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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study! -- Ignore unavailable to you. Want to Upgrade?

To: Joe Jayne who wrote (11099)	6/27/1999 9:37:00 PM
From: Bruce Ravelson	Read Replies (1) \| Respond to of 14162

Joe, I am looking to write my first CC, also. In looking at the ENZN chart, I see a narrow trading range since December or a slight upward bias and at the upper end of the Bollinger Band. The RSI is well above 70. Both of these are signals to write. However, my concern is about the underlying stock falling. You get the option $$$, but what happens if this goes to the lower end of the band? I need help also. Thanks to anyone with experience in writing CC's. Bruce

To: Joe Jayne who wrote (11099)	6/28/1999 12:46:00 PM
From: Herm	Read Replies (2) \| Respond to of 14162

Hey Joe, Welcome to the forum and thanks for your question. ENZN is in the bio-tech field is not expected to earn a profit this year. With that said, buyers should be aware of the increased risk factor. Thus, your desire to buy ENZN on margin does make me wonder how strong is your stomach and blood pressure? That is not to say ENZN could not generate a profit via CCing. If I were in your shoes, I would be interested in locking in some of that CC price gains when ENZN peters out. Technically, the upper and lower BBs are starting to diverge. Meaning, the upper BB is going higher while the lower BB is going lower. That means an increase in volatility (and higher CC premies) and higher stock price. How much? Well, you have a sky high RSI of 77 for this stock. The OBV is VERY high for this stock. The stocastics use went negative so the pull-back is not far away. One or two day perhaps. As I write, ENZN is hauling up +1 1/4+ so the beat goes on. RISK VS. REWARD At $18.00 now, the first bottom price support is a solid $12.00 level. That is about six points down from $18. So, I would want to have as much of that in the CC premies to cover my downside. The more ENZN moves above $18 the higher the CC premies and the bigger the CCer's lost when the pull back comes. Your CCer will be paying for your insurance. I'm not crazy about you plan for the 17.5s AUG. CCs @ 3.5? I would be more inclined to play the 15s AUG @ 4 1/2+ with the full intentions of covering before the lower BB tag. I don't believe ENZN will keep up this pace. Just like the rocket EDFY recently. It did pull back as profit taking occured. Take the money and run! You can figure that after ENZN pulls back it will bounce and retest another high! The margin is what makes it more dangerous if you are expecting a pull-back. The larger CC premies will increase your cash value in your account to offset some of that equity to liabilities ratio when you dip into that margin and ENZN does pull back. I would rather you had a lower net cost basis (nut) first before making an entry into ENZN from current level. Now, say you buy at $18 and it goes to $19 and then you launch your CCs. Your true net would be $18-CCs collected and that will swift up and down. So, you are speculating that ENZN has more upside or will remain in a narrow trading range that you can apply a WINs trading format to still crank out income and a profit. If you want to buy PUTs, I would go out a few more months on the same CC $15 strike price. That way, you have the time on your side for the PUTs to pan out and still some time left to dump them before expiration. So, you would be getting from both sides. The CCers premie and the PUTs as a sideshow. iqc.com