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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 (9080)11/18/1998 11:40:00 AM
From: the options strategist  Read Replies (2) of 14162
 
For those still learning: This is an account of how to lose money.

I don't know what it is but some days I get up and seemingly deliberately set out to lose money. Monday was one of those days.

I bought IOM may 7.50 calls based on news, chart and option volumn for a short position trade. cost was $2.50. My strategy was to sell Feb may 10 calls once it got up to the top of the band and hope to be called out or of the stock was doing o.k. buy back and write another.

Well, later that day or the day after I began to get negative feelings about it (this is probably what happens when one has not done proper dd) and decided to make a spread now. I sold may 10 calls and took in $1.75 giving me a debit of .75.

I had taken a very small position, 4 contracts which meant a debit of $300.

I have never taken a position in a bull call spread for less than 5 points. This spread is 2 1/2.

My Strategy: If IOM went up I will buy back and roll up to may 12.5 or 15 depending on current situation and prem.
if IOM goes down enough I will buy back and sell another call.

Problem: The spread is 2 1/2 rather than 5 points.

Therefore, if I were called out I would lose .50 + commissions. If IOM does not do anything, i.e. go sideways for long period, I will lose.

Any comments on this, what I consider to be a stupid play. At least it may provide some insight for the newcomers.

Jen
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