HOW TO WRITE COVERED CALLS - A REAL CASE STUDY!
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Date:Friday, March 14, 1997
THE VICTIM:
ROSS STORES (ROST) Closed at $28 up another 1/2 (+1.82%)for the day on a total volume of 711,000 shares traded. The last tick for the day was UP on a 11,800 block size sale at 4:01 pm. Somebody, is betting some big bucks that this ROSS STORES (ROST) stock is going up Monday at the opening bell. Considering, the early profit taking and volatility with the overall DOW, ROSS STORES did fantastic. Meaning, you did not lose money. Anytime is a great time when you don't lose your "juice."
PROFIT "JUICE" PROTECTION:
Those April PUTS should BE DIRT CHEAP! That is the only kind of downside insurance to buy. Determine your deductible (like a car insurance policy) and buy puts (using your call buyer's money of course) at the money or one strike price below that!
I picked up 4 April 27 1/2 PUTS for 5/8s today! You guys and gals may pick them up for 1/2 buck on Monday for sure!
SWEET MOTHER'S MILK:
"Show me the money!" I could not resist to speculate today (with my call buyer's money of course)and placed a limit order for 4 March 27 1/2 CALLS @ 15/16. Well, it may pan out if the stock moves up to $30 to $32 with a good earnings report. I will be happy to milk what I can out of the ROSS climb up.
THE PARTY POOPER:
The 10-Yr. T-Bills ended the week up a whoppin +.150 to close at 6.69% and TOUCHED THE 300-DAY MOVING AVERAGE! NOT GOOD! This next week should be the pivot point. The retail section of the economy should hold up. But, I'm sorry to say the Nasdaq Technology Stocks, Bank Stocks, Bonds, Utilities, and financial stocks may be in for some Rock N Roll. Seriously look at buying those April or May PUT on the above mentioned sectors if you plan to ride it out with covered calls. The new four DOW companies should be interesting to watch.
So, it's a flip of a coin what the Fed. Reserve will do on the March 25, 1997. Today's figures where good. But, are they good enough now?
THE BOOGIE WOGGIE:
The volatility index (VIX) went down today, if you can believe it! The VIX closed at 21.83. Maaaannnn, volatility is the norm. I don't how much the new Nasdaq order system has to do with it! Those limit orders are being processed REAL FAST!
TO BE, OR NOT TO BE!:
The STOCK: TECH DATA (TECD) closed down today but up + 3/4 for the week. My SuperCharts indicates that the MoneyFlow was building up (accumulation) in TECD. Again, bouncing off a moving average and reaching the bottom of Bollinger Bands as it starts to level off horizontally is tell tale sign of an early possible gap in price. If you go over the past year, TECD has done the same thing twice in 1996 and looks like a repeat performance. The earnings report is due out on March 26, 1997.
That's it!
Wishing you all, "the best of good buys!"
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DISCLAIMER: The writer is presenting a real stock and a live ongoing case study. No recommendations or endorsement to actually buy this stock are suggested nor implied. Trading stocks and buying calls should not be attempted without first understanding the risk/rewards of this type of investment!
The writer assumes no responsibility for the opinions being expressed!
Buyers always be aware!
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