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Strategies & Market Trends : LastShadow's Position Trading -- Ignore unavailable to you. Want to Upgrade?

To: Investor2 who wrote (22750)	10/1/1999 8:32:00 PM
From: Ira Player	Read Replies (2) \| Respond to of 43080

In case you didn't see all the gyrations I went through with ATHM : August 16, buy ATHM for 39 1/8. August 16, sell September 40 Call for 3 3/4. Basis is 35 3/8. Gain limited to 4 5/8 through September 17. September 3, buy September 40 Call for 1 3/8. Basis is 36 3/4. September 10, sell October 40 Call for 4. Basis is 32 3/4. Gain limited to 7 1/4 through October 15. September 20, buy October 40 Call for 1 5/16. Basis is 34 1/16. September 29, sell October 40 Call for 3 1/2. Basis is 30 9/16. Gain limited to 9 7/16 through October 15. With ATHM at 44 1/2, the AHQJH (October 40) is "worth" 5 1/2 - 5 7/8, with 2 weeks to run. I could buy it back for 5 7/8 and sell a AHQAI (January 45) for 7 3/8. This action would lower my basis another 1 1/2 to 29 1/16. Gain would be limited through January 21, 2000 to 15 15/16. I'd be tying it up for another 3 months for 1 1/2 (plus 5 if the price holds). At this point, I'm not convinced ATHM will hold. I jumped too quickly on the sell this time, I don't want to panic into a buy. I'll let the time run out before doing anything. When October 15th arrives, the extrinsic value will be near zero and the option will approach (ATHM Price - 40). If it is much higher than today, I'll probably let it go, because I'd be tying it up too far out for my tastes. If it is near where it is now, buying it back and selling another, higher strike, further out will probably work. The advantage of covered calls is simple. The extrinsic value of a call is all yours when you sell it. While the call may have value at expiration, it is only worth the amount over the strike price. The underlying stock has also appreciated, balancing this out for you. Since extrinsic value is time, you can 'roll them out' to recapture your stock, as long as the underlying hasn't totally taken off. Hope this helps, Ira