Ira,
Excellent advice. Timing is an issue I did not extensively address in a direct fashion. I wanted to show the roll out and up strategy with option prices that are presently in place. This gives Dr. D a feel for the strategy.
I started directly addressing the timing issue and deleted it. It was late and it made the message too complex. Also if the price goes higher as x date gets closer the higher the risk of some one exercising the calls. At the same time, the closer the x date the more likely a dip in price and a cheaper closing of the position, or perhaps an opportunity for the position to expire worthless. Given CPQ and the market lately one might not want to take that chance on a large position of 100 covered calls.
I determined that the easiest way to indirectly address the timing issue was by selling multiple covered call positions rather then one large position on the roll out and up strategy.
Closing the current position of 100 ($22,500) Covered calls, and selling 40 ($18,000) Jan 50 2000 LEAPS. Reduces his loss to $4,500 plus commission expense. It leaves him with 60 potential covered calls to sell. If the price of Compaq goes to 40, He could then sell 20 covered calls for a better price at an acceptable strike price for maybe $6 ($12,000) to $8.($16,000). He is now ahead of the game by $7,500 to $11,500 less commission expense, and still has 40 potential covered call positions to sell in his pocket.
Of course the whole strategy is based on the though that Compaq is going up. If Compaq retraces, Dr. D can close the longer positions out for a profit with less risk then the Dec position he currently holds. He should not sell covered calls until he can obtain a good price at an acceptable strike price.
Does this handle the timing issues in an acceptable fashion? I am always looking for better strategies.
NW
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