Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Amit Raj who wrote (11417)	8/24/1999 2:46:00 PM
From: Jonathan Thomas	Read Replies (1) \| Respond to of 14162

<<<<< I have a question about the protective put on the CC position on MCOM. I have sold JAN25 calls for 8 1/4 and want to buy puts for down side protection. The puts are very expensive. The cheaper puts I can get are JAN12.5 for $1 1/4 or JAN10 for 3/4 while the stock is about $27. My question to you is how many strikes down should one go for this kind of protection. Suggestions from any one who has this kind of experience are most welcome! Amit >>>>> Amit, These puts are going be expensive because of the time premium, and most likely volatility. As most WINSers will probably share, puts are actually kind of subjective, depending on the stock, the time, the price, and the tolerance for risk. Most of the time, and a lot of people will disagree with me, I would be willing to part with 25% of my CC premies for downside protection equal to the CC time, and a couple strikes below the current stock price. I only do this when my NUT isn't much lower than the current stock price, or if I'm dealing with larger volumes of money. If I sold calls and got $1000 in premiums, $250 worth of puts takes a sizable chunk of my profits. If I'm dealing with with $10,000 worth of CC premies, $2500 is well worth locking in $7500 in profits. Do you get my meaning? Some may see that same situation with exactly the opposite stance. you'll get a lot of different opinions about puts, some will say that if you pick the right stock, you don't need them. If you're using WINS, selling the call at the right time, and buying the puts at the same time will actually work out in your favor in terms of using the puts to generate more money. They will increase in value as the stock runs though it's cycle (downward if you sell the CC at the right time). I use puts partially for profit, but more for protection. I recently executed my next round of CCs on NOVL, and this time I did not buy puts. Why? Because my NUT is under 19, and I don't feel I need downside protection any more. If/when NOVL gets back to 30, I will consider buying the 25s for puts profit. Does that help you at all? Ryan

To: Amit Raj who wrote (11417)	8/24/1999 5:28:00 PM
From: Herm	Read Replies (1) \| Respond to of 14162

MCOM Considering the MCOM is not expected to make a profit this year, this is a speculative stock! With that said, and the fact of the recent 52-week high of $56.50 and pull back to the lower BB at $20 and now the come back. Rarely, do healthy stocks ever hit the 52-week high one the first attempt. MCOM has to overcome the temptation at the overhead resistance level of $36. Those individuals will be ready to dump at point. So, downward protection would be on my mind for sure. It is still early for the PUTs at this point. But, do get ready. The next earnings release is not until approx. OCT 15, 1999. Another downward cycle would not be out of the question for MCOM. NASDAQ: (MCOM : $26 5/16) $361 million Market Cap at August 24, 1999 Loss Expected for 1999; Electronic Components & Parts SubIndustry priced at 29.5X PE Electronic Components & Parts SubIndustry up .68% / Electronics Industry up .82% Today iqc.com Cheap PUTs means at least two or three strike prices down from the current selling price. So, the 17 1/2s OCT. PUTs @ 7/8s is about right. You picked up over $8 on the CCs. You have a pocket full of change. I would be more inclined to wait for MCOM to peter out at the $30+ and go for either the 25 OCT. @ less than 4 1/8s or the 30 SEPT. @ less than 5 1/2s. Reason? I willing to bet MCOM will not hit a new high on this cycle. OBV is pretty much topped out. Stocastics is reaching a crossover point. That's an early warning sign. The upper and lower BBs are starting to close in on MCOM. You can see a narrowing of the BBs is possible soon. Summary, earnings release - buy real cheap PUTs two or three strikes down. Want to capture downside cycle? Spend more for the PUTs like ATM or ITM for a sure thing. You should be able to squeeze 3/4 to 1 1/2 with ITM PUTs and a pull back. Add that to your CCs and you are doing very well.