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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 (10532)	4/24/1999 2:03:00 PM
From: RDHickman	Read Replies (1) of 14162

Herm, GREAT explanation as to why you are extending out several months. Very complete. Appreciate it. (As you know, I too was intrigued by that.) I have a question for you or anyone on the Thread. Tuesday, I opened a small position in NOVL. I bought the 10Jan01 ZNNAB Leap Calls for 13.00. (Near the low of the day). My obligation was $10 and my investment 13.00. Requiring a Call of $25 or better, by my thinking. My intention was to wait for the Stock Price to advance and then Write the 25Mays or 30Mays, may look at June. (actually expecting the Stock to rise slowly). Skipped watching Wednesday. On Thursday I was watching ClearStation's delayed "Live Charts" on both NOVL and ZNNAB, and noticed the Leap was increasing to 14 3/4 -15 at times with the increase and decrease of the Stock Price. That was no surprise. BUT I realized that I was projecting a 6-9% return for a May Call, and MAYBE a 16% return for selling a June Call. (to be divided by 2 for monthly return projection). I considered for the first time, just Selling the ZNNAB. Calculation: xxxx = x% Hmmmmmm. Calculation xxxx = xx% Result: Friday, back to the ClearStation Charts--- Watched the yo-yo. NOVL 22 / 23 / 24 ZNNAB 14 3/4 / 15.OO / 15 3/8 Now, the interesting part--- The Bid for ZNNAB bounced around 15 3/8. The Ask for ZNNAB bounced around 16. I "bounced" in (very deliberately) with a Limit Sell Order (Day) for 15 5/8. Higher than the Bid. Lower than the Ask. Bingo! Straight through. SOLD! The 15 5/8ths Sale gave me $2.62 return on $13.00 = 20% on my investment. Now to my confusion ---- Is this play just a "standard" possible opportunity when setting up a Leap position to do an eventual Covered Call? Is this play so elementary that it just hasn't been discussed? Did I miss this as a possible consideration? Did I cut off my "opportunities" by getting out? My thinking (qualified) was: Selling the Leap now for 20% return in 3 days, minus commissions $25.20 IN/OUT each way, was a whole lot better than the possibility of 6-8% 29 days (May expiry) or 14-16% in approximately 57 days (June expiry) AND I have 20% more in my account to play with! NOVL again? Maybe. Good thinking? Bad thinking? p.s. My previous positions were Buy-Writes. Not good. Not Bad. Different. I am honestly confused!!!! /Dick

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