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: Andrew Williams who wrote (7470)	5/20/1998 5:14:00 PM
From: Herm	Read Replies (2) of 14162

Andrew, XRAY does not have many strike prices and open interest at this point. Most of the open interest is at the $20 $30 strike prices. tradepbs.com Doug's spread formula has some interesting spreads that could bring in some nice returns. Note, with any other stock the choices are much greater. XRAY is a very conservative stock. A sleeper for CCing. Check out webbindustries.com for the quick plug in review. CC Recovery Spreads for XRAY Series Long Short Entry Credit Total Gain AUG98 Buy Call 5 @ 25.0 Sell 10 @ 30.0 ($625.00) $1,125.00 The spread outperforms stock ownership in price range $30.25 - $33.75 ------------------------------------------------------------------- AUG98 Buy Call 5 @ 30.0 Sell 10 @ 35.0 ($1312.50) $2,937.50 The spread outperforms stock ownership in price range $28.875-$37. To establish a recovery spread, you go long 1 call and go short 2 calls at a higher strike for every 100 shares of stock you own. The maximum gain is realized for expirations above the short call strike. The Total Gain shown takes into consideration the net cost of your stock, which gets called away when you realize the maximum gain. Here are some spreads for BTGC (which I happen to pick up this week). You can see the difference in choices: Series Long Short Entry Credit Total Gain OCT98 Call 7 @ 5.0 14 @ 12.5 ($2536.80) $5163.20 Outperforms Stock Ownership in Price Range $5.3760 - $16.3760 OCT98 Call 7 @ 7.5 14 @ 12.5 ($1224.30) $4725.70 Outperforms Stock Ownership in Price Range $7.2510 - $15.7510 JAN99 Call 7 @ 10.0 14 @ 12.5 ($86.80) $4113.20 Outperforms Stock Ownership in Price Range $8.8760 - $14.8760 OCT98 Call 7 @ 10.0 14 @ 12.5 ($436.80) $3763.20 Outperforms Stock Ownership in Price Range $8.3760 - $14.3760 OCT98 Call 7 @ 5.0 14 @ 10.0 ($1575.00) $2625.00 Outperforms Stock Ownership in Price Range $6.7500 - $12.7500 OCT98 Call 7 @ 7.5 14 @ 10.0 ($262.50) $2187.50 Outperforms Stock Ownership in Price Range $8.6250 - $12.1250 JUL98 Call 7 @ 5.0 14 @ 10.0 ($2362.50) $1837.50 Outperforms Stock Ownership in Price Range $5.6250 - $11.6250 JUL98 Call 7 @ 7.5 14 @ 10.0 ($875.00) $1575.00 Outperforms Stock Ownership in Price Range $7.7500 - $11.2500 JUN98 Call 7 @ 7.5 14 @ 10.0 ($1005.90) $1444.10 Outperforms Stock Ownership in Price Range $7.5630 - $11.0630 OCT98 Call 7 @ 5.0 14 @ 7.5 ($175.00) $525.00 Outperforms Stock Ownership in Price Range $8.7500 - $9.7500 JUL98 Call 7 @ 5.0 14 @ 7.5 ($262.50) $437.50 Outperforms Stock Ownership in Price Range $8.6250 - $9.6250 Notice how much open interest for BTGC? tradepbs.com It is interesting to note that the longer the time the better opportunity for the stock to move into the profit zone. Of course, it is possible to cover the long position and cash out before expiration date. This gives you better control to take the exact profit you wish without giving up the stock by being called out of the stock. In other words, you can kill the first spread and start over at much higher premies for a second round. Also, the lower the strike price below your net cost basis the much higher probability of a profit from the spread. If the long and short calls are in the money, it is a no brainer to make more money from the spread without having to wait much time! Another good CC stock at this point is NOVL and BS.

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