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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: kc_hall who wrote (12281)	1/28/2000 1:45:00 PM
From: RWS	Read Replies (1) \| Respond to of 14162

Let's see. If you get called out, you get 37.50 + 1.25 and must pay to cover 50 + 4.50, a loss of 15.75. I think it would be better to buy a lower strike LEAP call and sell a higher strike near term call. If you review some of the previous discussion, I think this is mentioned. Good Luck. RWS

To: kc_hall who wrote (12281)	1/29/2000 2:31:00 AM
From: Greg Higgins	Respond to of 14162

kc_hall writes: I started trading cc's against LEAPS this week. I bought the MCD Jan02 50's @4 1/2. Sold Feb 37.5 @1 1/4. This seems incredible to me. My question is do you think the price spread is to great? If not is there any reason not to buy the cheapest LEAP possible to write cc's against? I had intended to put a discussion on this topic on my Advanced Options Strategies thread; while I don't have time to go into it in detail now, you'll find the majority opinion on this thread leans toward buying in the money calls for the long side. I've been doing this for a bit, and I don't see anything inherently wrong with the selling short calls against long OTM LEAPS. You will need to keep the difference in strikes in your margin account, and I would suggest choosing OTM calls several months out. This is because it will cost you dearly to buy back your short position should the stock rise a mere $5. Your OTM LEAP will gain nothing near that amount so without the advantage of starting with the ability to have the price move in your favor, you're left hoping for stability in the stock. While MCD isn't a high flier, it frequently has it's moments when it jumps a few bucks every time they announce a new beanie baby Happy Meal deal.

To: kc_hall who wrote (12281)	1/29/2000 9:38:00 AM
From: Herm	Read Replies (2) \| Respond to of 14162

Hummmm? Ok KC! I was debating what your intent was with this LEAP spread. In like manner, of what Gregg and RWS have stated, I would like to point out a few factors. siliconinvestor.com 1. Unless you already own MCD parent stock at a much lower net cost average (nut), you are exposing yourself to a loss IF you are called out. You would need the parent stock to deliver to your buyer to meet your call obligation. 2. You now know that YOU MUST NOT BE CALLED out at any price with this LEAP spread you are holding. You are upside down! Yes, if you are being aggressive and are using the LEAP spread as a downside hedge or fancy short it will work in this case because MCD is heading in a downward trend based on the technical chart profile. Pay close attention daily to your position and chart readings!!!!!!!! 3. My recommendation to your question. ALWAYS buy the best LEAP ITM you can afford in order to maintain a lower net cost basis and a LOWER strike price relative to the call side of the spread. So, if you have a MCD LEAP @ Strike 25 and you wrote a FEB. 37 1/2 you might barely have enough profit margin (depending how long you have owned it) to enter into the spread you now have. In short, the answer to your question, "do you think the price spread is too great?" Sure is! You are taken on the risk in this spread. Thus, you are getting a higher call premie ratio for now! :-) Remember the quick formula. LEAP Strike price + LEAP cost = Break Even $50 + $4 1/2 = $54.50 spread B.E. Sell a call only above the $55.00 strike a few months out in order to lock in the profit and capture the easy premie. Had you sold a ATM CALL 2001 LEAP against the MCD 50 LEAP02 you would grabbed a great deal more in premie dollars and covered cheaper later at a profit while having all that money in your account. 4. You are not dead yet KC! It looks like MCD at $30 to $33 may be the next price support level! You might want to unload this potential time bomb if MCD shows any life as the FEB. expiration approaches. Now, if MCD continues to drop after the FEB. date and you keep the CC call premies, you will then be faced with what to do with the LEAP. You may be forced to either wait for higher MCD prices. Or look at doing a revised safer LEAP/LEAP spread like I indicated above in order to keep your money working. In closing, I wish to remind all of you of the free Excel spreadsheets packaged with the WINs PowerPoint presentation that is used to do "what if's" like we have been talking about BEFORE you enter into any trade. That is the purpose for the spreadsheet. You can have the template double check the profit vs. risk calculations and logic. Further, it does show you alternatives that you might not otherwise considered. Suggestions and rules are the foundation. But, there are degrees of tweaking for each person's own risk and comfort level. Only you can be the judge of that! New lurkers and newbies can download the WINs goodies at coveredcallswins.com Thanks KC for sharing that experience. We can learn something and reinforce the process.