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: Herm who wrote (7888)	7/21/1998 6:18:00 PM
From: Herm	Read Replies (4) of 14162

Hi Doug and Everybody! CASE STUDY - BTGC: Well, BTGC is back on course and following the Bollinger Bands and Relative Strength Indicators (RSI). You don't have to be a rocket scientist to see that both the RSI and BB are getting narrower. Meaning? Less volatility! The lower band is leveling off for sideways price motion like up and down prices during the day. Sort of a tug of war between the shorts and longs. The BTGC RSI is once again dropping below the 50 marker. Show me a drop below -50 and I will show you lower prices. Reason? Lack of real entry by new buyers. The volume the last two days has not been great considering the good news about FDA approval this week. Possible bottom? Without news look for $6.75 and an increase of more than 25% in trading volume before reversal cycle begins. Cover your CCs at that point, cover your shorts, cash in puts. REVIEW OF THE CCing PROCESS: Some basic concept around How to W.I.N. When Writing Covered Calls! W=withdraws I=increases N=neutral 1. W - When the price is peaking (price touches upper BB and high RSI) and on the verge of (W)ITHDRAWING: a. Sell CCs at or in the money! (Bread and Butter) b. Buy cheap PUTs and/or short the stock! (sideshow) c. Cash in long calls! (sideshow) 2. I - When the price is bottoming (price touches lower BB and low RSI) and on the verge of recovery and the price is (I)ncreasing: a. Cover your CCs! (Bread and Butter) b. Buy long calls!(sideshow) c. Sell in the money PUTs! (sideshow) d. Buy cheap warrants if offered (sideshow) Warrants over $5.00 can be purchased on margin! 3. N - When the price is moving sideways, do nothing but watch! a. Watch the upward/down slope of RSI! Hint - RSI will give you a small lead in the direction of the stock price. b. Watch the earnings dates, options expiration dates, and the closest strike price. Note - Most MM shakeouts come the week before options expiration week. c. Watch for split announcements or mergers. SUMMARY: Sell (write) CALLs - Buy PUTs Buy CALLs - Sell (write)PUTs

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