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: Dnorman who wrote (7628)	6/12/1998 10:53:00 AM
From: Herm	Read Replies (2) of 14162

Hi Dennis, I would sit tight and let GLBL drop some more before a bounce off the 200-day moving average. That is, if they are lucky! GLBL had a 2-1 split in 1996 and again in 1997. Will GLBL try again in 1998? For sure, more shares outstanding means more investors to please. Have GLBL earnings per share kept up with the outstanding float? GLBL will have to attract (turnover) more investors. How? With an overpriced stock they will have to demonstrate that they invested those dollars wisely by releasing the results. Oil is so cheap right now I don't know how they are going to make money. Earnings have been flat. Next earnings date is August 08, 1998. Try buying some PUTs with GLBL. NASDAQ: (GLBL : $19 1/4) $1,778 million Market Cap at June 12, 1998 Trades at a 76% Premium PE Multiple of 21.0 X, vs. the 12.0 X average multiple at which the Drilling & Marine Supply SubIndustry is priced. To answer your question. A floor trader once told me when they (the market makers) buy PUTs from you, they must sell CALLs on the open market (with the same strike price) to counter their positions. It is the spread (multiplied by hundreds) between the two options (PUTs vs. CALLs) that are eventually closed out and generate their profits to stay in the game. Makes sense? If you sold CALLs and brought PUTs on the same month and strike price and paid zip for commissions, only one option position would be right on expiration day. The MMs can counter anytime before the deadline just like you. In our example, suppose those CALLs would be dropping in price/value (and they used your money to buy their PUTs anyway) those PUTs would be gaining in price/value. Hence, the calls expire worthless and the PUTs are in the money.

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