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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 (1844)	8/9/2001 6:43:20 AM
From: alanrs	Respond to of 5205

Dan And that brings me back to the original question. Why would I sell a call that will make me $1 if I think the stock is going to drop $5 in a week or two? It's hard to post all the ins and outs of what might be going on. Yesterday I posted a summary of activity, but the various buy backs were in various accounts and parts of different positions. 4 CREE and 3 TQNT were the top end of call ratio spreads I had established. I have put 3 in place (LSI also) at various expirations (CREE Dec 01,TQNT Feb 02, and LSI Jan 03), all cash flow positive. As soon as I bought them I placed a GTC order to sell them back at the original sales price. If that doesn't happen, the remaining positions still look ok. The remaining calls I repurchased were on shares I had bought specifically to write against. I entered orders to sell 1 QCOM Oct. 65 for $7.40 and 1 SEBL Nov. 32.50 for $5.20 this morning, in effect trying to get more time and money in these two I bought back yesterday. The other 2 CREE I haven't done anything with yet. If the market were to continue down, I would consider buying more calls back, since I didn't repurchase everything I had out yesterday. I'll have to look at it tonight, since it's a work day today and I can't monitor the market. Don't know if any or all of this is smart. Don't know if any of the limit orders will fill. Just my attempt to profit from market fluctuations. Would like to explore some real life diagonal spreads and situations where implied and historical volatility get out of alignment, when I next get the time. Until this market shows some trend, I am going to continue to write calls after a 3-4 day run up and buy them back after 3-4 day declines. This did produce 50%+ profits ON THE OPTIONS in very few days, although it's true the underlying took a beating. ARS

To: Dan Duchardt who wrote (1844)	8/9/2001 5:11:19 PM
From: BDR	Respond to of 5205

<<Several people bought back calls today and made nice profits on their options trades. My congratulations and sincere best wishes to all of them. For many there is an assumption that they sold near top of range last time, and bought near the bottom, or at least here the call price is so low it's not worth the risk of holding for more, and will do it again next time, i.e., it can't get much worse than today so it's time to leave the underlying naked for the next run up. I'm no doom sayer, and I'm not making any predictions, but I can find a lot of savvy folks who think this break today is serious, and the bottom of range this time around is still a long way off. If they are right, or even if there is a reasonable probability of them being right, then the best thing these folks could do now is to think like a buy/writer and protect the downside. >> I was one of those buying back yesterday (SEBL and CIEN) and, after thinking about my position overnight and reading your thoughts, I decided to write calls again today on those two positions rather than waiting for a better time. I had not meant to imply that I was capable of picking tops and bottoms but I thought that perhaps I could sell again at better price. In the light of a new day I decided instead to sell calls and make the best of it, though I did not follow your recommendation to sell further out. Sold SEBL Sept. 30 Calls at 3.80 and CIEN Sept. 30 Calls at 4.40. My short Puts on SEBL were not done with any illusion about my ability to time the stock movements. I have been looking to add more SEBL and missed the sale last Spring. SEBL Nov 30 Puts at 4.90 mean I may get a chance to buy it at 25.10 sometime between now and Thanksgiving which suits me. Or I may be able to make up to 4.90 a share. I sold enough Puts so that if exercised I will have as much in each account as I have targeted. Meanwhile I will continue to write Calls on the shares I already own.

To: Dan Duchardt who wrote (1844)	8/9/2001 5:12:08 PM
From: Road Walker	Respond to of 5205

Dan, re: If you as a buy/writer would not act until you think that a stock is near the bottom of its range, then what argument can be made for holding a stock while it is falling and writing a call only when you think the stock is at the top of its range? I understand that there is a contradiction there, but I think I can explain it. I have different strategies for long and short term. On my core stock holdings, I made the decision around last September that I would sell calls against parts of my stock positions. I felt there was a larger probability that the market was going down than up. I'm no market timer, and even now I have a strong tendency towards buying and holding positions in good companies. But I looked at the call selling as a strategy to keep most of my positions intact, and at least partially offset losses if I was right about the market. That worked out OK, but I would have been better off in cash. If the market had stayed flat, the strategy would have been great. If the market had gone up, it would have been OK, but not as good as uncovered and fully invested. In essence, it was a more conservative strategy than just owning equities at a time that I perceived to be dicey for the markets. The reason for attempting to sell calls at the top in a range was to try not to get called out, with the tax consequence, and to maximize the percentage of the stock price received on each turn. My buy/write activity I see as totally separate, my left brain trading. It's a calculated risk/reward, short term trade. I also use the buy/write strategy mostly in IRA accounts where taxes are not an issue. re: As a call writer, this breakeven point is a target for taking action. At breakeven, you make a judgement about the future of the stock and decide to do nothing and risk losing it, or accept a small loss on the option you wrote and roll to another one at a higher strike or farther out in time. If you let the stock go much above breakeven, the roll up/out alternatives become far less attractive. I agree. Whenever I write covered calls, I realize I am taking a calculated risk, and when I've been wrong I have always allowed the stock to be called away. John