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Non-Tech : Dorsey Wright & Associates. Point and Figure -- Ignore unavailable to you. Want to Upgrade?

To: Tommy Dorsey who wrote (7725)	5/8/2000 3:11:00 PM
From: Daveyk	Respond to of 9427

The following is an article I found very interesting.This is available along with much more information daily to paid subscribers to Dorsey Wright & Associates subscribers.I am not being paid for this but would like to add these guys have kept me on the right side of the tracks thru this market turmoil. Go to....------------Sym Look UpBP LinksWEBsIndicesCommods------------CanadaItalyGermanySpainSwitzerlandU.K.------------Help Me! From the Analyst 05/05/2000 Choose an Archived Report Split Strike Writing -------------------------------------------------------------------------------- The other day we introduced the idea of selling calls against positions you own as a way to increase cash flow into the account as well as provide downside protection. There are a lot of cross currents out there with the indicators right now. The NYSE Bullish Percent is in X's and so is the OTC Bullish Percent. However, we have stronger relative strength readings for the NYSE than the OTC. The Dow Jones 20 Bond Average remains on a sell signal and in fact just broke another double bottom. We are coming into a seasonally unfavorable period in the market but often times we see a late spring/early summary rally and then the September period really takes the hits. We think that in this type of market selling calls and creating an account of covered writes is going to be a great strategy. Especially as premiums remain high. Of course, keep in mind that we NEVER, NEVER recommend selling calls against a stock you don't want to sell. If you would not like to be called out of that sto ck, then don't sell the calls. Now that you have decided you don't mind being called out of the stock but you would like to have that income selling the call creates, how do you decide whether to write an out-of-the-money call or an in-the-money call if the stock is between the strike prices. Do you go for the higher return of the out-of-the-money or the greater downside protection of the at- or in-the-money? This can be a problem, especially if you are not sure which way the market is headed. There is a strategy which can get you out of this dilemma and allow you to get a little of the best of both worlds. That is to split the strike prices, selling some of each. Let's look at an example. You own 800 shares of our old favorite, XYZ Corporation. You paid $35 for the stock which is now trading at $45 1-2. What you can do is as follows: Sell 4 July 45 calls at 4 5-8 Sell 4 July 50 calls at 2 7-8 By doing this, you will take $3,000 into your account, $1,850 from the July 45 calls and $1,150 from the July 50 calls. If XYZ declines, you have over 8% downside protection. This is better than the 6.3% protection you would have if you only sold the July 50 calls. However, it is not as high as the 10% you would have from selling just the 45 calls. Suppose the stock rallies above $50 though. Then your called return using split strike writing is 46%. While not as great as the 51% from selling the 50 calls, remember you wouldn't have as much downside protection in that case. So, split strike writing allows you to adjust your position to achieve more protection when you feel it is necessary and get higher returns when you feel the risks are not as great. -------------------------------------------------------------------------------- While we make every effort to be free of errors in the data on our site, it is derived from data from other sources. We believe these sources to be reliable but we cannot guarantee their accuracy. Copyright ¸ 1995-2000 Dorsey, Wright & Associates, Inc. Disclaimer. Best,Dave