How To Write Covered Calls - An Ongoing Real Case Study! Message Board

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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!

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To: k.ramesh who wrote (9581)	2/4/1999 5:56:00 PM
From: Herm	Read Replies (3) of 14162

Hi Ramesh, The sequence one should look for is a tag of the BB, plus an increase of trading volume of 50% or more, plus an average RSI value (high/low) for that particular stock. WLA So, around the first of Feb. all of the above clearly took place on the chart below. There was a tag, a low RSI for WLA and an increase in trading volume. Of course, it is difficult to pinpoint the exact day. One or two days is not bad for timing cycles. It sure beats guess work and it reduces the stressful wait. Also, notice that WLA BBs made an upward move and the RSI hardly moved. Yet, the stock price moved up and up bouncing once off the upper BB. Summary? The BB widens and the angle is sharp. A gap in progress. iqc.com S In the case of S, it looks really nice! S is about to form a solid second leg of a double-bottom pattern with very low RSI. Meaning? It's one cheap puppy dog at this point. A nice entry point for a CC work horse in 1999. It's a conservative DOW stock. iqc.com Now, your last question reworded! Situation #1: If you collected $8 for a CC when the stock was at $68 your net cost would be reduced to ($68-$8 cc=)$60. If you are called out five months at $70 your net profit would be $10.00 (+14.71%)less commissions. Situation #2: If you collected $8 for a CC when the stock was at $68 your net cost would be reduced to ($68-$8 cc=)$60. If you decided to cover (close)that CC at a loss for $10 1/2 and cash out when the stock was at $73, your net cost would increase to ($60+$10.5)=$70.50. So, the net gain would be ($73.00-$70.50)=$2.50 (3.68%)less commissions. Would you rather make $10.00 or $2.50 profit? Yes, July is five months wait to clear $10.00 profit. Of course, if your net cost (nut) is lower than $68.00 it would still hold true as an illustration. When ever you cover at a loss you need additional capital stock price appreciation in order to recover the give back. That is risky! What happens if you cover and the stock turns bearish on you! That is why I rather buy (lower strike price) long calls as a sideshow using my call buyer's premies to help offset the cost for the repair of the potential CC loss on a runaway price gapper! Good question Ramesh!

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