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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: Shell R. Poust who wrote (13656)	3/11/2001 6:39:08 PM
From: Herm	Read Replies (1) \| Respond to of 14162

Hello Shell and others! As indicated in our email exchange this weekend, I'm writing your question and answering the one you left here. The question is, how many folks out there do both PUTs and CALLs on the same stock? Under what conditions? What has been your results and or benefits. Bull Spreads So, you did some bull spreads? Let me define that for the readers and lurkers out there that are not aware of this strategy. The bull spreads is said to be one of the most popular forms of "spreading." The mechanics involved in this type of trade is the person buys a call at XYZ strike price and then sells (writes) a XYZ higher strike price call usually with the same expiration date. Some folks call this a vertical spread as well. So, in summary: -------------------------------------------------------- You write a short call at higher strike price ex.$60 You buy a longer call at a lower strike price ex.$45 -------- Profit IF called out! $15 less what you paid + comm $ 6 -------- net profit $ 9 -------------------------------------------------------- The bull spread tends to be profitable IF the underlying stock moves up in price. Hence, it is a bullish position. Now, that we know how this option tool works, let's look at the stock that were selected. Looking at the chart profile is just about the only way you can ascertain the trend or direction of the stock and the industry group the stock is part of. Indeed, looking at monthly profile first, there is price support in the $40 to $42 range and the RSI had bottomed out. Looking at the upper and lower BBs you notice a narrowing indicating some kind of pending gap. Up or down? Well, only the chart will tell. Let's move to the weekly profile now. I would stay sideways with an upward bias is the trend. The RSI is just above 50, OBV is positive and moving up. Overhead price resistance is at $48+. When is the next earnings release or news? Dupont Company (DD) coveredcallswins.com[l,a]dallyymy[pd20,2!c20!f][vc60][iUb14!Lg] The monthly profile indicates an upward bias with the RSI being very low for IP. Plus the upper and lower BBs are diverging which indicates a continued upward gap. Even the center moving average between the BBs is moving upward. A very positive bullish sign. Resistance should kick in around $42 to 44 as folks jump ship to break even. The weekly profile confirms an upward to sideways trend. I would suspect that a pull-back might occur on this cycle. So, your idea for PUTs may not be too much of a risk to play the downside pull back that should occur. International Paper(IP) coveredcallswins.com[l,a]dallyymy[pd20,2!c20!f][vc60][iUb14!Lg] IP showed up in the DOW LEAPs Spreads with a few plays: Buy LEAP CALL WNPAF @ $12.5000: $1250 Sell CALL IPGH @ $3.9000: $390 (31.2%) Net Cost for Leap: $860 Buy LEAP CALL WNPAG @ $9.1000: $910 Sell CALL IPGH @ $3.9000: $390 (42.86%) Net Cost for Leap: $520 Buy LEAP CALL WNPAG @ $9.1000: $910 Sell CALL IPGV @ $2.9000: $290 (31.87%) Net Cost for Leap: $620 Well, that it for now!