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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: Herm who wrote (11646)	10/9/1999 9:48:00 AM
From: Casaubon	Read Replies (1) \| Respond to of 14162

Herm, If you look at the different option products available for IFMX on CBOE, there are two kinds; an "A" and an "E" product. They typically differ by a small price (about 1/16). I know there are products available which are actually spreads, ie. a call and a put, which are not necessarily the same strike price. Do you know what is going on here and can you provide directions to read about these products at the CBOE site? Thanks for your help.

To: Herm who wrote (11646)	10/17/1999 6:41:00 PM
From: Dan Duchardt	Read Replies (1) \| Respond to of 14162

Herm, As it turned out, my ROST play fell way short of the gain I could have made with a CC position. I'll give you an update that tends to support the value of the CC strategy. Had I bought ROST and immediately CCed I would have a NUT of less than 19 on a stock that closed Friday above 21. I would have been called out at 20 for a nice tidy 6-7% gain in about 1 month. Had I waited to sell Oct20s and timed the peak, my NUT would have been below 17, so I could have gained just over 3. Of course with the stock making 23 and looking strong I might have sold the 22_1/2s or 25s for smaller premiums but not been called out. Playing it as I did buying the Oct20s (40s before the split), taking a small early profit on half my position, and getting hammered yesterday, I barely broke even (I have a sad story about how my telephone line died so I never saw the dive from 22 to 20 1/2). Still, my risk was always capped. If the stock had fallen well below where I bought it, and I could not stop out, I would have lost about 3/8 on average. If I had caught the peak and sold my Oct 20s, I would have made well over 2 points on what I held, close to the gain from writing the Oct20s at the optimum time. If ROST had moved to 25, which certainly seemed possible a week ago, I would have done better than CCing. I took a bit more risk, but also had more upside potential. I decided not to sell on Thursday figuring the risk of a decline from 23 was worth the possibility of a run toward 25 on Friday. After Thursday, every index showed nice candlestick "hammers" indicative of a possible reversal of the downtrend. I had hopes of holding through Friday and exercising the option. Obviously, my crystal ball failed to predict the Greenspan effect, not to mention my telephone failure. With ROST hovering around 22 mid day, I had a mental stop of 21_3/4 (1_1/2+ on the calls) for stopping out. Following my phone disaster I closed out my Oct20s at 7/8 just minutes before they bounced back up to 1_3/8 before settling at the end of the day. No way was I going to take a loss. I bought an equal number of Nov22_1/2s at 3/4. My alternative was to exercise the option and sell a round of calls, or just walk away from the thing flat. The extra dollar I might have gotten by selling Nov20s on Monday (assuming we don't gap down) just wasn't worth the risk of the bottom falling out of the market next week and tying up the $20/share I can now use to take advantage of a big sell off if it comes. If the market and ROST recover, my gains will not be huge, but they could be as much or more as an early CC with the Nov20s. If the market continues to fall down, I'm afraid we may see ROST well below 20. I think I'm being very defensive. When all is said and done, you have to score a point for the CC strategy with this comparative example. But we are talking about a stock entered at almost the best possible time, that ended 7-8% above where I bought it and failed to hold the 15% to 20% I envisioned as I monitored the position. I have a whole bunch of long shares of other stocks I've accumulated over the last month where I would be a LOT better off if I had bought calls that expired worthless. Most of them were bought at reasonable set up points based on BB and RSI, and I've been waiting for moves to the upper BB-RSI set-up to sell the calls. It's beginning to look like the convergence may happen when the BBs fall to meet the stocks unless this market manages to find a bottom soon. Then again, things turned up hard about this time last year. Dan