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Non-Tech : The Critical Investing Workshop -- Ignore unavailable to you. Want to Upgrade?

To: walkman_99 who wrote (29472)	8/18/2000 7:39:41 PM
From: dwayanu	Read Replies (2) \| Respond to of 35685

Hi Walkman: Well, ummm, CREE up 15% today. Ummmm. Take everything below with a heavy grain of salt, I don't follow CREE and don't know why it's moving like that. Friday evening: CREE stock $127 Sept 105 call $23.875-26.625 (hell of a spread!) Sept 125 call $11.5-13.5 Sept 130 call $9.25-10 The sweet spot of premium decay as the stock price moves away from your ATM calls is around a 10-15% move. That is, the premium decays faster during the first 15% of the stock's move (eg decays from $10 to $5) than it does during the second 15% of the move (eg decays from $5 to $2.50). You need enough of a dollar-per-share premium decay to cover the friction of buying and selling. Right now your 105's are about 17% ITM. You're a little past 15%, so if the stock continues rising your situation will worsen (modestly). (That 15% is not a magic number, I'm talking eyeball figures here) Suggest that you don't focus on next week's movements of the CREE price - that's playing the casino game. Rather concentrate on taking a nice piece of profit home, without regrets as to what the stock price is doing in the meantime. From $105, assuming you got plus $10/share writing ATM calls, buyback at minus $25/share, rewrite of Sept 130's at plus $9.75, and share value increase at plus $22, nets out to about $23/share increase in portfolio value, excluding tax considerations. Versus $22/share if you had held long uncovered. I would say that now is a fine time to buy back and rewrite. You're probably going to get whacked for maybe 2-3% of the stock price during the buyback and rewrite because of that spread. It will be interesting to see the stock price and options quotes on Monday. - Dwayanu