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Strategies & Market Trends : The Covered Calls for Dummies Thread -- Ignore unavailable to you. Want to Upgrade?

To: Dan Duchardt who wrote (1229)	6/27/2001 10:46:51 AM
From: JohnM	Respond to of 5205

Dan, Another post that has to be archived and read very carefully. I'm reading it as my first bit of morning stock market work this Wednesday morning. Since I'm on the go much of the day, I won't be able to read it slowly enough to get a handle on it until tonight. I find I need to see if I can rephrase this kind of material, material that is just beyond my present level of understanding, in my own words (in effect, to teach it to myself) before I can see clearly what I don't understand. Then, I'll get back to you. On the subject of the time premium, I've begun to focus on it in my reading. Your post is right at the point of my next set of questions--what is the rate of decline, what does that have to do with movements in the underlying, etc.? I'll be back. John P. S. I'm holding off on the Qcom buy/write (as opposed to the center piece of this topic, writing against core holdings) until I get a better picture of this afternoon's Fed decision and its effect on the market.

To: Dan Duchardt who wrote (1229)	6/27/2001 6:05:11 PM
From: alanrs	Read Replies (2) \| Respond to of 5205

to look for fat premiums full of other people's money if you want to sell options, and that means looking farther out in time, or near OTM where the premiums are a sensible fraction of the potential stock movement. As premiums came down over the last 3-6 months or so I have gone to the 3-4 month area for exactly the above reason. Since I typically write 1-3 contracts at a time, I need a larger premium in absolute dollar terms for CC's to make sense and often cannot get that with nearer term OTM calls. The one big advantage to this is that I have had ample opportunity to buy the calls back at very good prices without worrying too much if the stock spends some time above the strike price. ARS Edit: regarding SEBL, bought 100 shares 6/14 for $3902, sold .SGWGI (july 45) 6/21 for $406, bought back 6/25 for $253, sold again today 6/27 for $406. All net of commisions. Also bought my favorite .VLMAT (QCOM 03 100) on 6/15 for $635. It's been a while since I bought first, but this one has been good to me 7 times in the last year. I am beginning to really like this game.

To: Dan Duchardt who wrote (1229)	6/27/2001 9:13:04 PM
From: JohnM	Read Replies (2) \| Respond to of 5205

Dan, Here we go. I would suggest you start with 3 to 4 month out calls while you are trying to get comfortable. Alternatively, restrict yourself to low volatility stocks, which unfortunately offer very little time premium. Interesting advice. Never heard that argument before but it makes sense. I'm going to think it over, perhaps write one set of calls this way just to see what it's like compared to short term calls. I should perhaps, make clearer than I might have, that almost all of my covered call writing is and will be on shares we already hold. Some small portion will be buy/write but that money is largely for learning. I hope to get sufficiently comfortable with this to produce a reasonable income flow until stock prices start a longer term move back up. So I'm less worried about downside risk (since we plan to hold the shares) than I am about upside (losing the gain--I have some fear that we've ridden the stock prices down only to lose some of the gain back up because I'm into cc writing). At the moment, many of the QCOM options are undervalued based on the historical volatility. Fascinating. How did you arrive at that conclusion? To be a bit more precise, where did you find data to conclude that? And how did you calculate it? The last section of your post, the one in which you expand on your notion of the virtues of holding half a position just intrigues the hell out of me. I've just read it twice and can't crack it yet. Unfortunately, I made the mistake of thinking I would be sharper in the evening than in the morning. However, went to dinner at a marvelous fish place on the Hudson River, looking up at the Manhattan skyline. Ate much too much, and am too full, a bit lightheaded from a bit too much beer. And not going to be able to get any more concentration out of my cranium this evening. At least not this heavy. I'll take another shot tomorrow. And I will. It looks like exactly the kind of stuff I want to understand and understand cold. John