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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: Dan Duchardt who wrote (13326)	10/12/2000 7:17:18 AM
From: virgil vancleave	Respond to of 14162

Lu is almost down to where it is a decent stock to purchase on valuation, especially for a large company. I would wait to buy it as I see much better beaten down good stocks out there. Lu has some debt and still trades at over 2 time sales with no cash going for it. Based on these numbers, I can see why they are having problems. They say that 1 times sales for a tech company adjusted for any debt is a bargain with 1.5 to 2 times sales being somewhat expensive. That being said, lu is still expensive and I will wait until it is in the single digits before adding it to my portfolio. Really makes a person wonder how a company can justify a stock price for anything greater than 10 times sales! There are still many out there trading at these astronomical levels. And, mark my words, you will see the risk associated with these get higher as they "fall back to earth" valuation wise. That is why I shorted swcm, of which I covered to soon. Down 28 for the day with still much farther to fall as it is still trading at 90 times sales! Another interesting point to note. The reason I am bullish on gold. Look at oil prices. Historically, gold and oil have traded together in tandem. Oil is up with gold soon to follow. Inflation is on the rise also, which is good for gold. Add to that is the fact that it is selling for less than production cost, which usually doesn't go on for long. Just my opinion here. Just thought I would add my 2 cents.

To: Dan Duchardt who wrote (13326)	10/14/2000 11:31:20 AM
From: Herm	Read Replies (3) \| Respond to of 14162

Hello Dan, How To Keep The Dog House Small Oh, from time to time I get a not so good batch myself. So, you are not alone. Let me share some ways perhaps for readers to avoid a much too common investor trap. What I have done to avoid not cornering myself into a corner is: 1. Not use up all of my reserve cash and be fully extended at any point for long period of time. Indeed, the switch to LEAPs and LEAPs Spreads when ever possible has really stretched my working capital. Of course, if no LEAPs are traded then I buy the stock or straight options and leg into a position. Think of it as "keeping your black powder dry" for as long as you can. 2. Keep that margin use on a strict diet. I tend to only use margin to round off to get a full 100 share lots or pull some cash out to buy options which are cheaper than the stock anyway. Thus, I have less cash exposure on adverse market conditions. 3. The other major use for the reserve cash is to take the opposite position in the same stock. I wish I would have learned about this sooner. Rather, I wish I would have gained the wisdom sooner in my investment school of hard knocks. Indeed, how many times have we all made an investment decision and as soon as we press the <ENTER KEY> that stock eats up your order, turns sour, and heads for no man's land? We often just site there and hope that the stock will reverse on some turn of events. "The stock market takes no prisoners" is the warning most heard. Well, if you have reserve cash it's always possible to take a defensive action and play the opposite trend to capture the profit. I don't think taking the opposite position triggers a wash sale as well. Meaning? A PUT is not the same as a CALL on the same stock. If you are going to wait it out Dan, you might as well make some money while you wait. I guess you are expressing your fustration with that painful investor stalemate called "dead money." Hey, I have been there more than I care to remember. :-) Review of the LU Situation It sure does not help that the CEOs were cashing out their shares when the LU price was over $55 and not the current $20 to $23 price range. That sure did not help the excessive liquidity at the start of the stock drop. Filed by Title Action Shares Price Trans. Date Holdings RUSSO PATRICIA CE Sale 100,000 59.36 05/05/00 173,925 DICKSON JOHN T CE Sale 137,288 60.00 05/05/00 320,424 PETERSON DONALD K O Sale 244,870 63.86 04/27/00 132,002 RAWSON RICHARD J VP Sale 100,000 64.24 04/27/00 17,114 LUSK JAMES S VP Sale 40,000 64.00 04/26/00 2,556 O'SHEA WILLIAM T O Sale 104,224 73.03 11/15/99 584,921 NETRAVALI ARUN N O Sale 234,864 73.42 11/10/99 354,648 LUSK JAMES S VP Sale 4,000 69.00 11/05/99 2,409 PETERSON DONALD K CF Sale 95,000 69.01 11/05/99 132,002 LUSK JAMES S VP Sale 3,000 64.81 10/29/99 2,356 SCHACHT HENRY B D Sale 110,000 67.07 09/14/99 3,712 Today, LU is fairly cheap. NYSE: (LU : $23 1/4)$77,644 million Market Cap at October 13, 2000 Ranks 45th in the Fortune 500 on Revenue & 73rd on Profit. Employs 153,000. Trades at a 67% Discount PE Multiple of 21.5 X, vs. the 64.3 X average multiple at which the Networking SubIndustry is priced. Looking at the weekly chart profile LU is about to reach a fairly solid bottom price support level at around $18 to $20 with the RSI and OBV at an all time low. stockcharts.com[L,A]WALLYYMY[PD20,2!C20!F][VC60][ILB14!LG] You might want to review the float turnover by taking the three month average shares traded and divide that into the float to get the minium number of days or weeks LU will need to recover. floatanalysis.com That's it! Good statement Dan! mailto:wins@adelphia.net coveredcallswins.com

To: Dan Duchardt who wrote (13326)	10/17/2000 9:24:55 AM
From: Wyätt Gwyön	Read Replies (3) \| Respond to of 14162

re: LU and covered calls, I made a purchase a couple days before the meltdown at 32.75, offset by 03 35 LEAPS calls sold for 11. When underlying fell to 21.875, bought back the calls for 4.625, then when underlying was at 22.5, I sold the 03 25 calls for 7.75. So cash flow looks like: -32.75 (stock bought) +11 (03 35 STO) -4.625 (03 35 BTC) +7.75 (03 25 STO) ______________ Net cash out: 18.625 Upside is callout at 25 in 2003, for potential gain of 34.2%. If I'd held the original calls (03 35), potential would have been for 60.9%. Given the events, rolling down seemed the prudent thing to do <g>. I have been doing a lot of plays like this, selling calls (LEAPS if possible) immediately. My preference is to sell a good amount of time so as to get a substantial portion of the stock price back right away. Sometimes even ITM calls if the premium is high enough. For example, last week I bought GBLX at 21 3/8 and sold the 03 20 calls for 9.875, yielding potential profit of 73.9% in 2003. The thing I like about this strategy, in addition to its providing a downside cushion, is that by rolling down (and thereby reducing potential return), I am pulling cash out of weak positions, so that the ones with the lowest potential will tend to have less funds in them, while the "winners ride". Assuming one can find a winner or two in this market <g>.