. start covering the CALLs at
much cheaper prices at a profit, 3. start cashing the PUTs in or exercising them because
they are just about to reverse the whole process all over again and shorted stock is
covered at a profit! Usually, they load up with the options, force a move in the stock
price, and then exercise the options to keep feeding the trend cycle.
Heck, there is more profit to be made during those corrections. It's like betting on
musical chairs contest and you happen to be the one who pushes the button to make the
music stop and go! Now, one fund may not be able to make all the music stop. But, you
have to know that they have a secret hand shake or something to know when to
simultaniously "pull the plug." In fact, I believe it is Level II price quote feeds that
provides the names of the big money on the bid/ask on the Nasdaq. Basically, you are
able to see who is doing what like who are the longs vs. who are the shorts.
I cut & pasted this from msg. (#7385)How to Write Covered Calls.
Sorry, I'm not too good at moving links around.
Bill/WA state |
