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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!

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To: tuck who wrote (10677)	5/9/1999 7:10:00 PM
From: Dan Duchardt	Read Replies (1) of 14162

tuck, Thanks for sharing the evolution of your EDFY position, and your latest thinking. I just came back from a long walk and was going to run through your numbers again. I had been thrown off a little by your earlier comment about going from 10% with the May7.5s to 13% with the May10s vs the 12% and 18% in your later post. Still, we were not that far apart. It was a great exercise for me to think through the merits of your proposal. In your last post, did you mean to say the June12.5s, or should that have been the May12.5s? The May12.5s didn't look good to me, but by comparison the June 12.5s will give you almost another buck in time premium, keeping your NUT quite healthy below 9. You still lift your ceiling on the underlying by 2.5, but the roll up cost is only 5/16 if you can catch EDFY at about 12. (I should have noted in my earlier post that because of the difference in deltas, you would have been better off rolling to the May12.5s while EDFY is at 12 instead of waiting for 13. Still, my feeling is the May12.5 roll up is pushing the NUT a bit too high for comfort.) If you roll to the June12.5s at a cost of 5/16, then if EDFY holds up you will increase your return by as much as 2_3/16, and you have lost nothing (except commissions) if it stays above 10.25. That looks to me like a decent risk:reward ratio. Plus you push out the exercise date another month, so there is a good chance you can hold on even if EDFY runs above 12_1/2 for May expiration. I don't see any other way for you to improve your position this much at this low a price. Maybe one of the seasoned veterans around here has a different thought. And of course all of this at the moment is just a mind game for me. It is you who has your money on the line, and if you do nothing you will likely pocket your 18% in a month. Mighty good luck to you whatever you decide. Dan

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