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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club
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To: marc ultra who wrote (1875)10/28/1998 1:53:00 PM
From: Trebor  Read Replies (1) of 15132
 
>Looking at a very relevant example to a Bob Brinker fan if someone sold covered calls a bit out of the money on a position taken in NVLS around 10/8 I would guess depending on the option you would have been taken out early and missed most of a huge gain.<

Okay, let's take a real world NVLS example; here's how I've used covered calls with that particular stock: I bought NVLS on three occasions, 200 shares at a time -- for $38.25 in May '98 (dummy!!!), for $33 in June of '98, and for $26 in Sept '98 (smart, huh!). That would normally give me an average cost basis of $32.56 including commissions. However, by selling covered calls on two occasions, my cost basis is actually $29.75. I'll show you the particulars if you're interested. I currently have 2 contracts to sell the NVLS Dec. $35. I may or may not lose those shares at $35. If so, so be it. I've still made 17.65% on those 200 shares. And if NVLS goes to the moon, which I fervently hope it does, I will participate in that rally with the 400 shares I'm still long.
I will let you know what happens to the Dec. 35 contracts. My hunch is they will either expire worthless or I'll be able to buy them back for less than I sold them for and can repeat the process by selling something like the March $35 or March $40.
Are covered calls the magic path to riches? Of course not. Have I ever made mistakes with them? You betcha. I make investment mistakes every day of the week; otherwise I'd be richer than Warren Buffet. But I'll still maintain they are a useful tool for those of us whose crystal ball is always a little cloudy. Plus they are fun.
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