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Technology Stocks : Cymer (CYMI) -- Ignore unavailable to you. Want to Upgrade?

To: Jerome who wrote (23232)10/13/1999 8:21:00 PM
From: Ira Player  Read Replies (1) | Respond to of 25960
 
There is one downside to writing a covered call.

That downside is no different than pure longs and your basis is lower. The biggest risk of covered calls is poor timing and giving away the upside. There is NO downside risk at all. All of the downside is in owning the stock, not selling the call

I follow a slightly more structured strategy, but similar.

I am basically a short term trader. However, I have been migrating toward covered call writing because, quite honestly, I can capture most of the return with less sensitivity to timing and with significantly less volatility.

I select equities based on fundamental and technical analysis. Fundamental to determine which industries and the companies within those industries. Technical analysis to determine entry point.

Once "in", I use a combination of Bollinger Bands (BB) and Relative Strength Indicators (RSI) to determine when to sell or buy back calls. I try to use the covered calls when I believe the intermediate trend is still up, but it is consolidating or slightly correcting. If I believe the fundamentals have changed (or a different issue has gotten my attention), I sell when the indicator says sell a call.

Relatively simple signals. Buy when coming off the lower BB on increasing RSI and volume. Sell when coming off the upper BB on decreasing RSI and volume. Each stock has different RSI thresholds. Look before you use them. Increasing volume coming off the upper BB with falling RSI may say sell the stock.

Does that make sense?

Ira



To: Jerome who wrote (23232)10/13/1999 8:28:00 PM
From: esl  Read Replies (1) | Respond to of 25960
 
If you expect a large price move but unsure of the direction, it's better to use either Straddle or Strangle. You make unlimited profit when stock moves up or down, loss money when stock price doesn't move too much. I think it's a better strategy than cover call in CYMI's situation. Also, you don't need to long the stock, less capital required, higher yield. :)


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