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To: Atin who wrote (7753)	5/8/2000 6:06:00 PM
From: Tom K.	Respond to of 8096

...under what circumstances would one sell covered calls ATM or slightly ITM one or two months out?.... It really depends on the individual's objectives as well as the market direction. The characteristics are higher premiums and more likelihood of being called out. If that fits one's objective within a rising market, than those would seem to be the circumstances. Tom

To: Atin who wrote (7753)	5/8/2000 9:01:00 PM
From: Bridge Player	Read Replies (2) \| Respond to of 8096

<< I have a related question about covered calls -- under what circumstances would one sell covered calls ATM or slightly ITM one or two months out? >> Here is a hypothetical situation. It is Monday, May 8, 2000. Your objective in the market is a 20-30% return annually, and you are partial to low risk plays. Taxes are not a concern because your major trading account is an IRA. You have cash in the account because you took profits recently on a stock that had had a big runup. You like a particular tech stock and have followed it closely but have never bought it. You notice one day that it is trading at 35 1/2, down 2 5/8 from yesterday's close, and down from a recent high of 59 1/4 in the tech sell-off. You believe it is a sound buy at the current price, and believe that the fundamentals are strong and downside is limited. You also notice that the June 35 calls are bid at 4 1/4. Wow, that gives you 4 1/4 points of protection on the downside on a stock you think is a reasonable buy at current prices. If you buy the stock at 35 1/2 and write the June 35 calls for 4 1/4, your cost basis is 31 1/4. If called upon expiration, your return on invested capital in exactly 6 weeks until Monday June 19 after June expiration, is 12%. Wow, if you did that 8 times a year, that amounts to well over 100% annualized on a compound basis. And if the overall market weakens, you can write July or August 30s or 35s or whatever and keep doing it until called away. You decide this is too good an opportunity to pass up and you do the trade. BP