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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!
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To: Bazmataz who wrote (7407)5/6/1998 11:12:00 AM
From: mc  Read Replies (1) of 14162
 
Bazmataz, over the last 5 months, GLM has been trading in a fairly narrow range between 22-26. The chart had showed increasing bottoms for the last few months until the last bottom which was lower than the previous (not a good thing).

Additionally, the stock price is approaching the upper bollinger band which is normally a signal to sell the call options. However, this is usually confirmed by an RSI of 70 or higher. Right now the RSI is only about 60. The RSI has been relatively muted over the past few months due to the trading range it is in. Prior pushes to the upper bolinger band in this period have not been confirmed as a sell signal by the RSI, so it may be a good time to write the calls now; especially if you don't anticipate the stock moving higher, as you stated.

Picking the option to sell is a bit tougher and really depends on your personality and desired returns. If you really don't feel the stock has any upside potential then you probably shouldn't even be in it. In which case, you should sell the stock, or sell an option you anticipate will get you called out of the stock while making a little extra profit. This is always dangerous because who knows when a stock is going to head south. And if you don't feel the stock is a good long term hold, sometimes its best just to exit.

If you want to hold the stock, the July-27.5 will give you 50% of the income of the Oct-27.5 at a bit less than 50% of the time frame of the Oct option.

Good luck,
Gary
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