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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!
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To: NateC who wrote (10545)4/26/1999 8:04:00 AM
From: Herm  Read Replies (2) of 14162
 
You hit the nail on the head Nate with pricing of the options. Another factor into that higher compounding ROI idea depends on the actual stock price. Sure, if the stock continues to increase for say three months in a roll, monthly CCing on that stock with a higher strike price each round (above our nut that is not called out) will collectively bring in larger percent of premies compared to a single longer three month CC. But, if the stock is choppy or stalls you may actually do worse. You assume more risk with monthly CCs in my opinion.

The point I wish to drill home is that if a stock is above my CC strike price plus the premie (the CC B.E.) I'm following up with long call sideshows to capture that profit. Thus, the stock does not run away from me.

Your two months out may be the min. CC months out (for most non-daytrading investors) to avoid such quick option trades and perhaps being called out more often. Alot depends on where the stock is as plotted by the BB and RSI. I sure use that as my gauge to go deep and long. In fact, you will always hear me go long and deep when that upper BB is tagged and the RSI is sky high. PAYX being the most recent example of a pending pull back based on the BB and RSI. Now, I just checked the current TRO BEFORE the announced split coming up. It averages a turnover Rate: 86.14 Days. That would tell you more about the likely price movements between CC months. I sure would not like to CC monthly with a stock having a TRO of 10 days.
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