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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: robwin who wrote (12829)	5/28/2000 7:19:00 PM
From: James F. Hopkins	Respond to of 14162

Robwin; getting the calls sold on an up day let me get in at $9..the effective yield was my main objective..it's temporary until ex-date but every 3 months I get .48 per share and when they call I get the $1 profit on the premium ..like I said earlier they could call before exdate but I doubt they will. This was primarily a dividend play as at the time I didn't see anything else I liked and I wanted to put some cash to work. ------------------ BTW I was most 80% cash before the down turn in the market started back in March. I played the bounce in April and got back out but I've been buying a few select positions for about a week now; in all those except one I've sold in the money calls almost as soon as I bought & I hold one short position ( via puts ) at this time. I'm still about 40% cash. Jim

To: robwin who wrote (12829)	5/28/2000 8:24:00 PM
From: Dan Duchardt	Respond to of 14162

Robert, Jim's effective dividend yield is increased by lowering his price in MO to the $9 area after writing the calls...but is this not only a temporary effect? Once the calls are covered or the stock called, are you not exactly where you started in terms of dollars and yield? Is the advantage that you can use the covered call proceeds to invest in something else during the period before covering or being called? Is it not a "zero sum" game? Having the cash to use for something else is the advantage. If you put that premium under your mattress the whole time, then you have done nothing to improve your gain, although you have limited your potential loss to the $9 you leave exposed to the market, and it would take a large drop in the underlying stock to really eat into that $9. Without the dividend, you would be buying into a position that has very little potential profit (the small time premium in the calls), but with low risk. With the dividend, you have a built in 5_1/2% gain every 3 months with very little risk of your capital. I am in SUNW as i previously posted and was wondering if this made any sense for the short term...I am in for 400 shares at about 85 and the stock seems to have a short term range of 68 to 80....near 80, I sold 4 October 90 calls for $9.00....as the stock went back south to 70 I was able to buy them back at $6.50 (quick little profit over a few days)...I am now waiting for the price to run up again (hopefully) and write some more calls once the premium increases again...is this playing with fire? Holding uncovered stock is always risky, especially in this uncertain market, but look at what you already achieved with one round of call writing. At this point, even writing OCT80 would get you out with some profit should the stock move back up. Not a great return, but not a loss either. Those calls you bought back are almost $2 above your last purchase price, in just a few days. You could think in terms of using that $6.50 purchase price as a stop on any downside move of the stock and sell another round of calls if they get back down to that level. In that case your no worse off than if you had not bought them back. Or, hopefully you will have an opportunity to sell them at a higher price on a return to the $80 area. A return to the existing downtrend line might even get you to $82-$83. Yes, it is playing with fire, but you are winning the game since your first round of writing (assuming SUNW gets back to $80 sometime before October). With well timed sells and buys there is every reason to expect you can come out ahead. I would say, as I have said before, that if you intend to be in and out frequently you might consider selling and buying half your long position instead of the calls. The commissions are probably cheaper, spreads probably smaller, you get as much protection, and you improve your near term upside potential should the stock take off. You give up the $9 premium you can gain over the course of the next 5 months if you hold the CC position and do nothing, but if you're flipping half your shares every week or so, you can make a lot more than that, and more than you can trading in and out of the calls, especially if SUNW is moving over a wide range. Dan