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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: James F. Hopkins who wrote (12816)	5/28/2000 4:44:00 AM
From: Richard James	Read Replies (1) \| Respond to of 14162

James P. Hopkins: Your dividend capture plan intrigues me. I am going to take a good look into it, but first wish to make sure I understand it by example. I buy 1000 MO at 27 and sell JAN01 $10 calls for 17.5. MO has a dividend rate of $1.92 per share, but since my basis is reduced to 9.5, my effective yield per annum is 1.92/9.5 or 20.21%. Question: Would the sale of such deep in the money covered calls trigger a constructive sale for taxes? Plan to use this strategy in my IRA, but may also give it a play in my taxable account. Question: Does anything stop the call from being exercised just before the record date, in which case I lose the dividend? Is it just not very likely to happen as the owner is likely to wait until expiry to do so? Thanks for sharing this.

To: James F. Hopkins who wrote (12816)	5/29/2000 11:51:00 AM
From: Herm	Read Replies (2) \| Respond to of 14162

Hello James, Thanks for sharing your approach with us. I was analying your dividend capture process to generate a 21% effective annual return of 21% in your case. I was curious what I could find in the leap spreads alternative. In an IRA you dividend capture approach would work just fine and carries little risk which is super. Out side of an IRA environment for those that want a tad bit more reward at a slightly higher risk factor could get a great deal of bang for the buck buying LEAPs rather than the stock itself. After all, at a last stock price of 27 7/16s divided by the Leap price I will give you below at $7.375 each you could control 27.4375 / 3.375 = 3.72 or let's day 300 shares of MO for only $737.50 vs. $27.438 x $8,231.25. Clearly, less money at risk here and yet a much higher return. It just so happens that MO trades leaps and there is a combination that would yield 16.11% in 4 months on the first spread with a total projected WINs© Write Count of 3.4 during the life of the leap. Basically, what that means is that you would be able to write at least 3 spreads with four months each. That would be up to you and the higher MO goes the easier it would be to exceed the 16.11% ROI for each consecutive leap spread thereafter. MO FUNDAMENTALS it is safe to say that MO has just completed a bottom and is in the beginning of an accumulation phase. The first major overhead price resistance was about the current $25 to $26 level which MO has cleared. The next price resistance comes in the $30 to $34. The RSI is just about in the high reversal range for MO. Still, MO is approaching a markup phase with upward momentium as shown by the OBV which still shows new money coming in. MO has a growth rate of 11.73% and the P/E is lower than that at 7.44. A big blue chip company! The first spread you would most likely cover cheap and move to the next spread because of the overhead resistance. Further, the delta on your leap is so high compared to the out of the money call spread you write that it would still pay to cover if MO gapped upwards. NYSE: (MO : $27 7/16) $63,600 million Market Cap at May 26, 2000 Ranks 7th in the Fortune 500 on Revenue & 3rd on Profit. Employs 144,000. Trades at a 1% Discount PE. Multiple of 7.4 X, vs. the 7.5 X average multiple at which the Tobacco SubIndustry is priced WEEKLY MO CHART siliconinvestor.com LEAP SPREAD COMBO At the stock at $27.4380, you leg in and buy the LEAP [WRRAE] JAN02 25 strike @ $7.375 and then sell the [MOIZ] SEPT $32.5 strike @ $1.1880 (16.11% ROI)or more since MO is bound to raise a tab more before the pull back at $30. ----------------------------------------------------------- The opinions expressed are for educational purposes and not an offer to buy or sell securities. Investing in options is a risky investment and investors should know about the risk and characteristics of options before they invest. The writer may invest or hold the positions discussed and will acknowledge and indicate so when appropriate. The writer is the owner of leapspreadswins.com