To: Marvin Mansky who wrote (20271 ) 9/26/1999 1:12:00 AM From: Alok Sinha Respond to
I disagree with your contention tha writing covered calls is a bearish bet on a stock such as SUNW. The main reason to write calls is to take advantage of the volatility which ensures that there are down days after up days. For eg. SUN hit 142 (pre-split last April, 71 post split) and then oscillated between 50 and 70 for the next 4 months. If you wrote covered calls consistently during thse 4 months you could easily pick up 3-4 bucks each month while still holding your long position. The way to make money on a consistent basis with covered calls is to buy back your position,, even if you have to take a loss , if you sense the stock breaking to the up-side. Also if you wait till expiration you eliminate the time premium so the loss on the call will be totally offset by gain in stock. The last couple of months I have bought back my covered calls at even or slight loss (and rolled them forward into the next exercize price) and it has worked quite well. Each time that I have taken a loss on the option position, a little more patence would have ensured that I could have coverd wth a gain, but I do not pretend to be able to time the market or stock fluctuations. To tell you the truth I have made profits on SUNW puts consistently although the stock has gone up more than 100% this year - simply due to volaility and by selling once my investment goals are realized. Writing calls on speculative Internet stocks is certainly risky, but SUNW IMO is quite safe as far as following patterns of ups and downs. Naked puts (if I write them) I don't cover, as a rule, as I only write naked puts for exercize prices that I feel comfortable accumulating the stock at. Besides the Oct 95 covered calls and Oct 85 naked puts, long Oct 90 puts, I also have covered calls Jan 100 and naked Jan 75 puts in my portfolio. If you want I can e-mail you if and when I cover those.
