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: JohnV who wrote (245)	2/22/1997 10:36:00 PM
From: Herman J. Matos	of 14162

Hi John, I'm glad you shared that information with us. No matter how many times I hear it and read it, I always find another use for technical indicators. You gave a very good example of the use in trading options. I use it as a timing indicator in a strange way. You see, I'm not caught by surprise when the volatility gets bad. I can see it coming and I can try to go really deep into a call strike price and grab the extra premiums just as the prices start to peak and then drop. It soften my stock price drops. In essense, I make the call buyer pay for my downside insurance by eating up his call value. When I can get to keep 80% of the original call value I just cover my calls and go looking for any strike price and month (over my net cost basis) to make more money in premiums. The other factors would be if the stock is near a 50 day moving average, 100 day moving average. If the volatility comes and the stock is not near those indicators, then I try to determine if I can beat the call buyer to an expiration date without giving up any premium and not being called out! If it looks close and the stock is taking off, I hedge my bet by buying the next month's calls on that stock myself just before the expiration date with the buyers premium money. If I'm called out of some, so what - I'm always in a lower net cost basis anyway! And, the calls I buy are going up in value which I can exercise my right to buy the shares (if I'm called on any shares). Otherwise I just cash them in for the straight dollars and the process goes on and on. Month after month income is generated! Sometimes 8%, 12% and even 25% with a good double dipper. The annual rates of return are fantastic!

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