HOW TO WRITE COVERED CALLS - AN ONGOING REAL CASE STUDY!
CC TECHNICAL CHART REVIEW!
"Good educators must learn to be guides by the side, rather than a
sage on stage!"
Ok! Here we go! At the end of this review you all have a homework
assigment! See how much you've learned!
GLM
Volume increased over 25% of normal volume, very low RSI 30%, spike
downward into the lower BB. Stock should reverse tomorrow! Check out
the settings in the chart. Notice the slant direction in the RSI and
chisel RSI dive. That really drives up the premies in the CCs folks.
If you owned GLM you would cover your CCs, cash in your PUTs with a
heck of a big smile on your face. The current price is a two year low
for GLM. What a ride with this stock. But, you can see that CCing
would have kept you in the ballgame while others are bleeding real
bad. You have the CC tool shed to use! The P/E is only selling about
a 13% discount so there could be more downside down the road unless
GLM pulls a miracle out of the hat or Iran bombs the oil fields or
something!
bigcharts.com
BTGC - Current CC $ Play Toy!
Easy going BTGC is nice tame stock for CCing. I sold (recent peak in
the RSI and tag in upper BB) my poor call buyer 7 contracts for the
Jan. 7.5 @ 1.75 and those suckers are only worth about 1 1/8. I
figure I will dippity do (close to cover CCs) at around 3/4 before
the predicted BTGC price reversal at around $6.75. That means I get
to keep a solid point for my troubles. I don't have to wait until
January to make the balance of my CC premie which is only 3/4. Does
it make sense to hold out (not cover or allow CCs to expire) until
January for 3/4 points when I can most likely make at least 3 points
between now and then CCing? How do I know BTGC will bounce around
$6.75? Hey, I'm no mind reader, but, I can look at the chart (even
with my poor vision) and see the lower Bollenger Band level at
approx. $6.75. That means most likely a swing in price for a fraction
of the trading day before block purchasing kicks in!
I tried to buy 10 BTGC Oct. PUTs @ 3/8s when I wrote the 7 CCs with
the premie dollars. No bites! Next time I will short the stock if no
PUTs are being sold. That is the lesson I learned this time around.
Otherwise, here is the fantastic math: $37.50 (3/8s) x 10 = $375 cost
for the PUTs as a sideshow using the $1,225 CC premies from my
partner the call buyer. I love to make my CC buyers pay my way you
know! Folks, 10 BTGC Oct. 7.5s PUTs are worth 7/8s by 1 1/8s as of
today. So, let's say they are worth $1.00 x 10 = $1,000. I just
think it's great when anytime you can take CC premies and make money
as the stock goes downward. WHY IN THE WORLD WOULD I WANT TO HOLD the
CCs until Jan. 1999 when you rack in the bucks every month by using
our CC tool shed?
Friends, please look at the chart and notice the conditions when the
price extremes occur! That's when you make the best returns. There is
really no guess work if you apply the obvious in the RSI and BB
indicators.
bigcharts.com
OUR FIRST STOCK (ROST) ON THIS FORUM:
ROST gave the $49 gun salute to people's money today! I had to grin
since the stock split last year at 2-1 for one at $48 and here it is
back up to at least $49 twice in the past 6 months. What a tool
folks! Same old story I'm trying to point out over and over. On
this forum, we have discovered and evolved with a powerful and simple
story teller. I'm only following the script as presented by the
technical indicators. In fact, I'm no smarter than you and the next
man or woman.
ROST price peaks and tags the upper BB and that RSI drops like a rock
and the price goes down the toilet on profit taking. The MMs and fund
managers do it again! Course of action if you owned ROST during this
event?
Remember Withdraw Increasing Neutral (W.I.N.) ? Remember, where you
read this first just in case Wade Cook starts to use it in his books.
:-)
1. This is the W part! As the stock price is increases and is about
to WITHDRAW (peak RSI and tag of the upper BB) sell CCs at or deep in
the money two or more months out! GRAB THE CC PREMIES and run. That
is your working capital to leverage folks!
2. Load up on CHEAP PUTs one or two months out at a strike price
slightly below the current stock price! Remember, CHEAP and lots of
those suckers. You would be suprise how fast they can add up! This
is your downside insurance policy which will keep you net cost basis
down (NUT).
3. Consider shorting the stock if you are comfortable with the
technical indicators or do both!
4. Sit back and enjoy!
bigcharts.com
That's it for now! Some really good review examples of the stages of
CCing with our W.I.N. (W) waiting for the price top & reversal before
withdraw, (I) waiting for the bottom & reversal before increasing!
(N) doing nothing but waiting for bottoming or increasing until
extreme is reached.
PS - Some email writers have asked me, "how long does it take before
the reversal?" Look at the distance between the Bollinger Bands for
clues. The farther apart and more time it generally will take!
Earnings and news events could shorten those points (length of time)
or expand those points. There is a certain amount of safety if you
only read the charts and determine the best time line for your stock.
They are ALL different! Bottom line! Time is working on your side
as a CCer and against your call buyer(s). The cards are really
stacked against them if they are not using our tool shed!
YOUR HOMEWORK ASSIGNMENT:This stock was hit with a negative
surprise event. Review all the news, look at the chart indicators
below. Reply to this message in a narrative format indicating:
1. When you think the stock will bottom? (Hint - apply the CC W.I.N.
rules)
2. What could you do now to take advantage of your CC knowledge and
RSI & BB chart skills?
3. Indicate the likelyhood of a long term upward or downward price
trend. (hint - slanted angles)
4. What web site would you use to gather and monitor the stock. What
tools would you use?
bigcharts.com
Wishing you all! The best of good buys! |
