Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: surfbaron who wrote (1572)	7/21/2001 9:44:24 AM
From: Andrew N. Cothran	Read Replies (5) \| Respond to of 5205

I'll probably join you on your strategy. But I hope to see QCOM firm up in the 70's so that the August or September 70 call can be safely sold. If not, then I'll continue to play around with the 65's. It seems to me, all things being equal which they never are, to be an invariable rule that the 'powers that be' will exert every effort at their disposal (and they are many) to move a stock on expiration Friday just below that strike price which contains the largest number of open contracts. The 'powers that be' (mutual funds, hedge funds, market makers, insurance companies, other large holders possessing big buckets of cash) are usually the ones who sell the covered calls in order to maximize their gains. Since they do not want to give up the stock, they then 'manage' the stock price near expiration so that the largest number of 'open interest' contracts will expire worthless. So, as expiration day looms, I look for the largest number of open interest contracts and the relationship of those contracts to the price of the stock. If I see unusual action in the stock a day or two before expiration, I conclude that the 'powers that be' are arranging a 'final sale' to an unsuspecting public. Once the sale has sucked in the laggard would-be longs, the 'powers that be' say thank you very much and then proceed to bring the stock back down near to or just under the strike price in order to make the option worthless, thereby permitting them to pocket the latest little windfall change that they have manipulated. It was this principle that caused me to play the QCOM July 65 contract the way I played it. I was convinced that the big boys would bring the price of the stock close to and then below 65 once they spiked it up on Thursday's opening. I put my theory to the test. If you can't lick 'em then you join them. So I sold 40 July 65 contracts (the contract with the largest open interest and nearest to the stock price) once it appeared to me that the spike pricing was nearing its end. This was a covered sale since I owned the stock. Then I just sat and waited. I almost bought the 40 contracts back on Thursday's close at 1.40. But I concluded that this would be a cop-out if my theory held. So I stuck with the trade. You know what happened Friday. And so I am about $9600 better off in my cash account than I would have been had I not abandoned prudence and joined the corporate elephants in feeding the raging bulls. Speaking of Elephants, as an Ole Miss Rebel, surely you are familiar with the Red Elephants as in Roll Tide Roll. I was born in Mississippi but grew up in lower Alabama and have always been a rabid Tide fan.