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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: PeterCS who wrote (12190)	1/17/2000 12:32:00 PM
From: Dan Duchardt	Read Replies (1) \| Respond to of 14162

Peter, I found nothing wrong with what you posted, but for the sake of comparing your alternatives you might consider looking at your numbers a different way. If you are called out on Friday you will receive 7_1/2 on an investment of 5_11/32 (your current nut), over 40% return. Congratulations!! All your capital would then be available for use. Let's use the 7_1/2 as a reference point for looking forward, and think of the 2_5/32 gain you have on paper now as being locked in, just as if you had been called out. If you roll up, the amount you have invested as of Friday is effectively the 7_1/2 you decided not to take, plus the net cost of rolling up. That's how much it will cost you to stay in the position as compared to cashing out. For the MAY10s this will be 8_7/16. For the MAY12_1/2s it will be 9_1/8. Assume you get called out in May (ignoring the fact that you might do some additional repair before then). With the MAY10s, your return will be 10 on 8_7/16 or 18.5%. With the MAY12_1/2s it will be 12_1/2 on 9_1/8 or 37%, just about twice as much. Are you content with 18+% over 4 months, or is there a better way to use your money? Is the potential 37% over 4 months worth the risk that IFMX might not make it to 12_1/2? If you sold the MAY12_1/2s and the price in May is only 10, then your return will be only 9.6%. At just about 10_13/16, your rate of return is the same for the 12_1/2s as for the 10s. Anything higher than that makes the 12_1/2s a better choice. And of course if things go the wrong way, you have a bit more at risk with the 12_1/2s since your effective investment is higher by 11/16. Another way to look at the difference is to consider the potential extra return on the extra 11/16 it would cost to sell the MAY12_1/2s compared to the MAY10s. At most you could receive an extra 2_1/2, which is a healthy 264% return. At worst, you could lose the entire extra amount. On a stock that has a legitimate chance to make or exceed the 12_1/2 price, that risk/reward ratio is pretty good. Hope this helps you. Dan

To: PeterCS who wrote (12190)	1/23/2000 11:51:00 PM
From: KevinD	Respond to of 14162

If you are confident that the stock price is going to stay above your current strike, and you can move up in strike with a net additional investment that is less than the difference in strikes, then do it. The situation that you describe certainly does happen but not often. If I ever see it I jump on it fast because it is virtually a sure thing. Should you invest 15/16 more to make 2 1/2 more profit? Or should you invest 1 5/8 more to make $5 more profit? The question is not whether to do it, it is which one to do? When it happened to me I could not believe it so I kept checking the quotes on different websites just to make sure I was actually reading them right.