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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 (12865)	5/30/2000 9:35:00 PM
From: Casaubon	Read Replies (1) \| Respond to of 14162

give your calls a chance to work their magic for you. Let them decay in time value. The only way to do that is to do nothing. Unless you are close to long term capital gains on the stock ( which might get called away), you're probably best off doing nothing at all, until closer to the expiration date of the calls. You probably should not be buying back the calls at loss! If you think SUNW is going to run from here, and you want to take advantage of more upside, you might consider buying calls one strike out of the money (although this kind of defeats the purpose of the play you have already established). It is usually best to wait until the week of expiry to manage your position. At that point, most of the time premium will have eroded and defensive action will be more clear. For instance, if you want to keep the stock, you could buy back the calls you sold (without paying so much time premium), or you could roll out to a further timeframe (in other words, buy back the calls you sold, and sell calls with more time premium). The problem you are currently having is a form of meiopic greed. You want to get the time premium from selling the calls but, you also want to take advantage of the whole upside potential of the stock. When you sell the calls you are fixing (limiting) your profit potential!

To: robwin who wrote (12865)	5/30/2000 10:24:00 PM
From: Dan Duchardt	Respond to of 14162

robwin, I thought you said in an earlier message you had already bought back those OCT90s. If not, then Cas has given you sound advice. Herm often talks about the break even (BE) point as a decision point for taking action with a CC position. For the call buyer, BE is the price the stock must reach at expiration day to cover the premium paid plus the strike price. For any price less than that, the buyer is "in the hole" even if the option is worth exercising, although there may still be some advantage to not having the cost of the stock tied up for all that time. In your case BE is $99, still along way off. You can always roll up to a higher strike price sometime between now and October. Right now you can do that for a bit less than $2 per contract. In the future, if the stock price goes up it will cost more, but you will have a better sense of whether the stock will make it to $90 before expiration. Nothing but the cost of commissions prevents you from rolling up some of your contracts now, and leaving the rest alone. Another thing you can do, if your account allows buying uncovered options, is to purchase what Herm calls "sideshow" calls. If you are concerned that SUNW is going to run away from you, think about using some of the premium you got for writing the calls to buy some others that are cheaper. You could for example buy a couple of JUL95 @ 3. If SUNW moves up quickly from here, those will go up about half as much as the stock, and you could make a nice extra profit. If things go badly, you will have raised your net cost a bit, but not wiped out all the profit you stand to enjoy in October if you get called out. If you eventually get to sell the JUL95, you can look for an opportunity to buy back your OCT90 or buy some OCT95 or OCT100 when they are cheaper than now. As always, putting yourself in a position to make more money exposes you to additional risk. The safest thing you can do now is just hold on to what you've got and take a decent profit in October. You have to decide if the risk vs reward is right for you. I'm not recommending you do any of these things, just giving you some alternatives. Dan