I read your post of 12-15-97 in the Silicon Investor with appreciation (no pun intended!) and interest. As active options trader myself I see a couple of potentially big pitfalls in the strategy you've outlined. First, continually trading up the calls you've sold which are now in the money requires that you constantly lay out cash (or take on margin). Other than being possible expensive and a crimp on cash flow, this increases your exposure. For example, now that you've traded up to the Jan 135 calls, were INTC to fall back suddenly to 108, you would not be a happy camper! (now all the cash used in trading up is gone!). Thus my question is: when and at what price do you decide to trade up, rather than just sit tight and wait for the call to be exercised? The second pitfall is that just as the rise in price of calls are less than the rise in the underlying stock, were the stock price to plummet, the price of the calls fall less too. Thus were INTC to fall down to 108, you would have to pay a premium to buy back the call you've sold. Thus my second question is: when a sudden fall in the stock price occurs, when do you decide to close the position, i.e. sell stock and buy back the call option?
GAry
>As we know Intel did go up, and went up big time. When Intel hit 122 I rolled my Jan 95 up to Jan 120s. Again, as I recall, that cost me about 15 points. |
