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: goforit who wrote (209)	2/20/1997 8:03:00 PM
From: Herman J. Matos	of 14162

Hey GOFORIT! The DOW is trading around 20 PE to 22 PE times earnings. Many stocks under the $10.00 price range don't have the EPS or track records. Needless to say, I think you are more at risk of prolong downturns (and reduced premiums) and when that happens your may run into liquidity problems like you indicated. I recall a situation I answered last week about a covered call that back fired because the fill was split and the person was charged more commission because it became two separate transactions. Well, that really cuts into your percentage rate of return. You don't find that to be a problem with stock that are trading in the $20 +plus range. Also, I think there are some wild price and volume shift with cheaper stocks as people try to "market time" that stock. In other words, the momemtum players can do a real number on cheap stocks with ups and downs. There is no loyal following you can depend on. Maybe, the best answer I can give is that you might be better off to leave the cheap stock until you really get the feel for covered call writing and you have been through a complete up price and down price covered call strategy cycle. That way, you have the tools to handle those little stocks. Another reader mentioned AXC (Ampex) which sells for around $7.5 which looks pretty good to me. I'm considering rolling the dice on that one! I need to unload my USRX after March. I have $1,800 worth of premies that looks like it's going to be all mine! I will take my money and run! But, I'm glad you have seen the GOLD MINE in covered call writing. I still can't believe how easy it is and the kind of cash flow that it generates.

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