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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 (9593)2/4/1999 6:43:00 PM
From: k.ramesh  Read Replies (2) of 14162
 
Thanks for your excellent response.
Let me get this straight on buying lower strike price calls as a sideshow.
In the case of WLAGN if the price I sold the CC was 8, and I am contemplating covering at 10, you say I should instead buy a lower strike priced call instead of buying back my short call.
But this would cost more than 10. if strike 70 is 10 then strike 65 will possibly be 15 at least.
OTOH by buying a lower strike price call I will have something to show for the expense, if the 65 calls participate in the move up whereas just buying back my call would be just a loss (even though you have freed up your stock to move up)
Is that the gist of it .

Okay now, In the market for every buyer there is a seller, so hopefully both are smart but with different objectives.While buying the stock when the price is at the lower BB , waiting for a while and selling a call when it retreats from the Upper BB is a great strategy.
Another more conservative (less reward) way would be
Buy the stock at the lower BB (or what you think is the lower BB, or 1/2 way along a falling knife) and sell the Call right away.
when the stock moves up buy the call back, and sell the stock immediately.
Such as in my WLA example, at 68 buy stock sell Jul 70 at 8.
at 73 buy back call at 10 and sell stock at 73. Net profit $3 .but lotsa safety.
You play on the fact that the call moves less than the stock due to its long duration.
Ramesh.
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